FCA pushing firms to be more intrusive when trading for ‘obfuscated overseas aggregated accounts’

Market Watch 80 highlights the potential risks associated with trading for overseas clients who operate aggregated accounts with unknown ultimate beneficial owners (UBOs). While these accounts offer administrative advantages, they can be used to conceal suspicious trading activity and facilitate market abuse.

The Financial Conduct Authority (FCA) has observed an increase in such activity, particularly in leveraged equity products, and particularly in firms overseas where the regulatory approach to market abuse may not be equivalent to that of the FCA. They have identified instances where FCA authorised firms unknowingly executed trades for individual UBOs who had previously had their own trading accounts terminated due to suspected market abuse.

To mitigate these risks, the FCA recommends firms take extra precautions when onboarding and dealing with ‘obfuscated overseas aggregated accounts’ (OOAAs). This includes modifying risk frameworks, requiring additional information from OOAAs, and applying robust measures to terminate relationships if necessary.

Whilst the FCA acknowledges it is harder to detect market abuse when the identity of the underlying client is not known, the regulator recommends and encourages firms to be more intrusive with their clients in these situations.

Simon Appleton commented:

“Regulated Investment Exchanges and operators of trading venues have historically questioned the market abuse related controls of member firms. Although the commercial nature of the relationship between firms and their clients is different to that between operators and members of trading venues, the suggestion here is that firms need to be more on the front foot with their clients and be more intrusive in a similar manner to the approach taken by exchanges and their members.”

Given that it is the responsibility of all investment firms in the execution chain to have effective market abuse related systems and controls in place, these steps are a way of protecting the firm from being used to facilitate insider dealing or market manipulation.

Additional Resources:

Read Market Watch 80 in full on the FCA’s website..

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