ADVERTISEMENT

Suspicious U.K. Trading Alerts Plunge as Dealers Work From Home

Suspicious U.K. Trading Alerts Plunge as Dealers Work From Home

London’s lockdown led to a plunge in tips to Britain’s markets watchdog.

With traders working from home, reports of suspicious transactions and possible abuse fell in April to their lowest level since current regulations took effect in 2016, according to data obtained by Bloomberg News through a public-records request.

“As everybody has been at home that creates challenges in this space, like the absence of recorded phone lines, different levels of connectivity, and then, obviously, there have been reductions in headcount with people being sick and isolating,” said James Siswick, London-based partner at consultancy Guidehouse, who specializes in compliance with financial regulations. “That may have weakened the controls.”

The Financial Conduct Authority, which uses reporting from firms and trading venues to police equity, fixed-income and commodity markets, received 215 reports in April. In some months over the years, the number exceeded 600.

The number of suspicious transactions and orders reports, or STORs, in March and May, was also among the lowest levels in the four-year period, the data show.

Suspicious U.K. Trading Alerts Plunge as Dealers Work From Home

In a statement, the FCA said the number varies depending on market conditions.

“There may be several reasons for the decrease, including firms taking more robust steps to tackle financial-crime risks and the impact of our associated supervisory activities, including communications on this issue,” the FCA said.

In the immediate aftermath of the outbreak in Europe in February and March, the FCA and regulators around the world raced to give the financial industry relief to help firms adjust to having almost all their staff working from home. The regulator asked firms to continue trying to tape employees’ calls with clients, but said if they’re unable to they should tell the FCA and come up with a plan to fix the problem.

Big banks and brokerages typically operate automated systems to identify questionable trades, systems that can be triggered by odd movements in a security. After an alert, a firm’s compliance staffer often follows up to investigate before then possibly reporting the incident to the FCA. Firms may also report suspicious trades in the wider market to the regulator.

With the surge in trading volume and volatility across markets in March and April, the automated systems produced a spike in alerts, according to consultants working on regulatory compliance for banks, brokers and investment managers. Investigating and deciding which to forward to the FCA could have been more difficult.

“There could be more chaff and less wheat,” said Nick Bayley, managing director within Duff & Phelps’ regulation practice. It’s also possible, Bayley said, that staff isn’t raising as many concerns. “It may be that a single trader sitting at home would be much less likely to escalate his concerns.”

©2020 Bloomberg L.P.