Regulation 

Fined firm accepts failings uncovered by FCA

Fined firm accepts failings uncovered by FCA

The wealth and discretionary fund manager fined by the Financial Conduct Authority yesterday (27 September) has accepted it did not do enough to make sure market abuse could be detected and reported.

The FCA fined Linear Investments, which is also a prime broker and hedge fund incubator, £409,300, but the company has disputed the regulator's fine and plans to challenge the decision in the courts.

Nevertheless, in a statement issued in response to the fine this morning (28 September), Linear Investments admitted some of the failings.

The company stated: "Following a two-year collaboration with the regulator the FCA concluded that whilst no instances of market abuse had either gone undetected or occurred the manual oversight system Linear had operated was insufficient for the volume of trading.

"Notwithstanding the fact that Linear had by this stage implemented their own fully automated market surveillance system the firm accepted that for a material period prior to this they had not fully discharged their oversight responsibilities."

Linear said it had seen "substantial" growth within the execution services side of the business which was then executed and cleared through a partnership with a large direct market access provider.

This provider carried out its own market surveillance monitoring to compliment Linear’s manual oversight process to ensure any anomalous trading activity would be captured.

Early in 2014 the provider indicated to Linear it could no longer rely on its automated oversight system and as a result Linear began the process of implementing its own organic solution. Shortly after this Linear was contacted by the FCA and asked to provide an explanation of the market oversight system.

During an investigation, the FCA found that before August 2015 Linear Investments had had limited manual oversight of trading conducted through its DMA provider.

The FCA said firms are required to identify where there are reasonable grounds to suspect market abuse has occurred and submit reports to it.

Linear agreed to the facts and liability, but has contested the level of the fine.

Nick Bayley, managing director of Duff & Phelps’ compliance & regulatory consulting practice, said: "What’s clear is that the regulator is sending a message – all firms need to have appropriate surveillance in place, regardless of whether or not they directly participate in the markets, or do so via a broker.

"The Linear case is particularly instructive, as there is no hard evidence of potentially abusive trades, merely the possibility that they could have happened.

"The FCA’s view here is decisive – inadequate controls will not be tolerated, irrespective of whether they lead to market abuse. What’s more, the onus is on each individual firm to take responsibility of their own systems, and not rely on the checks put in place by a proxy."

damian.fantato@ft.com

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