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Enhancing Wholesale Compliance Strategies: Fraud Risk & Market Abuse

Fraud Risk & Market Abuse: Mastering the FCA Business Plan 2024-2025fraud risk market abuse

The Financial Conduct Authority (FCA) Business Plan for 2024-2025 sets forth a blueprint vital for compliance officers within the wholesale financial sector. This article provides an in-depth analysis and strategic guidance to help firms not only meet but exceed the regulatory expectations laid out by the FCA. Key areas of focus include financial fraud, market abuse, EMIR reporting, and operational resilience—each requiring rigorous assessment and proactive management.

Financial Fraud Risk Assessment: A Strategic Approach

In its relentless pursuit to clamp down on financial crime, the FCA has emphasised the necessity for firms to enhance their fraud risk assessments. Unlike generic assessments, a nuanced, target-focused approach is required. Firms must categorise potential fraud risks by identifying whether the firm itself, its customers, or third parties could be affected. Specific activities, such as false accounting or unauthorised trading, should be evaluated for their fraud risk potential, enabling firms to tailor their controls effectively.

Implementing Robust Controls

After identifying potential fraud risks, firms must develop and implement robust controls tailored to the specific needs identified. This involves:

– Establishing clear procedures and responsibilities for fraud prevention.
– Utilising technology to monitor and detect fraudulent activities effectively.
– Training employees regularly on fraud awareness and prevention strategies.

Staying Ahead of Market Abuse Regulations

With the FCA’s increased focus on market abuse, firms need to ensure that their systems and controls are robust and capable of adapting to new challenges. This involves moving beyond traditional manual surveillance methods and embracing advanced analytical capabilities, such as network analysis and cross-asset class visualisations.

Enhancing Surveillance Systems

To maintain compliance and effectively manage market abuse risks, firms should:

– Assess the effectiveness of current trade surveillance systems.
– Consider the adequacy of system calibrations to reflect current trading patterns and client activities.
– Explore advanced technological solutions to enhance the detection and prevention of market abuse.

Optimizing EMIR Reporting Frameworks

As the UK prepares to implement new derivatives reporting rules under UK EMIR by September 2024, it is crucial for firms to have a robust reporting framework in place. This framework must be capable of handling an increased number of data fields and ensuring data accuracy and quality.

Conducting Comprehensive Reporting Health Checks

To prepare for the new requirements, firms should:

– Review their current reporting frameworks to ensure they meet the upcoming standards.
– Identify all trading scenarios applicable to their operations and establish correct reporting protocols for each.
– Perform extensive testing to identify and rectify potential issues before implementation.

Bolstering Operational Resilience

In response to elevated cyber and operational risks, the FCA has outlined expectations for firms to enhance their resilience by March 2025. This includes the ability to continue vital business services during disruptions without causing intolerable harm to clients or markets.

Steps to Strengthen Operational Resilience

Firms should take the following steps to bolster their operational resilience:

– Identify and map critical business processes.
– Set realistic impact tolerances and develop strategies to manage risks within these tolerances.
– Conduct regular stress tests and scenario analyses to evaluate the effectiveness of their resilience strategies.
– Enhance documentation and justification of business continuity and third-party management frameworks.

Conclusion

Adhering to the FCA’s latest business plan requires a proactive and strategic approach from compliance teams. By assessing risks accurately, enhancing system capabilities, and preparing for regulatory changes with a forward-looking mindset, firms can ensure that their compliance practices not only meet but exceed the regulatory standards. Our expertise in compliance consulting can help firms navigate these complex requirements with confidence and precision.

 

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