|Of relevance to:||All firms subject to the financial crime rules in SYSC 6.1.1R, and who arrange or execute transactions in financial markets|
|Key dates:||Comments to FCA by 28 June 2018
Proposed to be in effect on 1 October 2018
The Financial Conduct Authority (“FCA”) is consulting on changes to the Financial Crime Guide for firms (“the Guide”) to ensure the guide remains up to date, proposing to add a chapter to Part 1 of the Guide to cover insider dealing and market manipulation and make miscellaneous changes as a result of recent regulatory changes (see below).
As part of its responsibility to ensure the integrity of the UK financial markets the FCA requires all authorised firms to have systems and controls in place to mitigate the risk that they might be used to commit financial crime. Financial crime captures a broad range of criminal offences, including insider dealing and market manipulation.
Firms must satisfy the FCA that they have robust governance, effective risk procedures and adequate internal control mechanisms to manage their financial crime risk. Firms subject to FCA SYSC 6.1.1R should be aware that their obligation to counter financial crime risk extends to insider dealing and market manipulation, including considering what arrangements are in place to counter such activity.
The Guide does not currently provide firms with guidance in relation to countering the risk of insider dealing or market manipulation, so the FCA are assisting firms by adding, to Part 1 of the Guide, a new Chapter 8 entitled ‘Insider dealing and market manipulation’.
The new chapter will outline the FCA’s observations of good and bad market practice around the requirement to detect, report and counter the risk of financial crime, as it relates to insider dealing and market manipulation.
Julia Hoggett, Director of Market Oversight at the FCA, noted in her speech on 14 November 2017 that, where institutions have had repeated concerns about the trading behaviour of a client, it is legitimate for the FCA to ask whether the institution has properly considered its regulatory obligations to counter the risk of financial crime.
This Guidance Consultation (GC18/1) reiterates that message and provides an opportunity for firms to comment on FCA proposals on how they are expected to comply with the requirements of FCA SYSC 6.1.1R.
The FCA recognise that some firms separate their surveillance function from their financial crime or MLRO teams. Where firms adopt this approach it is important they ensure there is adequate communication between the two areas such that the firm can effectively counter the risk of insider dealing and market manipulation.
Part 1 of the Guide will become Financial Crime Guide: A firm’s guide to preventing financial crime (“FCG”), with all references to ‘Part 1’ becoming ‘FCG’.
Part 2 of the Guide will become Financial Crime Thematic Reviews (“FCTR”), with all references to ‘Part 2’ becoming ‘FCTR’.
Minor amendments are proposed to the Guide to reflect recent regulatory changes and ensure the Guide remains up to date. These are mainly to reflect the introduction of the Money Laundering Regulations 2017 on 26 June 2017, but also to remove outdated references in relation to the way the FCA refers to Sanctions in Chapter 7, including the deletion of 7.1.3 referring to sanctions against Iran and the insertion of a new 7.1.5A relating to The Office of Financial Sanctions Implementation (“OFSI”).
Significant other amendments are made to:
- 3.2.7 Handling higher risk situations: relating to politically exposed persons, family members and their known close associates, and when enhanced due diligence is appropriate.
- 3.2.11 Record keeping and reliance on others: Introduction of ‘information need not be kept beyond 10 years for any transaction during a business relationship even if the business relationship has not ended’.
- 3.2.13 Customer payments (section applies to banks subject to SYSC 6.3): Examples of good and poor practice.
Overall, Parts 1 and 2 (the FCG and FCTR) have been altered to a style more in line with the FCA Handbook, primarily by italicising items such as ‘FCA’, ‘SYSC’, ‘FSA’ and referencing paragraphs in FCG and FCTR with a ‘G’ suffix to signify that it is FCA Guidance; for example: ‘FCG 2.2.1G and FCG 6.2.1G and FCTR 9.3.1G’.