Julia Hogget’s (FCA, Director of Market Oversight) recent speech “Market Abuse in a Time of Coronavirus”, is a timely warning for firms to get their internal controls in order to address current risks in this area.

Since the beginning of the COVID-19 crisis, the FCA has expressed concern as to management of inside information and effective compliance monitoring when numerous staff are working from home, and away from the controls that would usually operate in an office environment.

However, six months on from the country entering lockdown and with no end to the crisis in sight, the FCA now expects that “office and working from home arrangements should be equivalent”.

The speech is well worth reading in full, but these are some of our primary takeaways:

No tolerance for “regulatory arbitrage”

The FCA considers that firms have had sufficient time to ensure there is an equivalent level of control for those working from home as in the office; an ambitious position that may seem unrealistic to firms who are still getting to grips with some of the challenges of remote working and employee use of personal devices.

While scenarios emerged early in the pandemic where the usual levels of recording and surveillance were not possible, our experience suggests firms have now overcome these challenges. Our expectation is that going forward, office and working from home arrangements should be equivalent – this is not a market for information that we wish to see be arbitraged.

The FCA expects firms to have updated relevant policies, refreshed training and put in place rigorous oversight reflecting the new environment, and particularly emphasizes the risk of use of privately owned devices.  Policies should prevent the use of privately owned devices for activities where recording is not possible.

If firms are utilising new communication mechanisms, they need to ensure they have controls in place for the use of these mechanisms and that their use is approved by firm management.

Increased risk of insider personal account dealing:

The FCA is concerned that the combination of volatile markets, rapid generation of highly sensitive inside information and the remote working environment could lead to an increase in insider dealing and it remains “exceptionally” focused on this area.

We can see activity down to the individual account level. If you trade suspiciously and you receive a letter from us asking for your reasons for trading, it is because we are watching.

Firms must be careful to avoid against “tipping off” individuals under suspicion. Ms Hogget highlighted a recent case where a suspected insider trader fled the country following a confrontation from his employer after it had received an information request from the Authority;

Risk assessments

Firms must conduct risk assessments based on the actual risks they face - it is not sufficient to simply work through the behaviours set out in the recitals to MAR or utilise "out of the box" alerts from technology providers. Firms need to assure themselves that they have effective controls in place to mitigate current risks.

The FCA does not view the pandemic as giving rise to “new” market abuse risks, but instead changing the prevalence of certain types of risks, and the manner in which these risks manifest.

It is essential in changing times that firms identify the risks associated with the new environment in which we are all operating


In keeping with its emphasis on firm culture (for further discussion, see the Ropes & Gray Insights Lab), the FCA expects good culture within firms to assist in ensuring staff continue to meet required standards of behavior while working outside the office environment. Firms need to make sure they stay connected with staff, and reinforce their expectations, standards and firm values.

An important factor here is the role that good culture plays within firms. Compliance teams – indeed management and leaders throughout firms – should consider how they can reiterate, and reinforce their expectations. Staff should be in no doubt about the standards expected of them. And they should be in no doubt that these standards apply whether they are in the regular office, a disaster recovery site or at a makeshift workstation at home. Culture matters, and it matters most when the risks are highest.”

FCA approach

Ms. Hoggett’s speech does seem to signal a shift in the FCA’s approach. The FCA is no longer treating the crisis as a short term situation - and its expectations of firms reflect this. The speech discussed above makes it clear that the FCA now expects firms to have overcome the immediate compliance challenges and to have adjusted their controls accordingly. Firms must adapt to the current circumstances and continue to evolve their risk and control framework going forward. As Ms. Hoggett said:

 “The regulatory obligations have not changed, the “how” may be changing, but the “what” remains the same”.

Ropes & Gray will be hosting a seminar on Market Abuse on 19 November. The seminar will focus on why market abuse matters, the heightened risk of market abuse arising out of the COVID-19 pandemic, current enforcement trends and our practical advice and real-time analysis of the changing landscape across the United States and Europe.

If you would like to attend please contact: Courtney.mccarthy@ropesgray.com