FCA Consultation on the Financial Crime Guide for Firms

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On 27 of March 2018, the FCA has published a guidance consultation (GC 18/1) on amending its Financial Crime guide for firms. The guidance, which is not binding on firms, is intended to enhance firms’ understanding of the FCA’s expectations on firms’ own financial crime systems and controls. The proposed changes include:

  • An additional chapter (number 8) on insider dealing and market manipulation. The new chapter will outline FCA’s observations of good and bad market practice around the requirement to detect, report and counter the risk of insider dealing and market manipulation; and
  • Minor amendments to reflect recent regulatory changes, mainly the introduction of the Money Laundering Regulations 2017.

The guidance is of interest to those firms that are subject to the financial crime rules in section SYSC 6.1.1R of the FCA Handbook and that arrange or execute transactions in financial markets. Insider dealing and market manipulation are both financial crimes, therefore firms should consider what arrangements they have in place to counter financial crime risks ~ including insider dealing and market manipulation.

The new chapter would include the description of the FCA’s expectations over some important themes:

  • Governance – Senior managers are expected to take responsibility for the firm’s measures in relation to insider dealing and market manipulation, including managing the possible conflict between countering financial crime and generating revenue.
  • Risk Assessment – Firms should assess and regularly review the risk that it may be used to facilitate insider dealing or market manipulation. Several factors should be incorporated into a firm’s assessment, such as client types, products, instruments, and services offered/provided by the firm.
  • Policies and procedure – Firms’ policies and procedures should include measures for identifying and preventing the risk of insider dealing and market manipulation, and be aligned with their risk assessment. Policies and procedures should be made available to front office employees to make them aware of their responsibility as well as state clearly how to identify and monitor firms’ employees’ trading, in addition to their clients’ trading.
  • On-going monitoring – Given current monitoring requirements under Market Abuse Regulation, it would be appropriate for the results of such monitoring to be used for the purposes of countering financial crime. On-going monitoring processes would allow firms to consider different options, which range from conducting enhanced due diligence and monitoring where there is a high risk of insider dealing/market manipulation to terminating a client’s relationship, if necessary.

Responses to the consultation must be submitted by close of business on 28 of June 2018 with a finalised amended guidance expected in Autumn 2018.