FSA takes tougher stance on market abuse

Market Watch 26 reiterates the supervisor’s stern approach to market abuse enforcement

LONDON – The UK Financial Services Authority has again reiterated its intention to beef up enforcement of market abuse rules to maintain clean financial markets in London.

“Clean markets are vital to the continuing success of London as an international financial centre,” said Sally Dewar, managing director of wholesale and institutional markets at the FSA, in the introduction to the newsletter. “Market misconduct, particularly in the form of insider dealing and market manipulation is, put simply, cheating and reduces investor confidence in the UK markets. Our aim is to have a regime that achieves 'credible deterrence' and ensures a level of market quality we can all be proud of.”

Part of this “credible deterrence” involves visits to firms by the FSA’s market conduct teams to assess systems and controls. The FSA will subsequently publish details of any weakness in its Market Watch newsletters. These visits, introduced in response to the market rumours that circulated about HBOS in March 2008, are intended to supplement existing firm-specific risk assessment visits.

Dewar also reiterates that senior management must take responsibility to identify risks, conflicts of interests and develop appropriate systems and controls. If senior management can demonstrate it has taken all necessary steps to protect against market abuse, the FSA will only prosecute the individual concerned, not the firm. However, “where we believe firms’ systems and controls are not meeting our standards, we will consider enforcement action – even if those firms themselves have not necessarily committed market abuse”, Dewar said.

Also following the false market rumours in March, the FSA is working to deepen its understanding of the policies financial institutions have in place to guard against malicious or false rumours, to consider whether further guidance is needed.

The newsletter also details work undertaken to prevent insider dealing, in particular the mergers and acquisitions project commenced in 2007, advances in detection techniques and obtaining market intelligence, and tools available to the FSA when investigating market abuse.