FSA ramps up market abuse enforcement

FSA ramps up market abuse enforcement

The FSA has outlined its plans to initiate a joint co-ordinated action with 11 European regulatory bodies as part of its wider crackdown on firms which engage in "market abuse".

The FSA has outlined its plans to initiate a joint co-ordinated action with 11 European regulatory bodies as part of its wider crackdown on firms which engage in “market abuse”.

After a series of presentations over the past month, the FSA has identified several areas for concern regarding the implementation of its suspicious transaction reporting (STR) regime, which obligates firms to inform the FSA of any activities or transactions which might constitute market abuse.

A speaker from the Authority has however claimed that there is a desperate need for the regulator to “continue an educational agenda” to further inform firms.

A letter sent out last December listed 11 European regulatory bodies who would, under the leadership of the European Securities and Markets Authority (ESMA), undertake “a joint co-ordinated action in order to help identify and prevent layering and spoofing form occurring on the European financial markets.”

The letter reminded firms of their obligations to install proper systems and controls which would identify and prevent layering and spoofing, as per the ESMA’s guidelines entitled “Systems and controls in an automated trading environment for trading platforms, investment firms and competent authorities”.

The document allowed the FSA to remind the institutions addressed of their continuing obligation to notify a competent authority of any reasonable suspicions of market abuse.

However, at a recent event in London, the regulator’s Head of Market Monitoring, Patrick Spens, revealed that many firms displayed a worrying lack of understanding when it came to their own responsibility for reporting such wrongdoing.

Spens took the opportunity to pass on many of the confused responses the FSA had received after sending the warning letter.

In one case, a life insurance provider replied: “For us, a suspicious transaction would be if someone took out a policy on someone else and then shot them dead. We’d certainly report that.”

In another case, a firm queried the STR initialism and postulated that it stood for “short trading rules”, before requesting further information.

A boutique investment bank claimed that “the scope or desire to manipulate prices” was mitigated because it worked with “regulated institutional fund management groups”.

In spite of this, Spens said that he felt the STR regime was working well despite the apparent need for increased education among financial firms.

He emphasised the fact that the obligations placed on firms were not only limited to equity products, adding that the vast majority of reports that the regulator receives are tired to “equity-linked products” and that he was keen to see the same level of attention paid to the bond and commodity markets.

The FSA department head also discussed the recent fine levied against the now-defunct Canadian investment platform Swift Trade – a move that was affirmed by the regulator’s Upper Tribunal last week – claiming that the case “highlighted the obligation on platforms, providers and firms themselves to ensure appropriate checks and balances are in place.”

The action taken against Swift Trade was one of 14 final notices issued in relation to market manipulation since 2010, of which 11 came in the past two years alone.

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