FCA Final Notice: Market abuse systems and controls

Similar documents
TERMS OF REFERENCE. Audit and Risk Committee (the "Committee") of Wilmcote Holdings Plc (the "Company")

AUDIT, RISK MANAGEMENT AND COMPLIANCE COMMITTEE CHARTER

TASSAL GROUP LIMITED ABN Procedures for the Oversight and Management of Material Business Risks. (Approved by the Board 28 May 2015)

International Standard on Auditing (Ireland) 265. Communicating Deficiencies in Internal Control to Those Charged with Governance and Management

AUDIT and ASSURANCE COMMITTEE TERMS OF REFERENCE

Investor Money Regulations

PSNC Briefing on the NHS Complaints procedure (from 1 April 2009)

International Standard on Auditing (UK) 265

NCTJ Conflicts of Interest Policy and Procedures

JAUPT Appraisal Criteria Centre Application. November 2016

Audit & Risk Committee Charter

TASSAL GROUP LIMITED ABN

Risk and Audit Committee charter

Audit Committee Charter. St Andrew s Insurance (Australia) Pty Ltd St Andrew s Life Insurance Pty Ltd St Andrew s Australia Services Pty Ltd

Best Execution & Client Order Execution Policy. October P age 1 6. BE31/10/17 v1

Order Execution Policy

RISK MANAGEMENT AND BUSINESS CONTINUANCE A FAIS Standard. An AC Guidance Note. July 2010

MiFID Supervisory Briefing Suitability

TERMS AND CONDITIONS FOR APPOINTMENT OF INDEPENDENT DIRECTOR

[AGENCY NAME] Mandate and Roles Document. (Pure Advisory Committees)

CHARTER OF RESERVES, HEALTH, SAFETY, ENVIRONMENT AND SOCIAL RESPONSIBILITY COMMITTEE 2018

AUDIT & RISK COMMITTEE CHARTER

16-18Co(17)97 Appendix 2. Panel Consideration Practice Statement. Introduction. This document has been produced to:

The Committee is specifically charged with the following duties and responsibilities:

CYBG PLC BOARD REMUNERATION COMMITTEE. Charter

Audit and Risk Management Committee Charter

Producer Statements will be accepted only in accordance with this policy.

School Business Manager

The Company is a public company incorporated in Bermuda and its securities are listed on AIM.

FINANCE & AUDIT COMMITTEE

UCEA/ECU Age Discrimination Working Group Guidance. Age Discrimination Legislation Guidance Note 1: Pay and Benefits A UCEA Publication

AUDIT & RISK COMMITTEE (ARC)

Best Execution Policy. Version: July 2018

Policy Coversheet. Link Tutors: appointment and responsibilities

AUDIT COMMITTEE CHARTER

Windham School District Procurement Policy for Federal Funds

Documentation / Other important Standards with SME perspective

Huntington Bancshares Incorporated

Guidelines and Recommendations Guidelines on periodic information to be submitted to ESMA by Credit Rating Agencies

Subject Access Requests

Are you ready for the FUTURE of your Quality Management system?

TERMS OF REFERENCE FOR THE PROVISION OF OUTSOURCED INTERNAL AUDIT SERVICE

LMA GUIDANCE: GDPR CORE USES INFORMATION NOTICE

Sirtex Medical Limited Senior Executive Short Term Incentive Policy and Procedure

Objectives of the review. Context. February 2015

CALL FOR INTELLECTUAL SERVICE PROVIDERS ( EXTERNAL CONSULTANTS ) OECD Guidelines for Multinational Enterprises National Contact Point Peer Reviews

Overview of Statements of Investment Policies and Procedures (SIPP) Requirements

PRIMARY GROWTH PARTNERSHIP FINANCIAL MANAGEMENT: ASSURANCE ON BALLANCE S USE OF PGP FUNDING

THE CLOROX COMPANY AUDIT COMMITTEE CHARTER. [Effective May 8, 2017]

AUDIT COMMITTEE CHARGE

Independent Director and Audit Committee

Audit Committee Charter

Handling Complaints at Lloyd s: Guidance for managing agents and their representatives

SUMMARY FOR THIRD PARTY SUPPLIERS

Local Code Of Corporate Governance

International Complaints Handling: New Procedures in Italy. To advise of new complaints handling arrangements for Italy

Written Representations

CHARTER OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF DROPBOX, INC.

