COVID-19 and market abuse

In light of the current situation, the FCA has published information for firms on the response to COVID-19. This information will be updated by the FCA over the coming weeks as the situation develops.

The key message from the FCA is that they are considering whether they can delay or postpone activity “which is not critical to protecting consumers and market integrity in the short-term”, which will allow firms to focus on supporting customers instead.

However, as firms increasingly move to offsite working, the FCA is particularly focused on ensuring that market integrity is preserved. The FCA has made it clear that firms should continue to take all steps to prevent market abuse.

This point has been underscored by the FCA’s statement on 19 March 2020 that it has issued a warning notice to an unnamed individual (said to be a partner and portfolio manager at an investment fund) in relation to suspected market manipulation, apparently in the form of spoofing. The issuance of a statement about a warning notice is unusual as the individual concerned has not yet had the opportunity to make representations to the Regulatory Decisions Committee (RDC). Whilst the suspected market abuse took place in 2017 and the warning notice was issued on 30 January 2020, the timing of the FCA’s statement might be a way of the FCA reiterating that it is currently taking action against suspected market abuse.

Having staff work at home or from other less secure locations could increase market abuse risks. For example:

• If a member of staff is in possession of inside information and working at home, there is a greater risk of inadvertent disclosure to family, flatmates or others.
• With staff spread out across different locations, it is also likely to be more difficult to conduct trade surveillance and monitoring, perhaps increasing the risk that potentially manipulative trading does not get detected and reported to the FCA as required.

In response to these risks, the FCA has suggested that the steps firms could take include enhanced monitoring or retrospective reviews.

We suggest that firms consider the risks associated with their current working arrangements and put in place measures to ensure the continuation of a strong control environment and reduce the risks of market abuse. Such measures may include enhanced monitoring and retrospective reviews as suggested by the FCA, but firms should assess their own risks and apply other appropriate measures.

In particular, firms should consider whether trade surveillance teams are adequately resourced throughout the period of disruption, especially where there are absences due to illness, and that these teams have access to the tools and resources that they require in order to monitor trading effectively. Firms should ensure that telephone lines and email mailboxes for escalation, such as whistleblowing hotlines, remain open and monitored. It is also important for record keeping to be maintained, including continuing to record telephone calls (although the FCA has accepted that some scenarios may emerge where this is not possible). More generally, firms might also consider preventative measures, such as re-circulating relevant policies and procedures and training staff on the risks of working from home and how they can mitigate those risks, particularly around keeping information secure and confidential.

The FCA has said that it is continuing to monitor for market abuse and will take action if necessary, so it is important that firms do not let new working arrangements weaken the systems and controls that they have in place.

See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.