UK Financial Conduct Authority identifies material market abuse surveillance weaknesses at seven retail brokers

The UK Financial Conduct Authority published findings from supervisory visits to seven retail brokers, identifying material weaknesses in systems, controls and governance for detecting and reporting potential market abuse. Although every firm used automated surveillance and had relevant policies, shortcomings in alert decisions, system calibration and senior oversight increased the risk that suspicious activity would go undetected and Suspicious Transaction and Order Reports would not be submitted. Several firms set too high a threshold for reasonable suspicion, including by requiring a clear link between a client and an issuer despite other indicators of potential abuse. Surveillance settings were not always tailored to firms’ business models, with some price and trade value parameters failing to account for stock volatility or excluding a significant share of client activity. Weak testing, limited understanding of system logic, inconsistent quality assurance and incomplete market abuse risk assessments compounded these issues. Some senior managers lacked sufficient knowledge of investigations, escalation and calibration, while fragmented responsibilities left no individual overseeing the full surveillance process. The FCA required all seven firms to strengthen their arrangements and used skilled person reviews in some cases to obtain assurance over remediation. The resulting Suspicious Transaction and Order Reports contained clearer and more comprehensive explanations of suspicion. Retail brokers and other firms should assess whether their own surveillance arrangements require changes, as the FCA will continue reviewing reporting arrangements and controls through its supervisory work.