What are the key market abuse risks for firms using remote working?
A white paper issued in February 2021 by the specialist market abuse adviser Trading Hub, which monitors the risk of abuse for around a quarter of assets globally, has reported that the rate of red flags at buy side institutions had accelerated sharply at the start of the crisis and was yet to drop to “normal” levels and that the risk of market abuse at asset managers was up 40 per cent at the end of 2020 when compared to pre-pandemic levels. This seems to demonstrate that institutions may have struggled to control remote working effectively.
What has happened?
The report shows that before the coronavirus crisis, just over 4 per cent of transactions were setting off alerts. This rose to nearly 9 per cent when workforces were first sent to work from home, and at the end of 2020, the figure was still 40 per cent higher compared to at the beginning of the year, with close to 6 per cent of transactions raising red flags.
The report explains that the challenging circumstances of 2020 had made it even more difficult for institutions to detect and differentiate market abuse. Control and compliance functions were now “partially blind” to much of the staff’s activity, and it was commonly asserted that staff propensity to break the law was correlated more with the chance of discovery than with the penalty if caught.
Institutions on the sell side had seemingly managed to mitigate some of the impacts of lockdown more robustly, as while the figure rose from just over 1 per cent of transactions raising red flags to more than 6 per cent when the pandemic struck, it had declined to just below 2 per cent of transactions by the end of 2020.
In this connection, in October 2020, Julia Hoggett, the FCA’s Director of Oversight, had publicly commented that;
Our expectation is that going forward, office and working from home arrangements should be equivalent – this is not a market for information that we wish to see be arbitraged. We expect firms to have updated their policies, refreshed their training and put in place rigorous oversight reflecting the new environment – particularly regarding the risk of use of privately owned devices. These policies should be demonstrable to us and to your audit teams. It should go without saying that policies should prevent the use of privately owned devices for relevant activities where recording is not possible. New communication mechanisms, before they are used, should have controls in place where required and their use be approved by firm management
How can we help you?
If you’d like to know more about how we can help you with your market abuse monitoring arrangements, or any other aspect of FCA compliance, our expert team is here to help.
Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.