Market Watch 68 – FCA renews focus on web-based trading platforms

25 November 2021 | UK & Europe | Articles

The latest FCA Market Watch sees the regulator return to the topic of web-based platforms for trade execution, looking at monitoring gaps in fixed income and rates markets. The regulator makes it clear that they see this as a growing area of risk and that they will not shy away from enforcement action.

In recent years web-based trading platforms have proliferated, particularly in the rates and fixed income world, with significant divergence in the levels of sophistication, execution mechanisms available, and links to existing order book and RFQ protocols.

While these platforms often cater well to client needs, the FCA has also identified a number of regulatory risks associated with their operation:

1. Recordkeeping – in some instances, web-based platforms sit outside the recordkeeping infrastructure used for core trading venue or broking activities, meaning that certain lifecycle events may not be captured in the same way. Of particular concern to the FCA is the inability of some platforms to record order data, with a knock-on impact for trade surveillance.
2. Market Abuse – gaps in recordkeeping associated with web-based platforms may undermine a firms ability to monitor for potential market abuse. In particular, where order data is not captured, certain market manipulation offences are unlikely to be detected.
3. Service governance – the FCA state that they have identified instances where web-based platforms have been introduced, without going through a new product or new service review process. As a result, new risks associated with the platform may not be identified and mitigated.

The FCA introduced this Market Watch by voicing its concern that the requirements for effective market abuse surveillance are still not being met, five years after the introduction of the Market Abuse Regulation. With a reminder that they have continued to visit firms and trading venues to assess market abuse surveillance, they make clear their intention to return to the topics of record keeping, market abuse surveillance and the use of market abuse risk assessments.

In closing, the regulator warns that broader industry failings associated with web-based platforms do not justify any firm’s individual failings, and that a perception of broader issues throughout the industry is not a defence. As such, operators of web-based platforms should act now, to ensure their compliance arrangements for web-based platforms are robust.

How Bovill can help

Bovill often provides regulatory and compliance advice on market abuse and execution model issues to trading platforms and brokers.

We can help you to:

• assess the risks associated with any web-based platforms which you operate
• update your market abuse risk assessment to assure that market abuse risks associated with web-based platforms are identified, articulated and appropriately mitigated
• perform healthchecks of compliance arrangements, across all execution protocols.