The FCA has published its findings from its thematic review of how asset management firms control the risk of committing market abuse.
The review considered how firms control the risks of insider dealing, improper disclosure and market manipulation, with a primary focus on equities and insider dealing.
The review examined the key aspects of an effective framework to manage market abuse risk, specifically:
- managing the risk of receiving but not identifying inside information.
- Firms generally had effective policies to identify and control inside information in clear situations.
- Practices to avoid inside information or identify its receipt in unexpected circumstances were often informal or inconsistently applied;
- controlling access to inside information when it has been received.
- All firms had a policy to limit the sharing of inside information to those who needed to know it.
- The effectiveness of such policies was examined by only two firms;
- using pre-trade controls to reduce the risk of market manipulation and insider dealing.
- Most firms contained a segregated dealing function to conduct a review to flag potentially manipulative transactions prior to execution.
- All but two firms had a system to prevent trading restricted due to the possession of inside information;
- conducting post-trade surveillance to monitor and investigate potentially suspicious trades.
- Only two firms demonstrated post-trade surveillance that highlighted and properly investigated potentially suspicious trades.
- Common barriers to surveillance were lack of documentation and poor awareness of front-office activity;
- controlling personal account dealing.
- Each firm had a personal account dealing policy which included procedures to reduce the risk of market abuse, and training of staff.
- All but one firm conducted training on market abuse rules and recent cases.
The FCA will be writing to all the firms involved in the review to provide individual feedback. Firms that did not effectively manage the risk of market abuse will be expected to make improvements to their practices.
The report
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