Top financial services enforcement trends: market abuse
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The number of open market abuse investigations at the UK Financial Conduct Authority (FCA) has been steadily decreasing since 2018/19. During this period, the number of open market abuse investigations has fallen by approximately 40% to its lowest level since 2015/16.
Modest but diverse enforcement action
Despite this decrease, market abuse is the third most common topic for FCA enforcement investigations, occupying approximately 14% of its enforcement portfolio. However, compared with the high number of open FCA investigations relating to market abuse, the number of enforcement actions announced remains quite low.
In the last two years, the FCA has taken enforcement action for market abuse in four cases, covering a wide ambit of potential offenses. These cases included spoofing cases involving market manipulation against a bank trader and a portfolio manager; a listed issuer giving a false and misleading impression of its debt and asset positions; and a former chief executive of a (different) listed issuer for market manipulation.
During the same period, the FCA also announced charges against four individuals for criminal insider trading in two separate cases, had two insider trading convictions upheld by the Court of Appeal and secured confiscation orders totalling almost £5.5 million in relation to a previous insider trading prosecution.
A healthy pipeline
Towards the end of 2021, the FCA published a flurry of warning notice statements stating its intention to take enforcement action against several individuals for market abuse (market manipulation and unlawful disclosure of inside information) indicating that it has a healthy pipeline of cases in this area. The trend has continued into the new year, with a further warning notice statement issued in February.
This proposed enforcement action is being challenged by the individuals involved, so it is uncertain when more information will be made public about these cases.
How firms effectively supervise their employees who are working remotely is likely to be a theme across a number of areas, but especially so when it comes to market abuse. We anticipate that in the coming years we will see market abuse enforcement investigations where questions are raised by the FCA about whether the individual would have engaged in the market abuse alleged if they had been working in the office or if they had been adequately overseen and supervised when working remotely.
Spotlight on personal account dealing
Personal account dealing is an area in which we already see significant scrutiny from the FCA and we anticipate that this will only increase.
The FCA claims to have observed significantly higher levels of personal account dealing since the onset of the COVID-19 pandemic. We predict that this trend will lead not only to probes about potentially suspicious personal account dealing conducted by individuals, but also trigger further scrutiny of firms’ personal account dealing controls, as well as how firms monitor and take action in relation to any failure by employees to adhere to these controls.
The FCA saw a 14% increase in the number of suspicious activity and order reports (STORs) that it received during 2021 in comparison to the number of STORs that it received in 2020. A drop in STORs received by the FCA during 2020 was foreshadowed by the FCA’s Director of Market Oversight in 2020, who reported that the FCA had seen lower numbers of STORs filed in the early stages of the pandemic. The number of STORs filed appears to have bounced back during 2021 but still does not come close to the number of STORs that were filed with the FCA in 2017-19.
This post is based on an article “FCA and PRA Enforcement Action: Trends and Predictions” which first appeared in the January edition of PLC Magazine and a copy of the full article is available here and on the PLC Magazine website.