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FCA Market Watch 77: Mitigating risks of organised crime groups in trade

28 February 2024
The FCAs latest Market Watch published on the 14th of February, delves into the world of trading by organised crime groups (OCGs) and how firms can shield themselves from unwittingly facilitating illicit activities. Here are the key takeaways.

Understanding OCG activity: OCGs engage in suspicious trading, particularly in products where the underlying securities are UK and internationally listed equities, often before M&A announcements, due to sources and brokers of inside information. 

Red flags to watch for: executing firms and brokers must remain cognitive of market abuse red flags which can include; clients generating frequent STORs, clients with suspicious trading patterns around M&A speculation and/or official announcement, increased trading activity on a specific security etc. Firms must stay alert to these signs of 'OCG activity' and ensure there are appropriate systems and controls in place to highlight 'transactions', which would warrant escalation for further analysis. 

Guarding against OCGs: Firms can take proactive steps such as: communicating and enforcing zero-tolerance policies with regard to market abuse, timely and detailed STOR submissions, scrutinising surveillance arrangement of overseas broking firms, educating staff on the risks of insider recruitment, maintaining a comprehensive  insider list and information barriers.

Why it matters: OCGs pose a serious threat to market integrity, necessitating heightened vigilance from financial institutions, issuers, brokers and trading platforms. 

With the announcement of the conviction of Mohammed Zina and a further arrest of three individuals by the FCA for insider trading, fraud and money laundering. It is evermore imperative for financial institutions to ensure effective monitoring of employee access to inside information, PA dealing and trading activity. 

Ensuring compliance: Beyond investigations, the FCA wields a range of supervisory and enforcement tools, including: s.166s and voluntary requirements, in order to uphold market integrity. Between 2021 – 2023, 25% of the s166s the FCA commissioned were in relation to Financial Crime and Market Abuse. This demonstrates that there is no hesitation for the FCA to utilise the 'FCA regulatory toolkit' to enforce compliance of firms.

Read in full the FCA's Market Watch 77 newsletter on market conduct and transaction reporting issues. 

The Regulatory Consulting team at DWF are well experienced and well equipped to support you in mitigating the risk of being used to facilitate OCG trading. Contact us today for expert advice.

Further Reading