MAR – FCA Visits

Now that the new Market Abuse Regulation (MAR) has been implemented, FCA are getting out and about to see how firms are complying.

Their visits are focussing on the Suspicious Transaction and Order Reporting (STOR) regime, looking at firms’ market surveillance procedures.

Whilst FCA are at pains to point out that these are “largely educational” visits, they are still supervisory visits, with the full range of FCA’s supervisory tool kit available to them if they don’t like what they see.

If you’re chosen for one of these visits, FCA will ask you for the following:

• a Market Abuse monitoring organisation chart, showing who does what in relation to monitoring (such charts are key to showing management responsibility and oversight – whatever the subject matter);
• your monitoring policies and procedures;
• details of the last three notifications of suspicion you received from the front office (or non-compliance staff) where you decided not to submit a report to the FCA;
• details the last five instances of potential market abuse identified by your compliance-based monitoring systems where you decided not to submit a report to the FCA.

In these cases, more is more, and the greater the volume of material you’re able to provide to the FCA team, the better. In our view, the key lies in the last two items of the above list.

The fact that you’re able to show this information – especially from your front office team – shows that your firm is alive to the risks of market abuse, in all areas.

But don’t panic if you’re not in the best position here. Whilst FCA should provide some feedback at the end of the session as well as in a follow up letter, this is generally, in the case of new regulations, no worse than a “yellow card”.

Expect FCA to issue further guidance to regulated firms in Q1 2017.

ICAAP

All BIPRU and IFPRU firms would be well-advised to review the EBA’s December 2015 Consultation Paper on ICAAP.

This was due to be implemented in the UK in June 2016, and FCA, ever the enthusiast, announced in the “Regulatory Roundup” of December last year that it would be implementing EBA’s parallel paper “Draft Guidelines on stress testing and supervisory stress testing” from January 2106 onwards.

As FCA’s scope grows ever larger and the financial stability of firms remains the focus of attention, it is increasingly likely that firms will be supervised through the ICAAP process rather than on a conduct basis. The EBA Guidelines set out what EU Regulators should look at when reviewing firms’ ICAAP / ILAAP, so it’s important that firms understand what FCA is looking for in their ICAAP.

Although the EBA document says throughout that it’s “not a pro-forma”, our understanding is that FCA will be using it as that. Clearly it will be important for firms to conform as closely as is practically possible to the EBA headings in order to avoid an immediate knock-back in the event that their ICAAP is called in.

The EBA paper requires firms to prepare, amongst other things, an overarching document (known as a “Reader’s Manual”) which provides “an overview of the documents and their status (new, unchanged, changed with minor edits, etc.), an overview of where the information items specified in these Guideline can be found…”. Also required is “general information about ICAAP and ILAAP frameworks, business model and strategy, as well as governance…”.

Fortunately, the EBA paper makes much of the importance of proportionality and the appropriate level of detail given the size of the reporting institution.

But don’t think that ICAAP begins and ends with the document. As FCA pointed out in the December Regulatory Roundup, “the ICAAP is the firm’s risk management process, not a document.” Thus the ICAAP document must be a representation of actual processes and procedures that are taking place on an ongoing basis at the firm.