Investment managers need to do a better job of ensuring that they put in place policies to avoid market manipulation and insider trading, according to a new report from the UK Financial Conduct Authority (FCA).
The FCA published a report Wednesday that sets out the results of its recent review of the market abuse controls that are in use at asset managers. Overall, it found that “firms had put in place some practices and procedures to control the risk of market abuse”, but that only a small number of firms have comprehensive controls. “In many firms further work is required to ensure these operate effectively and cover all material risks,” it says.
In particular, the FCA says “firms need to pay more attention to the possibility of receiving inside information through all aspects of the investment process and take steps to manage this risk.” It says that while firms typically have policies to deal with obvious inside information, they need to improve their approach to the risk of acquiring inside information less formally.
And, it says that firms also need to improve the effectiveness of post-trade surveillance. “Only a minority of firms had appropriate controls for these matters,” it says.
“Market abuse damages market integrity and undermines confidence in financial markets. At a firm level, association with market abuse causes reputational damage and can lead to substantial financial loss,” the FCA notes. “Senior management of asset management firms need to satisfy themselves that their firm’s practices to manage the risk of market abuse are appropriate.”