The Financial Conduct Authority (FCA) recently conducted a peer review of firms offering Contracts for Difference (CFDs) and spread bets to enhance market abuse surveillance arrangements and uplift standards. The review gathered data from 9 carefully selected firms and yielded positive results, with all firms having effective surveillance to detect insider dealing. However, there were weaknesses observed in considering market abuse risks in non-equity asset classes and market manipulation. The FCA’s Market Watch 73 report highlights areas that require improvement despite the positive findings.
One of the key takeaways from the report is that firms must have a comprehensive understanding of all relevant market abuse risks to effectively detect and report suspicious orders and transactions. A general assessment of market abuse policies and procedures is not enough. The FCA stresses the importance of considering all asset classes and execution methods to identify applicable risks. The risk of manipulation can vary within and between asset classes, which is why firms that consider their entire business are more effective at detecting market abuse.
The FCA also highlights the need for effective surveillance systems for all asset classes, including non-equities, to address manipulation risks. Firms with short lookback periods may miss suspicious trading, and those reviewing all trading activity prior to an event are more effective. Market manipulation surveillance and surveillance in non-equity asset classes should also be considered.
Another important aspect the report covers is the need for a balance when sharing surveillance matters with front office staff. While STOR submissions should only be shared on a need-to-know basis, Compliance should challenge and educate front office staff when necessary. Front office staff should refuse to accept orders if they suspect market abuse and relevant policies should be clear and enforced. The decision to restrict or exit clients typically rests with Compliance or an independent committee, but firms should have a formalised structure with appropriate flexibility to take consistent, appropriate, and prompt action.
In conclusion, the FCA’s Market Watch 73 report highlights the need for CFD providers to improve their market abuse surveillance arrangements and raise standards. Firms must have a comprehensive understanding of all relevant market abuse risks, effective surveillance systems for all asset classes, and a balanced approach when sharing surveillance matters with front office staff. By taking these steps, firms can mitigate the risk of market abuse-related financial crime and promote consistency in a rapidly changing industry.
How can MAP FinTech assist
MAP FinTech’s Trade Surveillance solution is a comprehensive post-transaction analysis solution that helps firms detect suspicious trading activity such as market manipulation and insider dealing in various financial markets.
The solution is designed to help you comply with regulatory requirements such as MiFID, MiFIR/MiFID II, MAD/MAR, ESMA Guidelines in Europe, and Dodd Frank, Volcker Rule, and MAD in North America.
With our exceptional features, you have complete control over the alerts you receive. Here are some of our main features:
- Exception-Based Testing: Set your own benchmarks and parameters. Any transaction that doesn’t meet your criteria will generate an alert that you can examine.
- Customisable Parameters: Customise settings and test parameters to give you complete control over the alerts you receive.
- Global Multi-Venue Analysis: Review market data that is collected from over 250 global sources by our partner Refinitiv.
- Large Volume Data Handling: Process extremely large volumes of data (millions of trades) on a daily basis.
- Immediate Access to Data: Compile reports at any time and for any date range, allowing you access to all of your data at the click of a button.
- Workflow Management: Gain full control when generating audit trails, running management reports, and setting up a custom workflow.
- Visual and Statistical Data: Generate customisable charts and graphs to visually represent your data or export tables as PDFs or Excel files.
- Regulatory Updates and Changes: The service amends itself to reflect any regulatory updates and/or changes throughout the duration of the engagement.
In addition to these features, we also offer news feeds, market data, production and test systems, upgrades and enhancements, additional alerts and functionality, hosting, one source feed, support and training, reporting module, and data archive.
Contact our team to learn more about how our Trade Surveillance service can benefit your firm.