FCA Business Plan 2019-20: a reflection of recent enforcement action
On 27 March, the Financial Conduct Authority (FCA) published a Consultation Paper in which it announced its plan to amend the Financial Crime Guide (“the Guide”).
The Guide is a consolidation of the FCA’s guidance on financial crime for firms which are subject to the financial crime rules in SYSC 6.1.1R. It is designed to enable firms to better understand the FCA’s expectations of systems and controls and to help them develop a more effective approach to reducing the risk of financial crime.
The FCA expects firms to consider the guidelines and use them in relation to their financial crime systems and controls.
The FCA is proposing to add an additional chapter to the Guide which will cover insider dealing and market manipulation. The Guide does not currently provide firms with any guidance on countering the risk of these specific offences occurring.
Insider dealing and market manipulation both fall under the definition of financial crime set out in the Financial Services and Markets Act 2000 (FSMA). It is defined as any offence involving fraud or dishonesty, misconduct in a financial market, or handling the proceeds of crime. Insider dealing is an offence under section 52 of the Criminal Justice Act 1993 and market manipulation covers a range of behaviours and activities which amount to criminal offences as set out in sections 89-91 of the Financial Services Act 2012.
The Market Abuse Regulation (MAR) which came into force on 3 July 2016 sets out the civil offences of market abuse. Article 16 of MAR contains provisions to prevent and detect insider dealing and market manipulation.
The proposed new chapter will set out four themes: governance; risk assessment; policies and procedures; and ongoing monitoring. Each section will contain the FCA’s expectations, self-assessment questions for firms and examples of good and bad practice.
The FCA expects senior managers to take responsibility for the steps taken by a firm to counter insider dealing and market manipulation. This includes understanding the risks to which the firm is exposed and establishing adequate procedures to counter the risks.
The FCA says senior management should also be aware of and manage any conflict of interest that arises between generating revenue and countering the risk of financial crime.
The FCA expects firms to regularly assess and review the risk of being used to facilitate insider dealing or market manipulation. Firms should also consider how they mitigate any financial crime risks they have identified.
A firm’s policies and procedures are expected to include steps that can be taken to counter the risk of insider dealing and market manipulation. These should cover identifying and preventing financial crime and mitigating future risks. Front office employees should be aware of the firm’s obligation to counter the risk of financial crime so firms are expected to make policies and procedures clear.
As the markets and instruments to which the offences of insider dealing and market manipulation apply are different to those covered by MAR, firms should assess whether their procedure for detecting and reporting market abuse can also be used to monitor for insider dealing and market manipulation.
The FCA expects firms to regularly consider whether their clients may be conducting insider dealing or market manipulation. If a firm is suspicious that a client may have committed either of these offences, the firm should comply with the obligation to report those suspicions as well as consider its future relationship with the client.
These sections provide firms with guidance on complying with the requirement to detect and report financial crime in MAR 16(2) and the requirement to counter the risk of financial crime set out in SYSC 6.1.1R.
The FCA and its predecessor, the Financial Services Authority, have prosecuted individuals for insider dealing and market manipulation for almost 20 years, but criminal prosecutions tend to be pursued against individuals rather than corporates. Actions against corporates are more likely to result in regulatory findings, regarding for example poor financial crime systems and controls, leading to the imposition of financial penalties.
The fact that the FCA is now bringing insider dealing and market manipulation directly into the line of sight of companies and institutions raises the question of whether we will now finally start to see firms facing criminal investigation and prosecution for these offences.
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