The Financial Conduct Authority (FCA), UK's regulatory watchdog, has fined BGC Brokers LP and two GFI Group subsidiaries, GFI Brokers Limited and GFI Securities Limited, £4,775,200 due to ineffective detection of potential market abuse and failure to provide adequate control systems.
As per the FCA's statement, the inter-dealer brokers failed to implement the Market Abuse Regulation (MAR) requirements for trade suerveilance. The failure to enforce appropriate frameworks has resulted in a significant increase in the risk of suspicious trading activity going undetected.
For nearly two years, between 2016 and 2018, trading firms operated flawed and inadequate surveillance processes that could not adequately address market abuse, according to the regulator. Moreover, BGC and GFI systems did not cover all asset classes under MAR.
Inter-dealer brokers agreed to resolve the case at its early stages. As a result, the fine imposed by the FCA was reduced from £6,821,800 (by 30%). However, the financial market watchdog did not clarify whether the penalty was equally divided among the three entities. BGC and GFI have already managed to improve their control systems, the regulator said.
"Oversight of our markets is a regulated partnership between the FCA and market participants, and so gaps or holes in a firm's ability to monitor and detect abusive trading poses direct risks to market integrity. This case is another example of the FCA's determination to ensure firms prioritise market integrity and the maintenance of high standards of compliance ," Mark Steward, the Executive Director of Enforcement and Market Oversight at FCA, commented.
The FCA and Trade Surveillance
MAR was implemented six years ago, expanding the requirements for reporting and detecting market abuse. It included a requirement to monitor transactions and orders to detect potential fraud attempts.
The FCA conducts self-supervision of abuse by collecting data from all participants in the regulated market. A special market surveillance team oversees the suspicious transaction and order reporting (STOR) regime. As part of its mandate, it carries out ad hoc checks among market participants to assess whether they control potential market abuses.
Citigroup Global Markets, an indirect subsidiary of Citigroup Inc., had to pay a similar fine for violating MAR requirements in August. The penalty of £12.6 was subject to a 30% discount. If Citigroup did not agree to a quick resolution of the case, the fine would have been nearly £18 million.
