Anthony Harrison

Recent enforcement actions include a criminal prosecution for conspiracy to deal in four stocks while having inside information. Two traders have been accused of making a profit of around £110,000 through insider dealing and a prosecution is progressing through the courts, reflecting the FCA’s renewed interest in market integrity and its current approach to addressing market-related misconduct and taking assertive action against market abuse.

The FCA has shown its willingness to use its enforcement powers under criminal law to target cases of opportunistic insider trading, prolific or repeat offenders, and traders with links to organised criminal networks.

This trend is evident in a number of successful prosecutions earlier this year, including that of Mohammed Zina. In that case, an analyst at a major investment bank was convicted of trading in six stocks over 17 months, using inside information relating to potential mergers and acquisitions on which his employer was advising.

While prosecutions for insider dealing are a key part of the regulator’s strategy for promoting market integrity, another important focus for the FCA is on ensuring regulated firms and other relevant listed companies act as “gatekeepers” charged with maintaining market integrity.

In a recent publication, the FCA has also reminded firms of the regulatory requirements to put in place sufficient policies and procedures to counter the risk that firms might be used to further financial crime.

In addition to taking enforcement action in relation to egregious cases of insider dealing, the FCA is also taking a multi-faceted approach that leverages supervisory powers extensively. In particular, the FCA places clear expectations on relevant advisers in the financial markets ecosystem, such as sponsors, nominated advisers and auditors, to assist the regulator through clear dialogue and reporting.

A current area of concern is the execution of trades from “aggregated” accounts administered by both FCA-authorised and overseas firms, when the identities of entities ordering the trades are not disclosed.

The FCA has worked with overseas regulators to identify anonymous Ultimate Beneficial Owners (UBOs) of trades. Several of these UBOs, according to the FCA, have some characteristics of organised criminal groups.

The accounts that execute trades for anonymised UBOs are known as Obfuscated Overseas Aggregated Accounts (OOAAs). In some cases, UK firms which have previously terminated named accounts of these individual UBOs for market abuse have unknowingly continued to execute trades for them through OOAAs.

The FCA has suggested that firms should warn OOAAs that they operate a zero-tolerance approach to market abuse, have an open relationship with UK and overseas regulators, and submit Suspicious Transaction and Order Reports for every suspicious trade.

The FCA also suggests that firms should obtain information about account providers’ systems and controls, ask account providers to provide unique identifiers for anonymous UBOs, and apply robust measures to end entire OOAA relationships where appropriate.

The message to the market is clear. Firms must take a vigilant approach to proactively guard against surveillance failures and mitigate relevant risks, or face enforcement and supervisory action.

Anthony Harrison is a legal director at Pinsent Masons