FCA to crack down on conduct and conflict of interest failings

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The FCA has put the spotlight on the handling of confidential and inside information across financial services, after a thematic review of investment banks found failings among firms.

In its latest thematic review, Flows of Confidential and Inside Information, the FCA calls for senior management to take responsibility over controlling flows of information, but adds that all employees should be aware of their role in dealing with confidential and inside information.

The report says: “Employees at all levels should understand their role in controlling flows of confidential and inside information and make it an integral part of how they carry out their work.

“We expect to see business heads acting in a supervisory capacity taking responsibility for controlling flows of information, with appropriate challenge and monitoring from the second and third lines of defence.

“Firms should place the assessment of circumstances that could present heightened regulatory and conduct risks at the centre of their ongoing risk assessment. These circumstances could also give rise to misuse of confidential and inside information.”

The FCA has also laid out guidelines on the role of compliance in financial services firms, having found in the review that in some businesses compliance was “remote” while in others it was overbearing.

The review says: “At some firms, compliance appeared to be seen as a quasi-administrative function, removed from the business both in terms of location and the quality and level of interaction.”

In one instance the FCA found that the compliance function sat in a different office, while another was based in another city.

It says: “There were other cases of compliance being strong and constantly present at all stages of transactions. This can lead to the first line relying too much on compliance, when the business itself should be taking responsibility.

“Compliance should challenge the business where required, and provide insight and oversight at the appropriate times. This includes assisting the first line in ensuring inside information is identified and logged.”

The FCA says this is not a one-off exercise and calls for all firms in the industry to “continually review their practices and procedures for handling confidential and inside information both from a market abuse and conduct of business perspective”.

The regulator will provide individual feedback to the 16 firms that participated in the review and expects them to address any issues raised.

It adds: “We have a number of regulatory powers at our disposal to ensure firms comply with our rules. These include the power to stop firms and individuals providing regulated financial services, levying fines on firms and, where we think it is necessary, taking enforcement action.”