Insights
Market Abuse
Market abuse is a constant threat to the integrity and stability of global markets, hindered at times by the rapidly evolving landscape of financial regulation. Investors need to be confident and have trust in financial markets, which stems from them being free from abuse. Recently, headlines have centred around financial news and regulators are adjusting their approaches accordingly. Given the Government’s growth agenda, stopping market abuse has become a greater priority for the Financial Conduct Authority (FCA). At the end of last month, Therese Chambers delivered a speech on the regulators agenda to combat market abuse, centred around the “Three P’s” approach. Namely:
- Predictable in behaviour
- Proportionate in reporting requirements
- Purposeful in outcomes
Market abuse isn’t only a regulatory issue, but a direct threat to investor confidence and trust. The knock-on effect of market abuse has implications surrounding economic stability and long-term growth potential. However, controlling market abuse is easier said than done, as firms face increasing and evolving threats from organised crime groups (OCGs). Here’s how the “Three P’s” approach aims to address the problem of market abuse, and what it means for firms.
The Problem: Increasing Risk and Regulatory Burden
The threat of market abuse is ever growing. OCGs now account for around 25% of all suspicious transaction reports (STORs), with the FCA identifying over half a billion pounds in illicit profits since 2022. Firms need to be alert to patterns of behaviour which suggest an OCG.
Meanwhile, firms must make sure not to become overwhelmed by reporting demands, duplicative obligations and uncertainty around enforcement expectations and actions. Current market volatility, the emergence of new products and e-trading platforms all put traditional compliance models under strain.
These challenges create a multi-faceted problem. For firms, a heavy compliance burden and inconsistent communication increase operational strain and enterprise-wide risk. For regulators, dispersed, inconsistent data hampers early detection and prevention of abuse.
Predictable
Being predictable starts with strong communication. An easy thing to say, but what does it mean? The FCA aims to streamline the amount of information firms receive while continuing use of communication mediums with positive feedback and a high level of utility. In person engagement strengthens this clarity. The aim is to ensure firms know what the FCA is watching, why it matters and how they can act pre-emptively to stop market abuse before it occurs. Being transparent and consistent in communication will lead to predictability and stability for firms.
Proportionate
Predictability in behaviour is followed by proportionality in reporting requirements. The FCA recognises that the majority of firms want to “do the right thing”, so is actively working to reduce unnecessary reporting burdens. Duplicative fields and low-value data points are areas earmarked for improvement.
Don’t mistake this for shunning data reporting. Rather, this is the FCA taking on a smarter, more targeted approach to retain critical data, especially surrounding high-risk instruments such as CFDs and spread betting.
The development of the Private Intermittent Securities and Capital Exchange System (PISCES), outside the current Market Abuse Regulation regime reflects a significant but calculated shift. By tailoring regulation to fit different areas of the market, the FCA is seemingly embracing proportionality to support innovation and growth.
As part of its five-year plan to 2030, the FCA announced that it is establishing an international presence for the first time. Pair this with many firms having multi-jurisdictional reporting requirements, international standards and regulatory harmony could be key to supporting proportionality.
Purposeful
Being purposeful means where rules are breached, the FCA is purposeful in its response. The regulator is unafraid to intervene where it sees fit, imposing restrictions on firms who persistently fall short of the mark. The approach focuses on three pillars: ensuring adequate systems and controls, disrupting market abuse and preventing harm before it occurs.
Adequate systems and controls are not just a nice to have, they are a must. With its recent restrictions on Dinosaur Merchant Bank, the FCA has shown it is serious about purposeful enforcement action.
Disrupting market abuse comes in the form of throwing the regulatory toolkit at OCGs. From working with firms to identify and terminate suspicious accounts to collaborating with other agencies to minimise the number of people with access to inside information.
The third spoke is prevention or taking early action to stop harm occurring. The most effective method of prevention is the use of suspicious transaction and order reports (STORs). In 2024, the FCA received 4,528 STORs with 3,495 relating to insider dealing and 581 to market manipulation. Over 70% of current market abuse investigations originated from a STOR, proving their utility.
Through a combination of ensuring controls, disrupting market abuse and preventing harm, the three-pronged approach should enable firms to act with confidence.
The Objectivus View
As market abuse evolves in sophistication and scale, the FCA’s “Three P’s” approach provides a clear framework – but it also raises the bar. Firms must remain vigilant, responsive and agile in adapting to this more targeted regulatory environment. At Objectivus, we help our clients to not only meet expectations but exceed them and stay ahead of the regulatory curve. By strengthening systems and controls, enhancing frameworks and navigating complex risk and compliance management, firms can transform regulatory pressure into a watertight operation. Compliance needn’t be an obligation or burden, it can be a competitive advantage.
For further information please contact Dan Harasemchuk rdh@objectivus.com or Bhavisha Patel bp@objectivus.com
or +44 (0)2034 573 283