Citigroup Fined £12.6m, Compliance Staff Shortages, Fighting Financial Crime & More | Latest Financial News Roundup
28th September 2022 by Samuel Rossiter
The financial industry never stays quiet, and these last few weeks have been no different.
So what’s been happening in the industry lately?
From a massive £12.6 million fine for Citigroup Global Markets for failing to properly implement trade surveillance requirements, to changing FCA rules for Principal firms with a very tight 8th December 2022 deadline, here’s our latest industry news roundup…
1. FCA fines Citigroup’s international broker-dealer £12.6m for failures relating to the detection of market abuse
In a press release published last month, the FCA revealed that they have fined Citigroup Global Markets a massive £12.6 million for failing to properly implement the Market Abuse Regulation (MAR) trade surveillance requirements to detect insider trading and market abuse.
MAR was introduced in 2016 and is a significant piece of legislation that covers insider dealing, unlawful disclosure of inside information and market manipulation. Financial firms are required by Article 16(2) of MAR to ‘establish, and maintain effective arrangements, systems, and procedures to detect and report potential market abuse.’
However, Citigroup Global Markets failed to implement Article 16(2) after MAR took effect in 2016, and took an entire 18 months to properly identify and assess market abuse risks within its firm.
Mark Steward, Executive Director of Enforcement and Market Oversight, commented:
“The framework for market integrity depends on the partnership between the FCA and market participants using data to detect suspicious trading. By not fully implementing the new provisions when required, Citigroup Global Markets did not carry its full weight in this partnership, impacting market integrity and the overall detection of market abuse.”
Fingerprint’s take
With the rising use of personal devices and a wide range of communication channels at work (such as WhatsApp, Teams, Slack, etc.), it’s now more important than ever for financial firms to ensure that they are monitoring all activity to mitigate risk, and ensure regulatory compliance.
Although this fine applies to Citigroup Global Market’s failure to monitor market abuse activity over 2016 and 2017, we suspect that post-COVID in our remote and hybrid working world, there are many more firms who don’t have the appropriate systems and controls in place to monitor all of their communication channels and remote devices.
So, if you work for a directed regulated financial firm, do you have the proper systems and controls in place to monitor all activity for market abuse?
Or do you think you might need some help, compliance-wise, on the tech side of things?
2. Financial services firms face compliance staff shortages as regulatory pressure increases
A recent article from the Financial Reporter revealed that 74% of financial services firms expect to see an increase in regulatory activity within the next twelve months, but without an increase in staff members to handle the additional work.
In the UK, 65% of firms expect to see their compliance teams stay the same size despite an overwhelming majority of firms expecting regulatory activity and their workloads to increase next year.
And just why do firms think that their compliance teams won’t grow in line with their workload? As per usual, the issue lies with money, money, money.
67% of firms said they expect the cost of senior compliance officers to increase, whereas only 12% of firms said that they expect their budget to increase in the next year.
Susannah Hammond, Senior Regulatory Intelligence Expert at Thomson Reuters, said:
“Financial services firms face extremely high levels of regulatory activity yet headcount within compliance functions is expected to remain relatively flat. This means teams will be forced to pick up more work, putting them under considerable pressure.”
Fingerprint’s take
It’s no surprise that regulatory activity is expected to increase in the next year, as regulators across the world are taking a good look at firms and expecting them to have the appropriate controls and systems in place to remain compliant in a post-pandemic world.
In fact, they’ve already made big examples out of non-compliant firms, fining the five biggest US investment banks a total of $1 billion for failing to monitor their employees using unauthorised messaging apps.
But it’s also no surprise that compliance budgets are not expected to increase in the next year. Sadly, compliance teams are often the last department to see a budget increase. They’re usually thought of as ‘blockers to business’ and rule enforcers despite the important work they do in identifying illegal financial activity.
So… just what is the answer to an increase in compliance work, but no budget to hire more staff members?
Technology, technology, technology should be used to support these talented compliance professionals who are often asked to do more, with less.
No longer do financial firms need to hire more compliance staff to keep up with an increase in regulatory activity. The technology exists now to automatically scan through channels and systems to identify non-compliant activity, and automate a lot of the tedious work that many compliance professionals are still bogged down in.
Sound good to you? Then our Fingerprint Supervision platform (aka the technology in question) is definitely worth looking at…
3. Fighting financial crime – the force multiplier effect
In a speech made by Sarah Pritchard (Executive Director of Markets) at the Financial Crime Summit earlier this month, she highlighted the importance of fighting financial crime collectively as an industry and outlined her vision of a ‘force multiplier effect’ in tackling illegal activity.
Here’s an excerpt:
“Like the [COVID] virus, no one is unaffected by financial crime. We must respond systemically, in order to limit and defeat it.
Whether you work in one of the 50,000 firms regulated by the FCA in the UK or are a member of a professional body that we oversee – an effective defence is needed.
We aim for the force multiplier effect: professionals in firms scanning and being alert to red flags, using their human knowledge and instinct to interpret the clues from conversations and customer behaviour; technology identifying unusual patterns of activity; and information shared with regulators, and law enforcement.
We cannot do this job without each other, and collectively we can help keep the system healthy.”
Fingerprint’s take
Sarah is absolutely right. Compliance is not a single department within an organisation – it is a culture, and a culture that should be upheld by organisations across the industry, not just directly-regulated firms.
Yes, technology is important for identifying illegal activity, but what’s just as important is the effort and awareness of individuals across departments to look out for red flags and really push a compliance-led culture in their companies.
As Sarah mentions in her speech, this cost of living crisis will only pave the way for more scams “such as loan fee fraud, ghost broking, and false access to rebates from utility companies” as people get more desperate for schemes that will ‘save them money’. It is now so important to stay alert for illegal activity and prioritise compliance in your firm, because it is only as a collective that we can uphold the integrity of the UK financial market.
4. Principal Firms – Final chance to get your house in order before December
In a press release published in early August 2022, the FCA confirmed that it will enforce new rules for Principal firms to improve oversight over their Appointed Representatives. These rules will come into effect on 8 December 2022, and will likely have a huge impact on the operational set up and future of many Principal firms.
So, just how did we get here, what do these new rules mean for Principal firms, and how can they be implemented in time for the tight December deadline?
Find out in our latest opinion article, and discover what the solution is to the Principal Firm problem:
With many clients, each with their own channels and systems, just how do you monitor them all effectively for risk and compliance?
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So there you have it! We hope you enjoyed our September industry news roundup.
As always, keep an eye on our blog for more industry updates and opinion pieces.
And, whether you’re a Principal Firm or a directly-regulated business, if you ever need help supervising your communications on the compliance side of things, you know who to contact…
