Ensuring the effectiveness of market abuse controls in the COVID-19 era
16 October 2020
In the context of widespread remote working and increased capital raising events, it is vital that financial services firms have robust and dynamic market abuse procedures in place. The FCA continues to monitor closely primary and secondary market activity and has made clear that expectations with respect to the management of market misconduct are higher than ever.
In order to effectively respond to the new environment, firms should begin by revisiting their market abuse risk assessment in light of current arrangements. Firms should reassess their supervision and surveillance models to identify where they may require additional coverage. Key considerations in the context of remote working include:
- Handling of inside information - revisit these protocols to ensure that any staff privy to confidential material have been identified; have undertaken market abuse training, and have demonstrated an understanding of the rules. This may now include new or different IT and administrative staff who support remote working
- Ensure that existing systems and controls around inside information can be effectively applied to remote workers. Issuers and advisors should verify that accurate insider lists are being maintained
- Reviewing market surveillance arrangements and suspicious transaction and order reporting (STORs) parameters in the context of changing market conditions and alternative working arrangements
- Ensuring your firm’s Personal Account Dealing policies and procedures remain appropriate and effective
- Verify that any telephone recording obligations are being met by staff using different devices at home. Compliance teams should ensure procedures are being followed and perform targeted supervisory and compliance monitoring reviews
- Consider updating relevant training materials and ensure the appropriate population is required to undertake such training. Ensure staff have demonstrated an awareness of regulatory obligations particularly with respect to confidential information handling and PAD
- Testing the effectiveness of controls by reviewing the volume of incidents raised and issues brought to Compliance versus previous years.
In these unprecedented times a culture that minimises the risk of misconduct occurring is more important than ever before. However, firm culture is challenging to maintain in this environment. Feeling unobserved and removed from colleagues can result in a relaxation of standards of conduct. It is imperative that firms have robust and effective systems and controls in place to protect their staff, their reputation and the broader market. Boards should ensure that the firm continues to meet FCA requirements in this evolving landscape, while relevant SMFs should ensure that MI, controls and escalation channels in place remain responsive and appropriate.
BDO can support firms to remain compliant in a very new environment and help ensure market abuse risks are appropriately and dynamically managed. We are already working with firms on this topic both in our capacity as third line internal auditors and as second line advisers.
For more information, please contact Richard Barnwell or Claire Rafferty to discuss further and refer to our wider team below.