Yudu - Journey to the FCA

BUILDING OUR UNDERSTANDING OF THE MARKETS

Our regulatory approach to investment markets

Our approach in this broad area of regulation will be characterised by:

• Seeking to influence EU and global policy development (for example, in the European Securities and Markets Authority, in the International Organisation of Securities Commissions and the Financial Stability Board).

• Adopting higher standards than minimum EU requirements where appropriate, for example, in relation to maintaining the quality of the UK primary markets.

• Delivering robust and tailored specialist supervision in a number of areas(18) by taking advantage of new supervisory and disciplinary powers available to us.

• Using policy expertise and supervisory assistance for our re-invigorated and more systematic focus on wholesale conduct issues.

• Supporting the pursuit of the credible deterrence enforcement strategy alongside educational work in all areas of Markets Division’s regulatory responsibilities.

• Enhancing our use of regulatory data, such as transaction reports, for surveillance and risk identification.

• Collaborating internally and with other regulators to identify and mitigate risks.

The impact of regulatory action on market abuse

Measuring how often insider trading and other forms of market abuse take place, and understanding how the action we take affects the level of abuse, will help us assess and improve our performance.

The Market Cleanliness Statistic was developed to gauge insider trading before important corporate announcements. In 2010 and 2011 there was a marked fall in abnormal pre- announcement price movements from around 30% over the six previous years to around 20% (meaning that 20% of takeovers had abnormal pre-announcement price movements – the figure is expected to be around 10% if no insider trading takes place). This drop coincides with the FSA’s greater emphasis on pursuing market abuse enforcement action, as well as a change in the supervisory approach and more education work with firms.

We will build on this with our unique financial transaction database, known as ZEN. We will use ZEN to develop a range of rigorous and reliable statistics that reflect the level of suspicious trading activity in all of the UK’s diverse and complex financial markets. This will underline our aim to clamp down on market abuse and support our enforcement strategy. It will also allow us to measure our performance and continuously improve our market abuse systems.

18 Specialist supervision areas: client money and assets; market infrastructures; regulated covered bonds; sponsors, suspicious transaction reporting regime; transaction reporting regime.

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Foreword by John Griffith-Jones

Introduction by Martin Wheatley: Our vision for the Financial Conduct Authority

Chapter 1: The creation of the FCA: Spotlight on some of our new powers

Chapter 2: Protecting the perimeter

Chapter 3: Ensuring firms continue to meet our standards

Chapter 4: Taking action against firms that do not meet our standards

Chapter 5: Building our understanding of the markets

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Chapter 6: Maintaining effective relationships

Chapter 7: Accountability, transparency and measuring our success

Annex A: Specific questions for consultation

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