Regulatory notifications

Terms of Reference - Board of Directors (approved by the Board on 12 April 2018)

SRI LANKA AUDITING STANDARD 580 WRITTEN REPRESENTATIONS CONTENTS

Terms and Conditions 19 December 2018

HERANBA INDUSTRIES LIMITED POLICY ON MATERIALITY OF RELATED PARTY TRANSACTIONS AND DEALING WITH RELATED PARTY TRANSACTIONS

Department of Environment Land, Water and Planning

CHARTER OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF PLURALSIGHT, INC. Adopted May 3, 2018

Trustee Benefits. 1. Expense payments

Audit Committee Charter

EXECUTIVE SUMMARY INTERNAL AUDIT REPORT. IOM Kingston JM JULY 2017

NARACOORTE LUCINDALE COUNCIL COUNCIL POLICY 94 PUBLIC CONSULTATION AND COMMUNITY ENGAGEMENT

BOARD OF DIRECTORS. Trust Quality Governance Structure Review

CODE OF CONDUCT AND ETHICS POLICY ON CONFLICTS OF INTEREST

Approval Process and Arrangements for University Consultancy Work

The UK Register of Trusts 21 December 2017

Human Resources & Remuneration Committee Charter. Bank of Queensland

CHARTER OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF ON DECK CAPITAL, INC.

*** A DRAFT starting point *** South Central Fresno Community Steering Committee Charter

Current Developments: Canadian Securities and Auditing Matters

ALERT. The SEC s Final Crowdfunding Rules: Still May Not Be a Crowd Pleaser. Author: Issuer and Investor Eligibility.

UPDATE ON INTERNAL CONTROL ENVIRONMENT REPORT OF DIRECTOR OF EDUCATION AND LIFELONG LEARNING AGENDA ITEM: 4.1.1

TOPIC 12: PART 1 WAYS OF GATHERING AUDIT EVIDENCE

Audit, Risk & Compliance Committee Charter

CORPORATE GOVERNANCE POLICY

Draft Governance Working Group Summary of Issues, Research Questions and Possible Recommendations. EALI Governance Goal: Enhance Local Self Governance

HUMAN RESOURCES AND COMPENSATION COMMITTEE CHARTER

RISK INFORMATION CHURCHES CHURCH RISK MANAGEMENT

We recommend that the report is reviewed by Boards and Governing Bodies across the country.

Telephone: Fax: Web: Job Description

Responsible Investment Policy

CORPORATE GOVERNANCE, NOMINATING & RISK COMMITTEE CHARTER

Penalties Guidance March 2015

Renewing an Insurance Policy

Written Representations

Financial reporting update. Northern Client Update, May 2017

Academic and Administrative and Other Related Staff Annual Review

The CIA certification has 4 parts. The CCSA exam and the CGAP exam are single part specialty exams.

HSBC USA INC. HSBC BANK USA, N.A. CHARTER OF THE COMPLIANCE COMMITTEE

CITIGROUP INC. AUDIT COMMITTEE CHARTER As of January 18, 2018

CUMBERLAND, RHODE ISLAND FIRE DISTRICT. REQUEST FOR PROPOSALS (RFP) FOR PROFESSIONAL AUDITING SERVICES RFP Issuance Date January 29, 2018

NEW PROCEDURES FOR ORDER MARKER CORRECTIONS

Safeguards Phase 2 Section 600/Non-assurance Services (NAS) Part 4A International Independence Standards for Audits and Reviews

Transcription:

