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FCA to Increase Surveillance Scrutiny Over Market Abuse Concerns

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In its latest Market Watch of May 2020, the UK’s Financial Conduct Authority (FCA) shines a spotlight on the challenges of monitoring against market abuse during the coronavirus pandemic – warning that it will continue to take enforcement action, and urging financial services firms to review and where necessary upgrade their systems and processes to protect against breaches. The regulator lays particular emphasis on the importance of effective surveillance systems, highlighting the risks exposed during this period of increased remote working.

In response to the crisis, many issuers are expected to seek additional capital, leading to an increase in primary market activity – which, coupled with alternative working arrangements, make it crucial that the right controls around market abuse, conduct, and managing conflicts of interest are in place. In particular, the FCA notes that it expects robust market surveillance and suspicious transaction and order reporting (STORs) by relevant market participants, in the context of changes in market conditions and the current use of alternative working arrangements.

“Market participants should continue to assess whether the procedures, systems, and controls they have put in place to comply with their obligations under MAR for identifying and handling information remain adequate to mitigate any new risks. This includes the impact of new working arrangements,” stresses the report.

Market participants moving to alternative sites or working from home arrangements may also create new challenges around how any existing systems and controls that they have put in place are now applied for handling inside information. These controls need to continue to effectively protect against the unlawful disclosure of inside information in working from home arrangements, in the same manner as in an office environment. The FCA suggests that firms should therefore review the availability or the application of controls for restricting access to inside information on secure IT systems, and how staff access to inside information can be remotely supervised.

Firms should assess the market abuse risks that may arise in their business including in the context of new working conditions, as well as reviewing the risk assessments they have put in place to ensure their surveillance systems remain “adequately and appropriately calibrated” to detect any new or heightened market abuse risks, especially as increased market volumes and volatility are creating a surge in the number of surveillance alerts across multiple markets.

Although the FCA acknowledges that firms are handling the challenge in different ways, it warns that it will be closely monitoring both primary and secondary market activity during this period, and may ask firms to provide further information on their activities in order to demonstrate how they are meeting their regulatory obligations.

“Where necessary, we will use our enforcement powers to take action against those breaching the rules,” it concludes.

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