In a recent market watch report, the Financial Conduct Authority highlighted a troubling trend of organised crime groups (OCGs) infiltrating equity markets via suspicious trading activities. The report underscores the need for firms to be vigilant and take proactive measures to mitigate the risks associated with facilitating such illicit activities.
Impact of OCG Activities on Equity Markets
According to the report, suspicious trading activities by OCG members, particularly in products linked to the UK and internationally listed equities, represent a significant portion of observed suspicious trading volumes in equity markets. The Serious Crime Act 2015 defines OCGs as groups consisting of three or more individuals who collaborate to carry out criminal activities.
Characteristics of OCG activity in equity spread bets and Contract for Difference trading include a pattern of trading before merger and acquisition (M&A) announcements, recruitment of sources of inside information, and the use of intermediaries to broker inside information. Moreover, OCGs utilize overseas broking firms with lax standards and employ facilitators, including employees of authorized firms, to open accounts with such entities.
The report emphasizes the importance of maintaining market integrity and highlights the risks posed by groups engaging in premeditated market abuse. Firms are urged to remain vigilant and familiarize themselves with obligations to counter the risk of being used to further financial crime under regulatory frameworks.
Cautionary Steps for Advisory Firms
Key indicators that may suggest a firm is being used to facilitate insider dealing by OCGs include clients consistently generating Suspicious Transaction and Order Reports, trading activities preceding M&A announcements, and clients trading in the same security for the first time.
To guard against OCG exploitation, executing firms are advised to adopt measures such as communicating a zero-tolerance approach to market abuse to all clients, requesting documentary evidence of adequate surveillance arrangements from overseas broking firms, and treating trades preceding media reports of M&A as potentially suspicious.
Advisory firms are encouraged to caution staff against disclosing inside information to OCGs and consider limiting references to staff members with access to such information on social media profiles.