FCA Final Ntice: Market abuse systems and cntrls regulkar Key issues frm the Final Ntice issued by the Financial Cnduct Authrity t W H Ireland Limited n 22 February 2016. 16 March 2016 simmns-simmns.cm elexica.cm The requirement fr firms t have adequate systems and cntrls t identify, mitigate and detect market abuse risks remains at the frefrnt f cnsideratin fr the Financial Cnduct Authrity (the FCA ). This was highlighted in the ntice published n 22 February 2016 t W H Ireland Limited ( WHI ) (the Final Ntice ). This nte highlights the imprtance f actively managing the risk f market abuse and cnflicts f interest and seeks t prvide firms with sme practical guidance. The WHI case WHI is a wealth management and crprate brking firm which the FCA fund had failed t ensure that it had adequate systems and cntrls in place t identify, mitigate and detect market abuse risks. The FCA impsed a financial penalty f 1.2m and restricted the firm s crprate banking divisin frm taking n new clients fr a perid f 72 days as a disciplinary measure. The failings identified by the FCA between 1 January and 19 June 2013 amunted t a breach f Principle 3 f its Principles fr Businesses which requires that a firm must take reasnable care t rganise and cntrl its affairs respnsibly and effectively, with adequate risk management systems. The specific failings included: deficient cmpliance versight absence f sufficient mnitring and versight f market abuse cntrls, mst ntably pst-trade surveillance pr training prgrammes and recrds lack f frmal training prgrammes n market abuse risks and lack f recrd keeping f training received by staff inadequate market abuse cntrls weak cntrls t identify, mitigate and detect the risk f the illegitimate transfer r use f inside infrmatin especially thrugh persnal accunt dealing by staff cnflict f interest plicy failures ineffective written cnflicts f interest plicy and inadequate recrd keeping f identified cnflicts f interest arising frm the types f service r activity undertaken by the firm. During this perid WHI managed apprximately 2.5bn f assets fr 9,000 private wealth clients and had 87 crprate brking clients. Due t the firm s failure t implement sufficient systems and cntrls t identify, mitigate and detect market abuse risks in respect f the infrmatin prvided by these clients. In additin, the FCA fund that WHI had als breached specific Cnflict f Interest rules f the Senir Management Arrangements, Systems and Cntrls surcebk (Chapter 10, SYSC ). The failings were cnsidered t be particularly serius by the FCA fr a number f reasns: range f services and activities within WHI s business mdel wide range f services acrss bth the public and private side (crprate finance, acting as a NOMAD, market making and private client brking) which received and handled inside infrmatin which gave rise t extensive market abuse risks L_LIVE_EMEA1:32394972v1

ptential impact n the market given the diversity f WHI s business activities the misuse f inside infrmatin culd have had a significant impact n a large number f market participants awareness f risk in industry and WHI itself the FCA (and its predecessr, the FSA) had issued a significant number f cmmunicatins n this tpic t the industry and WHI had been subject t a skilled persn review in this area. In July 2013 the FCA appinted a skilled persn t review WHI s market abuse systems and cntrls including the handling f inside infrmatin, persnal accunt dealing, versight by cmpliance and senir management and training. The reprt issued in August 2013 detailed a number f recmmendatins which were t be implemented by WHI within three t 12 mnths. In July 2014 WHI cmmissined a further reprt by the skilled persn t assess the implementatin f the recmmendatins which cncluded that sme recmmendatins had nt been adequately implemented within the apprpriate time frame. The FCA Directr f Enfrcement and Market Oversight, Mark Steward, cmmented in the FCA s press release that it is ne thing t be given a chance; fr the chance nt t be taken up is especially culpable. WHI received a 20% Stage 2 settlement discunt, withut which the financial penalty wuld have been 1.5m and a business restrictin f 90 days. This is nly the secnd time a business restrictin pursuant t sectin 206A f FSMA has been impsed by the FCA as part f an enfrcement utcme. Managing the risks f market abuse and cnflicts f interest The Final Ntice highlights the imprtance f actively managing cnflicts f interest thrughut the entire business mdel frm the identificatin f cnflicts, plicies and prcedures t manage, recrd and mitigate cnflicts and the educatin f staff n cnflicts f interest (including the identificatin, management and escalatin f cnflicts) t mitigate the risk f market abuse. The fllwing is key guidance arising frm the Final Ntice. Firms shuld cntinually review their business mdel t identify where cnflicts f interest may arise (whether crystallised r ptential) and ensure that their plicies and prcedures are rbust enugh t mitigate the identified risks. The WHI case prvides a useful example f real cnflicts which can arise when perating bth n the public and private side f markets and the market abuse risks this gives rise t. The materiality f any cnflicts f interest can be impacted by the nature, cmplexity and scpe f the business mdel r ther factrs such as timing (fr example, trading ahead f an acquisitin by a crprate client). The fllwing steps utline the cntinuus cycle f assessment a firm shuld undertake in respect f market abuse and cnflicts f interest: Stage 1 Identify Stage 1 - Identify The assessment fr material cnflicts (which culd cause material damage t the interest f a client SYSC10.1.4R) shuld be undertaken n a cntinuus basis. It shuld be clear t staff hw any cnflicts f interest shuld be reprted and escalated. Clear respnsibility fr the management f the cnflicts f interest prcess needs t be allcated t an apprpriate member f staff, with versight by senir management. Stage 3 - Detect Stage 2 - Mitigate Any risk assessment prcess needs t be infrmed by management infrmatin abut any relevant cnduct risk issues which are detected (fr example breaches f infrmatin barriers). Firms are required t recrd all material cnflicts f interest in a register (SYSC 10.1.6R). Whilst the frm f the register is nt prescribed, the register shuld list the cnflicts, the activities which give rise t them and be regularly updated.

