Financial Conduct Authority  

FCA reveals data leak fears

FCA reveals data leak fears

Market abuse remains a key concern for the Financial Conduct Authority, director of market oversight Julia Hoggett has said.

In a speech at The Association for Financial Markets in Europe (AFME), Ms Hoggett said the leakage of inside information and the conduct of staff members were a focus of the regulator.

As part of the speech, Ms Hoggett said the FCA had concerns about the risks posed by senior management and staff members who have the most access to information within a business.

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She said: "These are the people who are much more likely to meet with senior investors and the people much more likely to be allowed to speak with journalists."

The speech identified part of the five conduct question programme, originally designed for wholesale banks, that the FCA has been rolling out to large asset managers and trading firms.

The regulator emphasised the importance of "ensuring that individuals within institutions understand their responsibilities to conduct business in an appropriate fashion", as well as having processes in place to identify potential conduct risks.

She said: "Some risks appear blindingly obvious once they manifest, but do not occur to people beforehand.

"That is why developing the effective 'conduct risk identification muscles', is critical to protecting your businesses and ensuring our markets remain clean.

"It could be argued that the lack of focus on information leakage outside an institution's walls tends to come from an instinct that the greatest risk comes from people not following the rules correctly.

"The assumption is that staff are 'trying to do the right thing'.

"Wherever we have individuals in possession of highly valuable inside information, we should always be mindful that there is a risk of those individuals acting unlawfully with that information - for any number of reasons."

Nick Bayley, managing director at compliance and regulatory consulting practice Duff & Phelps, said: "[Ms]Hoggett flags the potential for leakage of inside information outside firms rather than within firms as an area that needs more focus. 

"Although, interestingly, she stops short of suggesting that firms should enhance the level of personal surveillance they conduct on their staff.

"Elsewhere, Ms Hoggett said the regulator was also concerned with the controls firms have in place across their investment banking and advisory platforms and suggested that this area is “not yet as evolved as it should be.

"Firms should avoid overly relying on the permissions process for insider lists and deal-teams. Essentially, move away from the assumption that if someone legitimately has access to information, they will always act legitimately with that information.

"Firms should ensure that they proactively review who is permissioned to access inside information and whether access is still required. This will go some way in helping firms mitigate some of the risks associated with inside information."

Mr Bayley said Ms Hoggett introduced the concept of 'front-to-back' management of inside information, suggesting that firms need a much more proactive and ongoing approach to assess who has access to inside information and why.