Regulator transparency drive leads to 250% rise in reports of "suspicious" financial transactions

Monica Gogna of Pinsent Masons, the law firm behind Out-Law.com, was commenting as data obtained from the Financial Conduct Authority (FCA) showed a 250% increase in reports over the past five years. Since 2005, firms have been required by the Market Abuse Directive (MAD) to report suspicious transactions to the regulator for review, while banks and brokers must also report every transaction in a regulated security to the FCA each day.

"The FCA's market monitoring division, led by Lord Spens, has stepped up the pressure on regulated firms to share information about both ordinary trades and those that look suspicious," said Gogna. "These latest figures show that the regulator's efforts to deter wrongdoing are starting to bear fruit – no doubt the threat of multi-million pound fines is putting pressure on regulated firms to 'get their house in order' as fines and revelations such as these undermine trust and confidence in UK financial markets."

"City enforcers have homed in on market abuse by financial services professionals and have made it quite clear that non-compliance and criminal behaviour won't be tolerated. The casual sharing of confidential information that was once rife in London is now riskier than ever before. The regulator's new focus on enforcement and personal accountability has made people think twice about turning a blind eye to suspicious transactions and the fear of fines, criminal prosecutions and bans now runs deep," she said.

In its final report on the professional culture and standards of the UK banking sector, the Government-commissioned Parliamentary Commission on Banking Standards (PCBS) recommended that senior figures in regulated firms be made personally responsible for "failings on their watch". Its approach has been endorsed by the Government, which will include any necessary legislative changes in the Banking Reform Bill.

The PCBS has proposed replacing the existing Approved Persons regime with a two-tier Senior Persons Regime and Licensing Regime, under which the main responsibilities within firms would be assigned to named 'senior persons' who would be held accountable for any breaches. The Approved Persons regime extends to all firms regulated by the FCA or Prudential Regulation Authority (PRA), not just banks. Approved persons perform controlled functions on behalf of authorised firms, and must be approved by the relevant regulator.

According to figures obtained from the FCA, the number of suspicious transaction reports received by the FCA increased to 1,199, or around 100 per month, in 2012/13; up from 339, or 28 per month, in 2008/09. The most frequently reported type of abuse in the last financial year was 'misuse of information'; reports of which rose by 300% over the past five years. Similarly, reports of 'distortion and manipulation' have almost doubled in the same time period.

The FCA classes a transaction as 'suspicious' if there are reasonable grounds to suspect it might amount to market abuse, including insider dealing and market manipulation. The FCA and its predecessor, the Financial Services Authority (FSA), have secured 23 convictions for market abuse or insider dealing since 2009 and a further seven people are currently awaiting trial. Insider dealing is a criminal offence, punishable by a fine or up to seven years in prison.