June 16, 2014

Can compliance teams deal with market abuse?

Earlier this year, it was reported that investment management firms were bracing themselves for a reinvigorated clampdown on insider dealing.

New figures revealed the level of fines, arrests and investigations around the world jumped significantly in 2013. Investigations by the Financial Conduct Authority alone led to 15 arrests on suspicion of insider dealing in 2013, up from four arrests in 2012.

The response from the industry has been a rush to hire more compliance staff (which has driven up salaries in this once unfashionable area of financial services) and the tracking of low-risk staff more closely. Some firms are alternating the teams that compliance staff supervise to ensure monitoring systems are more difficult to evade. But is this enough to tackle the growing problem of insider dealing?

The FCA has is now advocating the embedding of a compliance culture – not just in the Compliance department but across the whole firm. Market abuse is a cultural problem, requiring the HR and Compliance teams to work together. Types of conduct constituting market abuse are set out in section 118 of the Financial Services and Markets Act 2000 and in the Market Abuse Directive, yet how effective are these restraints being communicated to the front office? And what constitutes the limits of ‘acceptability’ for those who are being trained to spot or avoid market abuse?

The problem requires real-time monitoring of trades, but is this practical or even desirable? Throwing more Compliance staff at the issue certainly won’t make it go away. The effective deployment of automated training and competence (T&C) technology and process–based decisions will help free up the already overburdened Compliance team to work alongside HR and concentrate on the cultural change required to reduce market abuse.

By Andy King Blog Share:
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