In a recent market watch report, the Financial Conduct Authority (FCA) highlighted a concerning trend – organised crime groups (OCGs) infiltrating equity markets through suspicious trading activities.
The report underscores the importance for firms to remain vigilant and take proactive measures to mitigate the risks associated with facilitating such illicit activities.
The report reveals that suspicious trading activities by OCG members, particularly in products linked to UK and internationally listed equities, constitute a significant portion of observed suspicious trading volumes in equity markets.
Defined by the Serious Crime Act 2015, OCGs are groups comprising three or more individuals collaborating to carry out criminal activities.
Characteristics of OCG activity in equity spread bets and Contract for Difference trading include a pattern of trading before merger and acquisition (M&A) announcements, recruitment of sources of inside information, and the utilisation of intermediaries to broker inside information.
Additionally, OCGs exploit overseas broking firms with lenient standards and enlist facilitators, including employees of authorised firms, to open accounts with such entities.
The report stresses the importance of upholding market integrity and highlights the risks posed by groups engaging in premeditated market abuse.
Firms are urged to remain vigilant and acquaint themselves with obligations to counter the risk of being exploited to further financial crime under regulatory frameworks.
Key indicators that may suggest a firm is being used to facilitate insider dealing by OCGs include clients consistently generating Suspicious Transaction and Order Reports, trading activities preceding M&A announcements, and clients trading in the same security for the first time.
To shield against OCG exploitation, executing firms are advised to adopt measures such as communicating a zero-tolerance approach to market abuse to all clients, requesting documentary evidence of adequate surveillance arrangements from overseas broking firms, and treating trades preceding media reports of M&A as potentially suspicious.
Advisory firms are encouraged to caution staff against disclosing inside information to OCGs and consider limiting references to staff members with access to such information on social media profiles.