Broker fined £1m as FCA says market abuse checks must be tailored

Bovill

The FCA has fined Interactive Brokers (UK) limited (IBUK) £1,049,412 for failing to implement appropriate Market Abuse monitoring controls despite having a post-trade monitoring system in place.

As well as the fine, IBUK will have additional compliance and operational costs in implementing better monitoring controls, to say nothing of the possible reputational damage.

IBUK had argued that the Market Abuse Regulation (MAR) allows firms to exercise discretion and to take a proportionate approach to implementing monitoring measures. IBUK did have a monitoring system in place, which in their view was appropriate, relying on a post-trade surveillance system created for its group and operated on a global basis.

So where did IBUK go wrong? At a high level, the FCA found that IBUK failed to “take adequate steps to satisfy itself that potential market abuse by its clients was effectively captured by the Post-trade surveillance reports ”and that these reports were “not tailored in any way for the specific business of IBUK”. The FCA notice highlights the following specific failings:

  • Inadequate policies and procedures
  • Inadequate input into the design and calibration of its systems
  • Failure to test the operation of those systems
  • Ineffective oversight of the review of post trade surveillance reports generated by the system
  • Inadequate training and guidance to those carrying out reviews.

The FCA notice gives some helpful pointers of what the FCA expects to see from larger brokers and platform operators, in particular:

  • a risk assessment identifying actual and potential market abuse risks
  • automated reports and alerts should be calibrated by reference to inputs derived from an analysis of data from the platform
  • the surveillance system should be tested on a continuous basis to ensure that it is robust and fit for purpose.

Not only is the notice a cautionary tale but also an indication of the FCA’s expectation from firms regarding Market Abuse related measures. The notice provides greater clarity on how firms should approach detection and prevention of market abuse.

How we can help

Bovill can create and develop effective, efficient models for detecting and preventing market abuse. We have worked with some of Europe’s leading platform providers and software developers to design, implement, operate and test robust surveillance systems. We can help you to:

  • Perform a full assessment of the market abuse risks in your business
  • Design effective market abuse policies, procedures and controls
  • Help you interpret and refine the outputs of your automated trade surveillance
  • Triage and investigate alerts generated by your surveillance software, and
  • Test the robustness of existing surveillance systems to provide assurance to senior management.

For some firms, performing your own market abuse monitoring is simply not a cost effective option. We also offer a full managed service outsourcing model for firms who need to get assurance that they are meeting their regulatory requirements under MAR, without the burden of establishing an in-house monitoring function.      

Menu