The recent FCA fine of an interdealer broker is another good example of how the regulator is repeatedly using transaction reporting data to investigate market abuse and financial crime.
In the final notice, released on 12 November, the FCA referenced that their investigation and conclusions in respect of the purported trading were based on a range of information including, in part, analysis of transaction reporting data received from six broking firms.
The interdealer broker was fined £642,400, of which £407,273 was disgorgement, for having:
- inadequate systems and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering; and
- not exercising due skill, care and diligence in applying its AML policies and procedures and in failing to properly assess, monitor and mitigate the risk of it being used to facilitate financial crime
The interdealer broker ignored or failed to notice a series of red flags in relation to a trade in a stock it executed on behalf of a broker client. The circumstances of the on-boarding and trading relating to that broker client ought to have prompted interdealer broker to consider the serious financial crime risks the trade posed, particularly given it was executed at nearly twice the prevailing market value of the stock.
By having an audit trail of trading activity reported under the MiFIR Transaction Reporting regime, the authorities were able to piece together trading patterns that highlighted a circular pattern of transactions that included extremely large-scale purported OTC equity trading, back-to-back securities lending arrangements and forward transactions.
The interdealer broker stated that it took a risk-based approach and deemed that it was not necessary to carry out any pre-trade or post-trade surveillance for a number of reasons, including that all transaction reporting was to be provided by regulated firms.
As well as emphasising the importance of the transaction reporting regime, this final notice reiterates the need for firms to have effective systems and controls to monitor their own trading and payment activity, regardless of whether MiFIR transaction reports have been submitted to the regulator.
To read the final notice visit the FCA website.
- For a completely independent assessment of the accuracy and completeness of your Transaction Reporting, please contact us.