After an ex-UBS employee was sentenced to 3 years in jail for insider trading, the FCA has decided to focus its August newsletter on market conduct and controlling access to inside information. The regulator has reported an “inability to respond to a regulatory request with accurate records of who had access to inside information.”
Is your control room missing signs of insider trading?
In the recent case, Ms Abdel-Malek was in breach of article 10 of the Market Abuse Regulation (MAR) and her trail is the only FCA case on insider trading to reach a jury in the last three years. She abused her position of trust and repeatedly access inside information and passed it on to a private individual- active monitoring of control room watch lists could have prevented the multiple breaches.
“By allowing widespread and unchallenged access to individuals who do not require the inside information to do their job, firms increase the risk of that information being disclosed unlawfully.” – FCA, Market Watch, August 2019
The trail, which featured evidence from “pay-as-you-go phones with multiple SIM cards” has raised the profile of insider trading and led to worries that a lack of enforcement could be to blame.
What to find out how you can significantly improve control room surveillance? Download this whitepaper
What is insider trading?
“Systems and controls to manage how inside information is communicated outside a firm is just as important as having effective controls to manage that information inside a firm” – FCA, Market Watch, August 2019
Insider trading is the malpractice whereby a person or group of people, who have or are given access to non-public information, make crucial investment decisions based on that private or “leaked” knowledge. A CEO may possess inside information but signs that this has been used abuse the market unfairly, for example, cases of front-running or shorting shares based on their direct advantage over other traders or investors in the market.
Modern comms surveillance can protect against MNPI leaks
Most Investment banks which are required to monitor employees and contractors exposes to Material Non-public Information (MNPI) do this through a control room. They are a team which sits apart from the trading floor (public-side) and the investment banking teams (private-side) in a secure environment.
They are responsible for maintaining the list of insiders that have exposure to MNPI.
Many firms have limited capabilities to monitor communications and most do not monitor communications beyond the deal teams and the trading floor which creates gaps in the controls. However, modern communications surveillance systems are able to monitor and reconstruct trade deals against a timeline, significantly improving the control room’s ability to detect anomalies or gaps in the negotiation.
What can Fonetic do for your control room?
Without the proper tools, monitoring watch lists and potential breeches is tedious, time-consuming and error prone. The Fonetic Trade Comms Suite automates and enhances the communications surveillance process for the control room:
Complete Surveillance of human communications
All employee communications are captured in a single repository (voice, email, text, chats, …). Detailed comms analysis is then performed using Natural Language Processing and Machine Learning.
Usability & Efficiency
Policies or alerts can be created at a firm, group and individual level and related to internal watch-lists to detect specific sensitive words/phrases. Where traditional control room monitoring is led by trading activity from wall-crossers,
Fonetic enables the firm to spot the sharing of sensitive information internally and externally.
Be Proactive not Reactive
Gain the ability to ad hoc search all historical communications if a breach of information is suspected and be alerted immediately if sensitive information is leaked outside of chinese walls.
To find out Fonetic can help you detect insider trading, get in touch for a demo.
You can read the full FCA Market Watch newsletter here.
More articles you may find interesting:
- How MiFID II affects communications monitoring
- The Senior Managers and Certifications Regime: Quick Guide for Buy-Side firms