Market abuse and Organised Crime: The FCA becomes AC-12... "Fella"

FCA: Market abuse and Organised Crime: "There's only one thing I'm interested in… and that's bent [traders]"

We have the Consumer Duty.

And now FCA's latest Market Watch has us thinking about the Line of Duty…

The latest edition of Market Watch (published with a Valentine's kiss), focuses on Organised Crime Groups (OCGs).

Background: "We do our duty to the letter of the law - the letter"

Under the Serious Crime Act 2015, an OCG is a group that: has as its purpose, or as one of its purposes, the carrying on of criminal activities, and consists of three or more persons acting, or agreeing to act, together to further that purpose. Section 45 of the Serious Crime Act makes it an offence for a person to participate in the criminal activities of an OCG – participation includes taking part in any activities that the person knows or reasonably suspects are the criminal activities of an OCG, or will help an OCG to carry on criminal activities (and a person doesn't need to know any of the persons who are members of the OCG to commit the offence).

Insider dealing is a criminal offence under Part V Section 52 of the Criminal Justice Act 1993.

The FCA notes that suspicious trading by members of OCGs in products whose underlying securities are UK and internationally listed equities, make up a significant portion of the overall volume of suspicious trading in equity markets. It also announced criminal investigations (following dawn raids) on the same day as the Market Watch was published.

Although Market Watch is silent on the offence under the Serious Crime Act, the FCA may be considering the extent to which it could apply to firms who facilitate insider dealing by OCGs and/or fail to prevent it (despite having knowledge or a reasonable suspicion).

Executing brokers (how to spot it): "None of my people would plant evidence, they know I’d throw the book at them, followed by the book shelf"

Examples of OCG activity cited by the FCA include the following:

• a pattern of trading before M&A announcements, and before press speculation about M&A;
• pro-active recruitment of sources of inside information;
• the use of intermediaries who broker inside information
• using umbrella accounts at overseas broking firms, which do not display equivalent standards of safeguards to UK firms (these can be used to hide the identities of account holders);
• the use of facilitators, including employees of authorised firms, to open accounts with such overseas firms; and
• benefitting from price movements by feeding stories about M&A, both true and false, to major financial media outlets.

Advisory firms: “For years, the security in this department has been watertight… then you come along, suddenly we’re leaking like a colander”

For advisory firms, the FCA suggests:

• advising staff working in M&A advisory, whose names don’t regularly appear in regulatory announcements, of the risks of including references to having access to inside information in their social media profiles [note: this is FCA's wording and we admit not terribly clear]; and
• consider confining references to staff participating in M&A advisory to the principal senior contact for the firm's social media profiles.

The clear note is that OCGs are more likely to target junior members of staff to get information.

FCA's advice to brokers: "I think you should sit down, fella. Or I’ll handcuff you to that desk"

FCA's approach suggest that they expect far more active communications from firms as to expected standards together with a near zero tolerance regarding offboarding when there is suspicion. This is perhaps a ground shift moment. FCA recommends firms (brokers):

• affirm the firm's zero-tolerance approach to market abuse to clients and terminate accounts based on very low thresholds of suspicion; and
• request all overseas broking firms that are clients to submit documentary evidence of adequate surveillance arrangements and a zero-tolerance approach to market abuse.

This is a short Market Watch. But it is loaded. Firms need to do a gap analysis – and we expect there will be some gaps to consider.

"Now we're sucking diesel"...