Stage 2 Mitigate the risks identified Firms shuld cnsider what systems and cntrls are needed t mitigate the cnflicts f interest which have been identified thrugh the review prcess. Firms are under an active bligatin t take all reasnable steps t prevent the identified cnflicts f interest causing damage (SYSC10.1.7R). This is nt a perfect science and even the mst rbust systems will nt eliminate 100% f the risk, hwever a firm must be able t demnstrate that its apprach was reasnable. Specific issues t cnsider include: plicies and prcedures shuld be clear, infrmative and address each f the risks identified infrmatin classificatin cnsider hw infrmatin is classified, utilised and handled thrughut the business. Cnsider the systems and cntrls needed t cntrl legitimate infrmatin flws bth internally and externally (fr example wall-crssing clients) and thse needed t prevent the illegitimate transfer f market sensitive infrmatin. Cnsider hw the gegraphy f the business increases the risk f infrmatin transfers (WHI s ffices did nt physically separate emplyees wrking n the private and public side f its business) persnal accunt dealing althugh cnnected t the issue abve f infrmatin classificatin and use, firms must ensure that they have rbust systems and cntrls arund persnal accunt dealing (COBS 11.7.1R). This risk is inherent in any business which handles market sensitive infrmatin which emplyees culd abuse fr persnal gain. Firms shuld ensure that their persnal accunt dealing rules: are clear and practical cnsider the scpe f the plicy and any restrictins (all persnal accunt dealing r nly dealing in specific securities) apply at all times it must be clear t staff that the rules apply at all times and that persnal accunt dealing must be reviewed annually at a minimum require a yearly attestatin althugh nt a regulatry requirement, firms shuld cnsider implementing a yearly attestatin prcess fr persnal accunt dealing fr relevant staff (which will infrm the cntinuus assessment f cnflicts f interest). Any attestatin sught must be clear and withut ambiguity as t the scpe f the plicy and the declaratin sught. This apprach will enable a firm t demnstrate the imprtance it attaches t actively managing this high risk area t staff, clients and the regulatr. training and cmpetence firms must ensure that staff in the business and their cntrl functins understand their bligatins in respect f market abuse and the imprtance f identifying and escalating any ptential cnflicts f interest. Firms shuld ensure that regular training is prvided in respect f market abuse (where attendance is recrded and cmpetency tested) rather than relying n infrmal training r high level descriptins in plicies and prcedures. Training must draw ut the risks which are inherent in that particular firm s business mdel (as identified and reviewed at Stage 1 abve) and detail the mechanisms by which cncerns can be escalated t senir management gvernance and versight senir management must maintain versight and wnership f market abuse risks within the business. This respnsibility must be clearly scped and articulated. Firms shuld ensure that apprpriate management infrmatin is prduced in respect f real time market abuse issues in rder t ensure that the senir management can use this t infrm any risk assessment prcesses, testing r imprvements needed fr its systems and cntrls and t ensure the delivery f any remediatin required. Stage 3 Detecting areas f crystallised risk The existence f rbust systems and cntrls will nt abslve a firm frm actively mnitring its staff in rder t identify, detect and deter any miscnduct. Hwever the level f risk within a firm s business mdel will ultimately infrm the extent, frequency and type f mnitring needed t detect and investigate cnduct risk issues. Mnitring and versight will be required acrss all three stages f this prcess t ensure that all material risks are identified, systems and cntrls are rbust and cmplied with and t detect any market abuse which might have ccurred (ntwithstanding the satisfactry cmpletin f Stage 1 and Stage 2 abve). Firms shuld cnsider the

