On 13 February 2019, the FCA published a speech by Julia Hogett (JH) (Director of Market Oversight at the FCA) on the implementation of the Market Abuse Regulation (MAR).
Highlights of the speech include the following:
- compliance with MAR requires a whole series of situational judgements to be made;
- a regulatory system that relies on controls that work by detecting when an event has happened, will never be as effective as a system that also helps ensure that misconduct does not happen in the first place. Whilst it is important that both regulators and participants have controls to detect suspicious behaviour, it is critical that consideration is given as to how the market from such is protected from behaviour occurring in the first place;
- firms need effective risk assessments and must consider for themselves the manner in which their systems and controls evolve as the risks within their businesses evolve;
- control of information leaving a firm is as important as control of information moving within a firm;
- firms need to take responsibility to ensure staff understand the consequences of unlawful behaviour and must be vigilant to ensure it is not happening within their walls. Greater awareness of the risks of market abuse is needed;
- access controls, surveillance capabilities and general mind set in investment banking and advisory platforms is not yet as evolved as it should be; and
- there is still more for the industry to do to improve its capacity to surveil for market manipulation.
To help frame the content of her speech, JH touches on the FCA’s 5 Conduct Questions approach. The approach serves as a conduct risk mitigation framework that is increasingly used across FCA Wholesale Supervision and which helps regulated firms enhance the manner in which they conduct business. The first three of the 5 Conduct Questions focus on the identification of conduct risk; ensuing that staff within regulated firms feel and are responsible for managing the conduct of their business; and the nature of the support (including systems and controls) that firms put in place to improve the conduct of their business. Question 4 of the Conduct Questions asks how the board gains oversight of the conduct of business within their organisation and how it considers the implications of the strategic decisions that it makes. Question 5 of the Conduct Questions asks whether the firm has assessed whether there are any other activities it undertakes which could undermine strategies to improve conduct.