The United Kingdom's Financial Conduct Authority (FCA) has fined Citigroup Global Markets, an indirect subsidiary of Citigroup Inc., £12,553,800 for breaching the Market Abuse Regulation (MAR) trade surveillance requirements relating to the detection of market abuse.
The FCA, which announced the fine on Friday in a statement, said the institutional brokerage services company failed to properly implement the regulation.
As a result, the broker breached Article 16(2) of MAR and Principle 2 of the FCA’s Principles for Businesses, the regulator added.
While Article 16(2) requires organizations involved in arranging or executing transactions in financial instruments to establish and maintain effective arrangements, systems and procedures to detect and report potential market abuse, Principle 2 demands that “a firm must conduct its business with due skill, care and diligence.”
“By failing to properly implement the MAR trade surveillance requirements Citigroup Global Markets could not effectively monitor its trading activities for certain types of insider dealing and market manipulation,” the FCA explained.
In addition, the watchdog explained that Citigroup Global Markets’ flawed execution opened up gaps in its arrangements, systems and procedures for additional trade surveillance.
Sharing more details on the case, the FCA noted that Citigroup Global Markets failed to properly execute MAR’s requirement following its introduction in 2016.
According to the regulator, it took the brokerage firm 18 months “to identify and assess the specific market abuse risks its business may have been exposed to and which it needed to detect.”
The FCA said Citigroup Global Markets qualified for a 30% discount after agreeing to resolve the case, bringing the fine down from £17,934,030.
The FCA and Trade Surveillance
In the statement, the FCA explained that it depends on data gathered from market participants to consolidate on its own surveillance mechanism for the detection of market abuse to detect potential insider dealing and market manipulation.
The financial regulatory body further explained that its Market Surveillance team undertakes specialist supervision of the suspicious transaction and order reporting (STOR) regime, a feature of the European Union regulation that seeks to prevent financial market abuse in Europe.
Under this regime, the FCA noted, its team organizes regular ad hoc visits to a broad range of market participants to assess their market abuse surveillance arrangements.
"The framework for market integrity depends on the partnership between the FCA and market participants using data to detect suspicious trading," explained Mark Steward, the Executive Director of Enforcement and Market Oversight.
"By not fully implementing the new provisions when required, Citigroup Global Markets did not carry its full weight in this partnership, impacting market integrity and the overall detection of market abuse,” Steward added.
