Market Abuse
Tackling market abuse is one of the Financial Service Authority’s (FSA) top priorities. There has been significant FSA activity in recent months with several high profile prosecutions. This level of activity is expected to continue and other regulators across the globe are likely to follow suit.
Understanding market abuse
The FSA’s ‘Code of Market Conduct’ sets out what is and what is not, acceptable; it applies to a number of investments, including newer products such as spread betting. The FSA has the power to impose unlimited fines on anyone engaging in market abuse, which can include:
- Misuse of information – e.g. insider trading;
- Manipulating transactions – e.g. wash trades, abusive squeezes;
- Creating a false or misleading impression – e.g. mis-marking asset values; and
- Distorting the market – e.g. taking short positions to interfere with normal supply and demand.
Considerations for preventing market abuse
All financial services firms are responsible for ensuring that their employees are vigilant in preventing market abuse. In doing so, firms should look to determine:
- That staff have been adequately trained and understand what constitutes market abuse;
- That market abuse controls stand up to increased scrutiny from the regulator. In particular, whether:
- Conflicts of interest controls pass a thematic regulatory review;
- Confidential and price-sensitive information remain secure;
- Risk-based compliance monitoring programmes are frequently reviewed; and
- Whether current management information effectively alerts senior management to potential problems.
- Whether recent market troubles have increased the occurrence, opportunity or discovery of market abuse; and
- Whether the compliance department is adequately staffed to ensure resource is not diverted away from monitoring or tackling market abuse.
How we can help
At Deloitte, we have developed a Market Abuse Healthcheck for financial institutions which provides an independent assessment of the effectiveness of market abuse controls. Our health check enables firms to assess whether their controls are relevant, sufficient and meet current regulatory requirements and industry guidelines.
We also advise regulators; for example, we recently worked with a Caribbean regulator to investigate market abuse, and proved allegations regarding market manipulation involving the US exchanges.
For further information, please contact Mark Tantam, or please call 020 7936 3000.
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