fllwing issues: cmpliance mnitring these prcesses shuld ensure that cmpliance mnitring is cnducted by staff wh are adequately trained in market abuse issues within the cntext f the firm s business mdel. Key issues fr firms t cnsider are: scpe f mnitring this shuld be infrmed by the inherent risks identified in the firms business mdel and shuld be tailred accrdingly real time mnitring mnitring needs t be timely t detect crystallised risk and t enable the firm t meet its regulatry reprting bligatins (fr example Suspicius Transactin Reprting). During the relevant perid WHI s cmpliance mnitring functin had a 60 day backlg f trade data t review cnsistent and infrmed apprach t mnitring cmpliance staff need t be adequately trained t undertake mnitring activities and t analyse the trade data r additinal infrmatin which is available t them (fr example any additinal infrmatin which is prvided by autmated surveillance systems) checking the checker firms must achieve a balance between reliance n autmated surveillance and manual mnitring. Cnsider hw t achieve a reasnable level f quality assurance and t enable the mnitring prcess t be infrmed by ther relevant infrmatin which might impact the risk prfile f the review, fr example: unusual trading patterns in certain securities r by certain members f staff (either n behalf f the firm r in respect f persnal accunt dealing) unusual patterns f behaviur by certain staff members including erratic wrking hurs, sudden increased (r decreased) trading activity r trading in different asset classes during certain time perids (fr example prir t a large market event such as an IPO) the risk prfile f trading in certain securities may increase cnnecting the dts firms need t ensure that the infrmatin gathered thrughut Stages 1, 2 and 3 f this cntinuus cycle are captured, escalated and cnsidered as part f a cntinuus prgramme f risk management. This apprach shuld assist firms t demnstrate t the FCA that they have rbust prcesses in place t identify, mitigate and detect market abuse and that these prcesses are cntinually evlving t adapt t changes in the firms risk prfile. The implementatin f remediatin The Final Ntice highlights that firms shuld ensure that any recmmendatins and resulting remediatin cmmitments, which result frm a skilled persns review (pursuant t sectin 166 f FSMA), are implemented in a timely and rbust way. In additin where a firm has received expert views frm an external third party r indeed an internal review (fr example thrugh an internal audit prcess) any agreed recmmendatins must be recrded, mnitred by senir management and delivered in a timely way. Firms shuld practively engage with the FCA t reprt n the prgress f any remediatin prgrammes and raise any cncerns abut delivery (including feasibility r timing) as sn as pssible in rder t maintain an pen and cperative dialgue. What next fr asset managers and the wider industry? The issue f cnflicts f interests within the asset management industry and financial services firms generally remains an area f fcus fr the FCA 1. Asset managers shuld als take care t assess cmpliance with their fiduciary duties t manage cnflicts f interest as well their regulatry duties as utlined abve. 1 http://www.fsa.gv.uk/static/pubs/ther/cnflicts-f-interest.pdf https://www.fca.rg.uk/static/dcuments/thematic-reviews/tr15-01.pdf http://www.fca.rg.uk/static/fca/dcuments/thematic-reviews/tr-15-13.pdf

Further firms shuld take this pprtunity t review (and if needed update) their plicies and prcedures in advance f the implementatin f the Market Abuse Regulatin which cmes int effect n 3 July 2016. We will be hlding a series f client call cvering different aspects f the Regulatin during April further details t fllw. Fr mre infrmatin n MAR please visit elexica.cm Richard Sims, Nichlas Clstn and Michael O Dnghue, Simmns & Simmns. 16 March 2016 elexica.cm is the award winning nline legal resurce f Simmns & Simmns Simmns & Simmns LLP 2016. All rights reserved, and all mral rights are asserted and reserved. This dcument is fr general guidance nly. It des nt cntain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks f Simmns & Simmns LLP. Simmns & Simmns is an internatinal legal practice carried n by Simmns & Simmns LLP and its affiliated practices. Accrdingly, references t Simmns & Simmns mean Simmns & Simmns LLP and the ther partnerships and ther entities r practices authrised t use the name Simmns & Simmns r ne r mre f thse practices as the cntext requires. The wrd partner refers t a member f Simmns & Simmns LLP r an emplyee r cnsultant with equivalent standing and qualificatins r t an individual with equivalent status in ne f Simmns & Simmns LLP s affiliated practices. Fr further infrmatin n the internatinal entities and practices, refer t simmnssimmns.cm/legalresp Simmns & Simmns LLP is a limited liability partnership registered in England & Wales with number OC352713 and with its registered ffice at CityPint, One Rpemaker Street, Lndn EC2Y 9SS. It is authrised and regulated by the Slicitrs Regulatin Authrity. A list f members and ther partners tgether with their prfessinal qualificatins is available fr inspectin at the abve address.