Release Date: 29th April 2018
To access the original FCA document, click here.
Summary
The Financial Conduct Authority (FCA) has issued a Decision Notice regarding Linear Investments Limited, imposing a fine of £409,300 for failing to organise and control its affairs responsibly to detect and report potential market abuse. This failure occurred from 14 January 2013 to 9 August 2015. Linear has accepted the facts and liability but has contested the penalty, referring it to the Upper Tribunal.
Reasons for the Fine:
- Inadequate Monitoring: Linear had limited manual oversight of trading conducted through its Direct Market Access (DMA), which proved insufficient when trading volumes increased. Until November 2014, Linear erroneously relied on post-trade surveillance by brokers through which it executed transactions.
- Delayed Implementation of Surveillance System: Despite recognising the need for its own post-trade surveillance system in November 2014, Linear did not have effective systems in place until 10 August 2015.
- Risk of Market Abuse: Linear, as a broker, faced inherent risks of clients committing market abuse. The firm did not adequately appreciate the necessity of independent surveillance based on its information and perspective.
Key Takeaways for Firms:
- Implement Robust Surveillance Systems: Firms must have their own effective post-trade surveillance systems to detect and manage market abuse risks.
- Timely Response to Identified Needs: Upon recognising deficiencies, firms should promptly take corrective actions to implement necessary controls and systems.
- Independent Monitoring: Relying solely on third-party surveillance is insufficient; firms need to undertake independent monitoring tailored to their business models.
- Compliance with Regulatory Expectations: Firms must ensure they can identify and manage market abuse risks at all times and submit Suspicious Transaction Reports (STRs) and Suspicious Transaction and Order Reports (STORs) to the FCA.
Conclusion
The FCA’s fine of £409,300 on Linear Investments Limited underscores the critical importance of robust internal controls and timely implementation of surveillance systems to detect and manage potential market abuse. Firms must ensure compliance with regulatory expectations to maintain market integrity and protect consumers.
Back to the Dear CEO letter archives.