Important Observations from FCA Market Watch 69

The FCA focuses on market abuse surveillance at small and medium sized firms

In its latest Market Watch newsletter (Market Watch 69) the FCA has outlined its observations regarding market abuse surveillance arrangements at small and medium sized firms. 

These observations are a continuation of FCA’s reminders, particularly through Market Watch newsletters, of the requirements under UK MAR for firms to have “…. effective arrangements, systems, and procedures in place to detect and report suspicious activity, which should be appropriate and proportionate to the scale, size, and nature of their business activities.” 

 A summary of some of the FCA’s observations:

  • Market abuse risk assessments. They need to be comprehensive, appropriate, and up to date. Firms must consider different types of market abuse that may occur and the areas of their business in which each may apply. The FCA specifically states that firms do not always consider that the risks may vary across their business. The risks will not necessarily be the same in relation to different instruments that a firm trades and the different venues on which they trade. Without an effective market abuse risk assessment in place, firms may not be able to conduct effective surveillance as they may not have identified all areas of risk.
  • Order and trade surveillance. Despite previous reminders, the FCA comments that some firms still do not perform surveillance monitoring or do not perform it effectively. The regulator highlighted the importance of calibration. Firms should not just implement an off the shelf system without calibrating the system’s metrics to their business. Firms must consider how this calibration can increase the effectiveness of the surveillance monitoring, particularly across different asset classes. Appropriate calibration will make surveillance more effective, reducing false positives and allowing firms to focus on investigating genuinely suspicious trades. FCA also stresses the requirement (which is being overlooked by many firms) to ensure that their surveillance monitoring captures all orders (including cancelled orders) as well as trades.
  • Policies and Procedure’s The FCA stated that a lack of clear procedures can lead to ineffective surveillance monitoring. Staff performing surveillance analysis should be able to rely on clear procedures covering how to deal with surveillance alerts and how to identify signs of market abuse.
  • Outsourcing – where surveillance monitoring is outsourced, particularly within larger groups, and sometimes to overseas operations, FCA stresses that firms must understand how the surveillance is conducted, how the systems have been calibrated and the alerts that they will generate. They should ensure they receive adequate management information where such outsourcing is in place.
  • Front office – FCA points to what should be an obvious potential conflict of interest. The scenario where the front office has responsibility for performing market abuse surveillance. While there may be some very small firms where it is not possible to avoid this, in such instances firms must ensure that they have considered the clear conflicts of interest and implemented procedures to mitigate the impact of these conflicts.
  • Countering the risk of market abuse-related financial crime and investigating market abuse by employees – FCA reminds firms that they must have in place adequate systems to prevent the firm from being used to further financial crime In accordance with SYSC 6.1.1. As FCA notes, it issued guidance to firms on this area in Chapter 8 of its Financial Crime Guide (see FCG 8.1). There is also a reminder on the requirement to submit STORs in all circumstances where a suspicious trade has been identified and for firms to consider that the post-trade submission of a STOR is not satisfactory in circumstances where the firm should instead have prevented the trade in question from being executed. Regarding suspicions that staff may have committed market abuse, firms must still submit STORs ‘without delay’ while they conduct their investigation and must ensure that the person under investigation is not made aware that a STOR has been submitted.

GRSS (Global Regulatory Surveillance Service)  assists firms conducting both trade and e-comms surveillance to meet their regulatory requirements If you would like to discuss this, please contact Sarah Donnelly Sarah@GRSS.Group.

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Nicholai Cumbo
Surveillance Analyst

Nicholai previously held the position of Senior Risk Officer at ACA Mirabella, where he was responsible for on-boarding clients, managing relationships and reviewing clients’ investment processes, risk management processes, strategy complexity, and operational arrangements. He was responsible for compiling and submitting data for Regulatory Reporting. 

After graduating with a B.Sc. in Mathematics and Physics, he transitioned to finance, by completing a post graduate certificate in the Mechanics of Risk Management. He followed this up by sitting for the FRM and became a Certified Financial Risk Manager.

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Elizabeth Mallia
Surveillance Analyst

An awardee of the Marie Curie Actions scholarship, Elizabeth built up her data crunching and analytical skills in theoretical motor neuroscience where she investigated brain mechanisms in action initiation at the Institute of Neurology, University College London.

She transferred her skillset to financial services in 2017, where she formed part of a formidable risk team at the regulatory hosting platform, ACA Mirabella. There she held the position of Senior Risk Associate, where she concentrated on risk management for funds with model-based strategies, focusing primarily on insurance-linked security investments. As part of the same role, Elizabeth worked with a subsection of the team on consolidating and improving the surveillance framework for potential market abuse of the platform’s diverse clientele, promoting an evidence-based approach in the set-up of the framework. 

