Unveiling the Threat: FCA Warns of Organised Crime Gangs Infiltrating Equity Markets

The Financial Conduct Authority (FCA) of Britain has issued a stern warning regarding the escalating presence of Organised Crime Gangs (OCGs) infiltrating the equity markets, shedding light on their intricate involvement in suspicious trading activities. According to the FCA's comprehensive assessment, a significant proportion of the observed suspicious trading activities in equity markets can be directly attributed to the activities of OCG members, particularly in products intricately linked to both UK and internationally listed equities.

Diving deeper into the labyrinthine workings of OCGs within the equity markets, the FCA has elucidated several key characteristics that underscore the sophistication and depth of their activities. Among these, discernible patterns of trading preceding merger and acquisition (M&A) announcements stand out, hinting at potential insider knowledge being exploited for illicit gains. Additionally, the proactive efforts by OCGs to recruit sources of inside information, coupled with their adept use of intermediaries to broker insider information, further exacerbate the opacity surrounding their nefarious activities. Moreover, the utilization of umbrella accounts at overseas broking firms, which afford anonymity to account holders, poses significant challenges for regulatory oversight and detection.

Adding layers to the complexity, the FCA has underscored instances where OCGs manipulate media outlets by disseminating both authentic and fabricated information regarding mergers and acquisitions to major financial news outlets. This calculated manipulation aims to exploit ensuing price movements in the equity markets for nefarious gains, thereby perpetuating market abuse and undermining investor confidence. The FCA has unequivocally emphasized the grave implications of such premeditated market abuse by OCGs, warning of its deleterious impact on the integrity of the market ecosystem.

In response to these emerging risks, the FCA has delineated a myriad of red flags that executing firms must remain vigilant for. These include clients consistently generating Suspicious Transaction and Order Reports (STORs), trading activities occurring in the lead-up to official M&A announcements, or engaging in coordinated trading in the same security. Additionally, advisory firms have been urged to exercise heightened vigilance, particularly concerning staff members with access to inside information who may be targeted by OCGs for information disclosure.

To effectively mitigate these burgeoning risks, firms are strongly encouraged to adopt proactive measures. This entails robust communication of a zero-tolerance stance on market abuse to clients, meticulous scrutiny of overseas broking firms for evidence of robust surveillance arrangements, and treating trades preceding media reports of M&A activity with heightened scrutiny. Furthermore, advisory firms have been advised to educate staff on the perils of disclosing inside information on social media platforms and consider limiting the visibility of staff engaged in M&A advisory roles on these platforms to thwart potential recruitment efforts by OCGs.

Reiterating its steadfast commitment to upholding market integrity, the FCA has underscored its robust enforcement capabilities, wielding a diverse arsenal of enforcement tools to ensure compliance with regulatory obligations. Legal ramifications under the UK's Serious Crime Act 2015 and the Criminal Justice Act 1993 await OCGs found engaging in criminal activities, including insider dealing, further underscoring the gravity of the situation.

In conclusion, the FCA's cautionary advisory serves as an urgent call to action in light of the evolving threat posed by OCGs in the equity markets. Firms are implored to remain ever-vigilant and proactive in implementing stringent measures to counter the risks associated with OCG involvement in insider dealing and market abuse, thereby safeguarding market integrity and investor confidence.

By fLEXI tEAM