FCA dealing with flood of market abuse cases

Britain’s Financial Conduct Authority (FCA) has received a torrent of complaints of possible market abuse, 24% more in the past year.

The Financial Times reported yesterday that a total of 1,626 suspicious transaction reports, referred to by the FCA under the acronym STRs, were filed in 2014 compared with 1,308 during 2013.

Prior to the financial crisis, things were somewhat different, as only 328 STRs were sent to the FCA in 2007, however this may not necessarily be indicative of higher levels of suspicious practice, it may instead be that since the catastrophic collapse of the financial system in Britain in 2008 which resulted in banks becoming insolvent and having to be bailed out by the government, as well as a severe credit crunch which exposed retail customers to unserviceable mortgage and credit card debts, the entire industry’s regulators have become more vigilant.

“There is a heightened awareness that turning a blind eye to suspicious activity is no longer acceptable,” said Michael Ruck, a former regulator now at law firm Pinsent Masons. “In many organisations the FCA’s ‘credible deterrence’ drive has spawned a culture of ‘if in doubt submit an STR report” as reported by the Financial Times” concluded Mr. Ruck.

Under UK law, banks and brokers must report each transaction in a regulated security to the FCA every day. EU rules have also stipulated more rigorous reporting requirements and some financial firms have struggled to cope with the added demands.

A major difference between the British method of investigating and acting on transgressions such as market abuse and the system used in the United States is that very rarely does a British company ever find itself on the end of a compliance investigation, or a lawsuit. 97% of British companies which are issued with an allegation from the FCA settle the allegation without any court cases or investigations, often taking advantage of the discount offered for early settlement, whereas the US will often impose extensive litigation on transgressors.

STRs are separated into three broad categories: distortion, false or misleading statements, or misuse of information. The misuse of information category accounts for the majority of total STRs received by the FCA, standing at 1,451 in 2014 compared with 1,164 a year earlier, and has seen the biggest jump since the financial crisis, increasing by 424 per cent, according to analysis by Pinsent Masons.

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