Regulators’ focus on market abuse means firms must invest in policing the market

Market abuse is expected to be one of the primary focuses of regulators in the coming year, according to a recent survey of nearly 300 finance professionals worldwide conducted by Kinetic Partners, a Division of Duff & Phelps, the premier global valuation and corporate finance advisor. Regarding what respondents believed the priority for regulators would be in 2015, twice as many senior executives cited market abuse as those who named tax-related investigations, the next most commonly cited issue.

The results of the survey, analysed in Kinetic Partners’ annual Global Regulatory Outlook report, show 37% of those surveyed (and 44% of C-suite executives) named market abuse as a key issue for regulators, ahead of tax-related issues which were mentioned by 24% of respondents (and 22% of C-suite respondents).

The breakdown of responses by geography indicate that the industry envisions market abuse to be a key issue globally, with 52% in the US and 35% in Hong Kong anticipating that it will be a central area of regulatory focus.

Simon Appleton, a director at Kinetic Partners in London, explains:

“Financial services professionals are right to expect regulators to continue to clamp down hard on market abuse, such as insider trading, market manipulation and financial fraud. These already account for many of the fines in key jurisdictions, and the past year has continued to see regulators impose large fines on firms.”

Kinetic Partners’ survey also found that technology was core to firms’ responses. More than one in five (22%) said that their technology investment would concentrate on market and transaction monitoring systems in 2015, putting it behind only regulatory reporting (27%) and AML/knowing your customer systems (23%).

Nick Matthews, Managing Director in the Duff & Phelps Dispute and Legal Management Consulting practice, comments:

“More than ever, regulators are expecting not just compliance from firms but for them to play an active role in enforcement. The best defense firms have against punitive measures is to identify abuse and report it before it comes to the regulator’s attention. Even banks with sophisticated market monitoring systems in place need to ensure their investment in technology not only meets regulators’ expectations, but also keeps pace with developments in the industry.”

While issues such as bribery seem to be attracting less regulatory attention (with only five percent of survey respondents expecting regulators to prioritise it), others, such as high frequency trading (HFT), have risen rather rapidly up the agenda. HFT was fourth in the list of concerns regulators were expected to focus on, as noted by 17% of respondents overall (and 18% of senior executives), putting it ahead of AML.

Appleton concludes:

“Regulators are really only beginning to tackle HFT market abuse. The first enforcement action at the SEC was only in October 2014, but that trickle of cases is likely to increase fast. Regulators expect firms’ systems for preventing disorderly markets and identifying market abuse to keep up with changes in the marketplace.”

About Kinetic Partners’ 2015 Global Regulatory Outlook report

Kinetic Partners surveyed 283 professionals globally, including 118 senior managers, across the banking, asset management and private funds sector, as well as the service providers who support them, for its Global Regulatory Outlook 2015 report. The full report is available from

http://www.kinetic-partners.com/global-regulatory-outlook-2015/