Having also previously had the opportunity to study and work at various neuro-research institutions, including Karolinska Institutet, Stockholm and Radboud UMC, Nijmegen, Elizabeth brings multi-faceted experience in breaking down complex problems to facilitate custom solutions.

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Ryan Farrugia
Surveillance Analyst

Ryan most recently held the position of Senior Risk Associate at ACA Mirabella, where he was responsible for reviewing clients’ investment processes, risk management processes, strategy complexity, and operational arrangements. He was responsible for monitoring clients’ trading activities daily, including risk/trading limits. Ryan was also involved with the creation of the Governance Risk Compliance Operations Unit within the company. 

After graduating with a Bachelors’ Degree in Commerce, a Post Graduate Certificate in Finance, and a Master’s Degree in Investment and Finance, Ryan spent over two years at APS Bank in Risk Management and Finance.

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Tim Jukes
Senior Surveillance Analyst

For the last five years, Tim held the position of Senior Compliance Consultant at ACA Mirabella overseeing a wide range of complex and large firms on the hosted platform. 

Tim began his career at Price Waterhouse in 1986, where he qualified as a Chartered Accountant. Following qualification, Tim transferred to Hong Kong, where he spent 5 years specialising in the audit of multinational trading and finance entities. Tim spent 18 months on secondment at the Hong Kong Securities and Futures Commission developing an inspection regime for asset managers and advisers. 

On returning to the UK, Tim spent 3 years at IMRO, a predecessor to the FCA, specialising in asset management supervision. Tim subsequently undertook several senior in-house compliance and finance roles across a range of start-up and large asset managers specialising in open-ended funds and, subsequently, private equity. Tim then moved into compliance consulting with Cordium and more recently spent 5 years working at ACA Mirabella overseeing a wide range of hosted clients.

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Paul Springer
Senior Surveillance Analyst

Paul held the position of Senior Compliance Consultant at ACA Mirabella, where he was responsible for monitoring some of the largest clients and most complex served by Mirabella. He is a compliance professional with 25+ years of regulatory experience. 

At ACA Mirabella, as well as implementing a compliance infrastructure at each client and conducting ongoing compliance reviews, Paul’s role encompassed oversight and review of clients’ electronic communications (employing Fingerprint) and their staff members’ personal compliance interactions (utilising Compliance ELF). 

Paul spent 5 years at the FCA (then the FSA) as the Manager of a Corporate Authorisation team, followed by approximately 20 years of compliance experience in the financial services industry. He has worked in-house and held the Compliance Officer and Money Laundering Reporting Officer roles for approximately 12 years, firstly at a broking firm which he joined at start-up, and then a hedge fund manager. Paul also spent over 3 years working at a leading compliance consultancy, providing compliance support to clients (including full-scope and sub-threshold AIFMs, investment managers and advisers).  He is a qualified Chartered Accountant.

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George Camilleri
Head of Risk & Operations

George worked at ACA Mirabella for the past six years as Head of Risk Operations and managed the Malta-based Risk Team responsible for all the Firm’s risk monitoring and regulatory reporting. 

He holds an MSc in Financial Mathematics from the University of Leeds, focusing on quantitative risk management, and a BSc in Mathematics and Physics from the University of Malta. He has also taken several short courses, including the Oxford Private Markets Certificate at the Saїd Business School.

In his free time, George volunteers for non-governmental organisations within the cultural sector in Malta, having an interest in the arts, classical music, and opera.

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Sarah Donnelly
Head of Sales

Sarah recently left ACA Mirabella, where she held the role of Head of Sales. In this role, she was focused on the company’s growth, from targeting new business opportunities to nurturing existing client relationships.

Sarah is working towards the CIPD Foundation Certificate in People Practice.

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Joe Vittoria
CEO

Joe was most recently the CEO and Founder of the Mirabella Group. During the eight years that Joe grew the Mirabella business, it became the recognised leader in regulatory hosting in the UK. As its CEO and an experienced Compliance Officer, he was responsible for ensuring regulatory compliance of Mirabella and its appointed representative clients. During his tenure at Mirabella, the firm fully and successfully complied with its regulatory obligations, which included the FCA (UK), MFSA (Malta), and the NFA/ CFTC (USA).

Mirabella conducted a thorough surveillance process across all its clients’ activities, which included over $19bn in assets under management, across over 50 investment mandates, managed by over 200 portfolio managers and traders. The investment strategies it hosted ranged from Private Equity and Real Estate to complex credit and derivative processes, with the majority in long/short equity.

Apart from his experience at Mirabella, Joe has acted as COO to other investment management firms, which included quant, debt and credit strategies. Before starting in the alternative investment management industry in 1998, Joe worked at Salomon Brothers which he joined in 1985, after graduating from Yale with a BA in Economics.