Market Watch 77: FCA calls out organised crime groups as a risk to market integrity

It has long been known that insider dealing is typically performed by different types of market participants, from individual opportunists through to organised criminal groups (OCGs).  In the FCA’s Market Watch 77 there is a heavy focus on the risks to market integrity and firms posed by the latter. 

Helpfully, the UK regulator outlines the characteristics and signs for firms to look out for to prevent and detect such criminal activity, including:

• the appeal to OCGs of using equity spread bets and CFDs to optimise profits
• trading ahead of legitimate merger and acquisition (M&A) announcements and speculation about M&A
• the use of umbrella accounts to help mask the identity of the beneficial owners
• feeding true and false stories about M&A to the market (the latter being a form of market manipulation)
• the view that this activity can represent the tentacles of and a link to serious crime

The FCA adds that suspicions should be aroused if specific clients are frequently the subject of Suspicious Transaction and Order Reports (STORs) or if several clients trade in the same security for the first time at favourable times.

To help guard against OCGs the FCA provides a number of suggestions, including:

• communicating to all clients that they have a zero-tolerance approach to market abuse
• submitting STORs where appropriate, even if no public confirmation of the M&A activity is made
• Training staff who work in M&A advisory of the risks posed by OCGs and avoid referencing the names of staff engaged in M&A advisory on the firm’s own website

Market Watch 77 highlights the significant risks posed by OCGs to investment firms and market integrity more broadly. Where investment firms do not have effective controls in place, the FCA reminds firms that they have the option to use their enforcement powers, including requesting a FSMA s.166 report through to the variation of permissions.  

This Market Watch re-iterates the importance of monitoring trading, communications and news together. The Kaizen surveillance platform comprises both trade and communications surveillance functionalities and is integrated with news stories from thousands of sources, sub-categorised into hundreds of market-impactful areas such as M&A, to optimise a firm’s monitoring effectiveness.

In addition, our rules engine allows for blended alerts to be set up, for example, when high profit trades are made around significant news events (whether fake or real), making it much easier to focus on this kind of OCG activity that the FCA is keen to clamp down on.

• Please get in touch to see how we can help your firm improve its monitoring controls and achieve peace of mind with regards to detecting any suspicious activity relating to OCGs.