On 14 November 2017, Julia Hoggett (Director of Market Oversight at the FCA) delivered a speech about compliance with the market abuse regime. Whilst the speech broadly set out the FCA's approach to surveillance and oversight, and what it expected of firms and listed institutions, we have picked out certain specific points likely to be of keen interest to those interested in enforcement and those where enforcement action may result:
- Methods of effective oversight of, and pursuit of compliance with, the market abuse regime should not stand still, either for regulators or those they regulate. The FCA's approach to the way it monitors the markets has changed considerably over the years and the FCA expects it will continue to do so.
- The structure of the FCA has changed considerably, allowing it to identify improper market behaviours. It sees the functioning of markets holistically, with Market Oversight having 3 broadly new and distinct departments: (1) Listing Transactions, (2) Primary Market Oversight and (3) Secondary Market Oversight.
- The FCA has been undertaking extensive technological work for many years in order to be able properly to receive and interrogate data from MiFID II/MiFIR. (Under MiFID II for example, transaction reports will increase from 20 million per day to 30-35 million per day.) The development of these sorts of tools will continue in order for the regulator to identify and pursue market abuse.
- The FCA now has a greater focus on the quality of disclosures of listed issuers. The FCA regards issuers as having an essential role to play in upholding the obligations of MAR. Where listed institutions have not met their obligations, whether under the listing rules or MAR, the FCA will seek to take action where appropriate.
- Recent FCA outcomes have tended to suggest that its focus has been to prevent equity insider dealing. However, in reality, all relevant markets are vulnerable to both insider dealing and manipulation, and the FCA is now even more focused on seeking out evidence of market manipulation across asset classes and combatting abuse wherever it finds it. The FCA has significantly bolstered its resources allocated to market manipulation.
- Relevant to this, the data gathered on suspicious transactions and orders (STORs) shows that the vast majority of STORs concern equity insider dealing. The FCA estimates that it represents well over 70% of all submissions received. While not determinative, it does suggest that the industry may not be adequately identifying potentially manipulative behaviour in equity markets, or monitoring and performing surveillance of all types of abuse in fixed income and commodity markets.
- Where institutions have had repeated concerns about the trading behaviour of a client such that they have raised multiple STORs, it is wholly legitimate of the FCA to ask whether the institution has properly considered its regulatory obligations to counter the risk of financial crime.
- Firms must have appropriate, and adaptable, systems and controls in place to ensure that they are compliant with regulatory demands. One example is the expectation that firms fully comply with the MAR requirement to have quote surveillance solutions in place. Given the time that has passed since MAR went live, the FCA expects firms now to be compliant with all the requirements under MAR.
- Not only will the FCA invest in the evolution of its technology, it will also not shy away from pursuing complex market abuse cases where they arise. As the FCA pointed out, ignorance of MAR, or the absence of intent to commit market abuse, are not a defence to breaches of MAR.