On 20 September 2017, Mark Steward, Director of Enforcement and Market Oversight at the FCA, gave a speech on enforcement trends at the AFME European Compliance and Legal Conference 2017.
In seeking to explain the significant increase in the number of FCA investigations commenced (approximately 75%), Mr Steward highlighted three key trends:
- An increase in investigations relating to capital market disclosure issues, especially where the FCA considers there to be poor disclosure practices or where this may lead to the market being misled or lead to market abuse;
- Significant legislative changes under the market abuse regime have led to more participants reporting more data, especially around suspicious transactions, to the FCA. Mr Steward stated that the FCA’s better visibility of the market, together with the increase in suspicious transaction reporting, had resulted in more cases being selected for investigation. Mr Steward added that MiFID II, once implemented, was likely to further enrich the FCA’s view of the market as more data is captured; and
- The FCA has updated its approach towards opening investigations. Historically, the FCA focussed heavily on the prospect of success when deciding whether or not to open enforcement investigations. Whilst recognising that this is still an important factor, following the November 2015 publication of the HBOS Report, the FCA has reconsidered its approach and acknowledged that over-reliance on this factor could, in essence, pre-judge a case before an investigation has been undertaken. Mr Steward stated that the FCA‘s new approach is to seek to be more “efficient, strategic and focused, especially in conducting investigations more quickly and expediently”.
A better view of wholesale markets
Mr Steward noted that the FCA is now developing its capacity to collect and aggregate order book data, in order to increase its view and understanding of wholesale markets. The FCA aims to collect data on a daily basis from all trading venues in all cash markets to allow for greater segregation of orders by firms, traders and clients, and plans to expand the scope of data collection to other markets going forward. Mr Steward described this as a “sea change” in the FCA’s ability to view the whole market, enabling the FCA to make assessments almost in real time, understand the markets it supervises with greater precision, reduce false positives and data requests to firms, and detect serious misconduct earlier.
Enforcement of MiFID II
Although the relevant requirements of MiFID II apply from 3 January 2018, Mr Steward stressed that the FCA intends to act proportionately in its approach to enforcement, and will not take a strict liability approach. Mr Steward stated that the FCA has no intention of taking enforcement action against firms where there is evidence they have taken sufficient steps to meet the obligations by the deadline. However, he stressed that this is likely to be different in cases where firms have made no genuine effort to comply with the new requirements or have deliberately ignored key obligations.