Financial services firms in the U.K. need to do more to ensure that the inside information they deal with routinely is protected properly, suggests a new report from the U.K. Financial Conduct Authority (FCA) issued on Thursday.
In the report, the FCA examined the investment industry’s handling of confidential and inside information, which found that although firms are aware of the risks that accompany this information, they need to do more to ensure that these risks are being handled properly.
The FCA reports that its review, which focused mainly on investment banks’ mergers and acquisitions and debt capital markets divisions, found that standards for dealing with inside information varied and that some of the practices uncovered result in heightened risks for firms. “These include conduct and conflict of interest failings as well as FCA regulatory and legal breaches,” the report says.
Protecting inside information, which includes knowledge about firms’ clients and the details of upcoming transactions, “is fundamental to the integrity of the market,” the FCA’s report says. Furthermore, it notes that proper handling of this information, and the risks it creates, is also essential to the industry’s clients and market participants in general.
“We expect all firms to identify, manage and control the risks arising from flows of information, put in place appropriate oversight and controls, including second line of defence controls, and instil a culture in which market integrity is at the heart of how they do business,” the FCA says.
The regulator reports that it has provided specific feedback to each of the firms involved in the review and that it will follow up with these firms as part of their routine supervision. The FCA’s report also calls on the rest of the financial services sector to pay attention to the issues raised in the review and says that firms’ senior management should identify and resolve any outstanding issues at their own firms.