'Market abuse regulation still a priority for FCA'

Market abuse comes in the shape of insider dealing, unlawful disclosure of inside information and market manipulation.

Its essential aim is to distort the financial markets so that those involved in the abuse can make gains. So it is perhaps appropriate that, at present, care needs to be taken not to use statistics to distort the FCA’s efforts in this area.

Isolated statistics rarely paint the full picture.

The FCA has stated that its number of open enforcement investigations relating to the three aforementioned offences continues to decrease.

There has been a 35 per cent fall in such actions since 2018-19. With no outcomes announced in 2021-22 and only one in 2022, many observers may well conclude that the FCA has only a distant acquaintance with market abuse, rather than the up close and personal approach it should be taking.

But, as I mentioned, isolated statistics rarely paint the full picture.

To view the full FCA market abuse landscape, it is worth noting another statistic: that 19 per cent of FCA fines imposed on firms in 2022 related to weaknesses in market abuse surveillance. This is a notable rise on the figure for previous years. 

It is also worth highlighting the fact that last year saw three notable enforcements regarding market abuse systems and controls, one of which saw three of a company’s former directors being issued with decision notices. Two were then prohibited.

What should also not go unnoticed is the number of open FCA enforcement investigations relating to the making of misleading statements. These have risen by 154 per cent over the past six years as the FCA has amassed a series of successes in such cases.

It is arguably these statistics that give us the clearest picture of the FCA and market abuse.

This does not sound like an agency that is looking to put market abuse way down its list of priorities.

While market abuse accounts for around a third of FCA criminal investigations and dual-track investigations (where it has yet to be decided whether it should be a regulatory or criminal matter), the FCA conviction rate in this area is an underwhelming 40 per cent.

But while a two-in-five success rate is hardly cause for praise, it is based on a small number of cases. And the cases that are in the offing may well see the FCA boost its strike rate.

When it comes to looking to the future, the FCA’s “Our Strategy 2022 to 2025’’ document states clearly that tackling market abuse is a priority for the regulator.

In that document the FCA pledges to improve its ability to detect market abuse “through a significant upgrade in our market surveillance systems’’ and says it will keep pace with evolving market abuse techniques and take advantage of advancements in big data analytics so it can take decisive action, “pursue offenders and deter future wrongdoers’’. 

That does not sound like an agency that is looking to put market abuse way down its list of priorities. Especially when the FCA has market oversight teams that are entirely focused on market abuse.

Firms that face FCA scrutiny need to ensure their market abuse assessments are up to date and fit for purpose.

If there is one concern that could be raised, it is that the FCA is, to some degree, reliant on the information that firms provide.

The FCA itself had been concerned about the falling numbers of suspicious transaction and order reports (STORs) made during the pandemic, although those numbers do appear to be gradually retuning to pre-Covid levels. 

The current situation is, therefore, one in which the FCA has been warning firms about the need for appropriate market abuse surveillance controls and making it clear it is prepared to take enforcement action.

For firms that face FCA scrutiny, it should be clear that they need to ensure their market abuse assessments are up to date and fit for purpose and that they are filing STORS swiftly and accurately.

And that, perhaps, is a more important than any statistic.

Syed Rahman is a partner at Rahman Ravelli