Emma RadmoreFCA’s latest edition of Market Watch looks at the results of FCA’s market abuse peer review into firms that offer CFDs and spread bets. These products are particularly vulnerable to being used for insider dealing and are a major source of STORs. FCA is also aware of a potential increase in a pattern of behaviour where the products are being used to realise profits following manipulative behaviour in the underlying market by other firms.
Generally, FCA’s findings were positive. It found all the firms it visited had surveillance in place, and that it was mostly effective. In terms of areas for improvement, FCA noted that some firms’ risk assessments did not cover all they could, and that firms should consider the risks of market abuse in all relevant asset classes. It found all firms used in-house surveillance solutions, but sometimes failed to monitor for unrealised profits. In terms of the new trend of “narrowing the spread”, FCA found most firms were aware of this, and noted that firms providing DMA access to clients should be particularly alert to the risks.
It found that front office did not generally get feedback from compliance, because of fear of tipping off, and that front office staff were reluctant to refuse orders for similar reasons. FCA commented that firms need to strike the right balance in communications while applying appropriate caution, and that relevant compliance policies should be clear both in their expectations and on the consequences of breach.
FCA expects firms to consider its points, and will continue to visit providers to review their policies and controls.