The Financial Conduct Authority fined firms and individuals a total of £346 million ($571 million) for market abuse related breaches in 2013, new research from the global professional services firm Kinetic partners has revealed.

The Financial Conduct Authority fined firms and individuals a total of £346 million ($571 million) for market abuse related breaches in 2013, new research from the global professional services firm Kinetic Partners has revealed.

“There has been a growing awareness of how significantly market abuse impacts institutions and consumers alike. As such, the FCA’s focus has been centred on the detection and prosecution of market abuse including insider dealing, trading and market manipulation. The large fines imposed for market abuse and their potential impact on a firm’s reputation is a valuable tool for deterrence and a high priority on the regulator’s agenda,” said Monique Melis, global head of consulting at Kinetic Partners.

The research also found that market abuse was the second most cited offense among fines filed against either firms or individuals, numbering nine for the year, behind unfair treatment of customers, which accounted for ten fines.

However, despite fewer actions being taken against market abuse, such breaches accounted for a greater share of the sum total of fines than any other category of violation during that period. In total, the FCA handed down fines totalling £48 million for breaches related to unfair treatment of customers.

“The key lesson from the FCA’s focus on market abuse is that firms must have robust central monitoring functions and compliance systems in place to ensure that both the firm and its employees are operating with integrity. It is of paramount importance that firms are vigilant about their internal monitoring and control mechanisms in order to maintain market confidence and ensure that any trading activities in which they engage are proper and clean,” Melis said.

The figures come against a global backdrop of heavy fines (see here) imposed on banks and other financial institutions for offences ranging from benchmark-rigging to lax money laundering controls. The scale of some punishments, such as the $8.97 billion fine on BNP Paribas by the US government, has prompted diplomatic tensions between countries.

Landmark judgement

Last month, the FCA upheld a £450,000 fine on former JP Morgan senior banker Ian Hannam for market abuse, following a protracted court battle.

In May, the former global chairman of equity capital markets at JP Morgan, once dubbed the “king of mining”, lost his appeal to overturn the regulators initial findings and fine in 2012.

The regulator originally levied the fine against Hannam for improperly disclosing insider information. The case centred on two emails sent in September and October 2008 to Iraqi Kurdistan’s oil minister Ashti Hawrami on behalf of Heritage Oil, which the FCA alleged included inside information about a potential bid for the firm and details of oil exploration. Hannam resigned from his position at JP Morgan in 2012 to fight the allegations.

Following the verdict, Tracey McDermott, the FCA’s director of enforcement and financial crime, described the Tribunal’s decision as a “landmark judgement” that should leave market participants in no doubt that “casual and uncontrolled distribution of inside information is not acceptable in today’s markets”.

“Controlling the flow of inside information is a key way of preventing market abuse and we would urge all market participants to pay close attention to the judgment,” McDermott, the FCA’s director of enforcement and financial crime said at the time.

The types of conduct constituting market abuse are set out in the Financial Services and Markets Act 2000 and the Market Abuse Directive, which aim to reduce instances of market abuse and as a result protect the integrity of the financial markets and increase investor confidence.

The Market Abuse Directive came into force on 1 July 2005 and aims to fight cross-border market abuse by establishing a common approach among EU member states.

The types of behaviour the directive lists that can lead to market abuse include insider dealing, improper disclosure, misuse of information, manipulating transactions, manipulating devices, dissemination and distortion and misleading behaviour.

Clampdown

In July, the FCA released its first annual report since it replaced the Financial Services Authority last year. The watchdog revealed that it levied a total of £425 million in fines for the 2013-2014 financial year, up from £423.2 million a year ago. The regulator also posted a loss of £29.3 million, up £8.2 million from the previous financial year.

In the past year the FCA has significantly clamped down on financial services firms that break regulations and offer poor advice, imposing 46 penalties, five public censures and 26 prohibitions.

On 12 September 2013, the FCA fined AXA Wealth Services £1.8 million for failing to ensure it gave suitable investment advice to its customers, while in February the UK arm of US financial services giant State Street was hit with a penalty of £22.9 million ($37.7 million) for deliberately charging clients substantial mark-ups. Other firms that have been fined include Barclays, Santander, Aberdeen Asset Managers and Standard Bank.

“We have also taken action against firms and individuals operating a variety of unlawful schemes, such as boiler room frauds, land banking scams, and other ‘get rich quick’ investment schemes. This has included freezing assets, closing down unlawful schemes and pursuing civil and criminal action in appropriate cases,” the report said.