The Central Bank (CB) has published a review of Market Abuse Suspicious Transaction reporting during 2013 following themed reviews of the systems, policies and procedures established by certain investment firms during the year.
The CB's observations were as follows:
- Compliance Departments of firms are generally familiar with market abuse legislation and most firms have written policies, procedures and training programmes to achieve compliance. In some firms, training and practical application of policies could be improved;
- There is an inconsistency between the level of awareness among firms and their staff of market abuse legislation and the low number of Suspicious Transaction Reports submitted to the CB. This reflected a correspondingly low number of referrals from front-line staff to their compliance departments. There is also an absence in most firms of records of "near misses";
- A number of firms have recently purchased and installed electronic systems for monitoring abnormal trading patterns;
- Examination of random samples of communication with clients is conducted by some firms as a means of detecting possible breaches of various pieces of legislation (including market abuse) and as a means of monitoring observance by staff of the firm's procedures. The use of this type of monitoring could be extended to have an enhanced market abuse related focus; and
- The practices governing the use of mobile phones for receiving orders from clients varied among respondents, with some requiring that all orders be relayed to the firm's office on recorded lines. Some firms were less stringent in limiting the use of mobile phones when communicating with clients in advance of trading. Not all firms require that clients communicate instructions on recorded lines.
The CB made the following recommendations:
- The Compliance Department should monitor, as a matter of policy and with regular frequency, telephone interaction between staff and clients, including testing around price-sensitive announcements. The aim of this monitoring activity should be to embed a culture which aims to promote market integrity and to identify possible breaches;
- Firms should refine parameters used for electronic market monitoring systems to ensure that these are adapted appropriately to the trading patterns and characteristics of individual stocks;
- Firms should specify in writing and communicate to staff, their evaluation policy, process and record-keeping requirements with regard to alerts generated by automated detection systems;
- Compliance staff with responsibility for assessing alerts generated by automated systems should be sufficiently knowledgeable about trading patterns and strategies so that they can independently evaluate explanations provided by front-line staff and Direct Market Access clients;
- Firms should ensure as part of their standard procedures, that potentially suspicious incidents identified by staff are made known to their Compliance Department;
- Firms should ensure that all telephone orders are placed by clients directly to the firms' office on its recorded lines;
- Firms must be able to demonstrate that dedicated market abuse training is being delivered to all relevant staff annually. Training should include specific guidance on the Market Abuse Regulations, how to spot possible incidents of market abuse and training on internal procedures in relation to follow-up on suspicious transaction reports;
- Firms should specify the format and content for records of all internal investigations, and maintain these; and
- Policy and procedure documents should show the creation date and the date of most recent revision, together with approval signatures. A maximum review interval of 18 months with respect to market abuse issues is recommended.