In its Market Watch 82, the UK Financial Conduct Authority (FCA) highlights increasing concerns around unauthorised trading activity, with particular attention on trading by individuals outside their approved roles, including:
- Front-office staff executing trades without proper authorisation,
- Traders placing orders on behalf of others without suitable oversight,
- Instances where personal account dealing was conducted outside firm policy.
The FCA warns that firms may underestimate the risks of unauthorised or ‘shadow’ trading. It also cites cases where weak surveillance controls, inadequate order flow monitoring, and failure to reconcile front-office activity with back-office oversight led to serious misconduct going undetected.
Key Regulatory Expectations:
The FCA expects firms to:
- Implement robust surveillance over all trading activity, regardless of whether the instrument is listed or OTC;
- Review access rights and segregate duties appropriately.
- Ensure comprehensive record-keeping, including for voice and electronic communications.
- Use automated alerts and exception monitoring to flag unusual patterns.
- Apply suitable controls over personal account dealing (PAD) and front-office discretion.
Why It Matters for Compliance and Reporting Firms:
Although the FCA’s message is focused on market abuse prevention, its implications extend into post-trade reporting and controls. Failures in authorisation oversight or PAD breaches may:
- Distort transaction reporting (MiFIR Article 26),
- Compromise client order handling and best execution records, or
- Impact audit trails and reconciliations used for regulatory submissions.
Firms engaged in trade reporting or outsourced compliance (e.g., Point Nine clients) should ensure front-to-back consistency in data capture, role authorisation, and system entitlements, particularly for manual uploads, delegated users, or files submitted outside core trading infrastructure.
