Author: Nicola Sharp
31 March 2021
2 min read
Nicola Sharp of Rahman Ravelli considers the Financial Conduct Authority’s recent approaches to ensuring market integrity
With the UK now one year into the pandemic, the Financial Conduct Authority (FCA) has given an update on the coronavirus-related issues it sees as being most important, and its response to them.
In a speech, the FCA's Executive Director of Enforcement and Market Oversight, Mark Steward, outlined its efforts to tackle market abuse in the conditions prompted by COVID-19; most notably, the need to work from home.
In his speech, Mr Steward raised some significant points about the situation the FCA is encountering. While the FCA reported a 34% increase in transactions and transaction reports in 2020, there was no corresponding rise in the numbers of suspicious transaction and order reports (STORs). The first UK lockdown from March to June even saw a fall in STORS. While this is no longer the case, the total for the year was lower than in previous years.
One might believe this is because market abuse or other wrongdoing is not being identified. Yet the FCA partly explains this by citing its investigation and surveillance activities which, it argues, have led to less trading by parties whose activities had previously prompted large amounts of STORs.
While the FCA is reliant – at least to some degree – on STORs, it does not depend totally on them. Its market data processing capabilities offer an algorithmic radar across trading in what is very close to real time. The past year has also seen it introduce the Electronic Submission System (ESS) for short selling reporting. While ESS was already operational just before the first lockdown, it has proved especially useful to the FCA as it hastens validation, introduces automated alerts that identify delayed notifications and offers improved short selling insight and information.
Mr Steward stated that the FCA's approach regarding obligations to report short selling means that trading frenzies - such as that seen recently around Gamestop - are unlikely in the UK market, due to the levels of scrutiny in place. This is important, he said, due to the possibility of abusive shorting distorting the market, which can be harmful for retail investors.
Last September, the FCA introduced the Potentially Anomalous Trading Ratio (PATR), which is intended to help it keep abreast of underlying trading behaviour around price sensitive announcements – behaviour that could be viewed as anomalous rather than suspicious.
Mr Steward’s speech ended with him stating that the FCA continues to look for ways to combat market abuse. The emphasis on devising new methods of analysing data in order to ensure the integrity of the market appears to be a main plank of the FCA’s approach.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.