In March 2019, the Central Bank issued an industry communication, setting out their expectations for the identification, mitigation and management of market conduct risk by regulated financial service providers (‘FSPs’) engaging or applying to engage in wholesale market activity.
In the ensuing months, the Central Bank employed a range of supervisory tools to assess wholesale market conduct risk, including a thematic review of regulated entities’ effectiveness in identifying and assessing such risk. As part of this exercise, the Central Bank engaged directly with 24 regulated entities, conducted on-site inspections of 10 regulated entities and visited branches of Irish entities in other jurisdictions. Central Bank supervisors conducted over 150 interviews of directors and CEOs, risk and compliance officers and frontline staff and the Central Bank continues to engage with relevant entities in relation to identified deficiencies.
As a result of this supervisory engagement the Central Bank issued a ‘Dear CEO’ letter on 21 January 2020. The Central Bank is asking firms to:
In light of the Central Bank’s findings, they have expressed an expectation to market participants to place a renewed focus on ensuring they have in place frameworks that effectively protect the best interests of investors and they operate in a fair, orderly and transparent manner.
In addition, the Central Bank also highlighted that it expects to devote considerable supervisory resource in the year ahead to examining the compliance by regulated entities and issuers with their obligations to recognise and manage inside information and, in the case of relevant regulated entities, to identify suspicious transactions and orders.
The Central Bank have articulated that the central theme that underpinned their findings detailed in the Appendix to the Dear CEO letter was that FSPs may not have been adequately identifying the market conduct risk to which they are exposed, and so cannot appropriately mitigate and manage the risk.
Such a failure leads to or, where relevant, arises from the following:
1. Inadequate MCR frameworks
Regulated entities should:
2. Inadequate governance of MCR:
3. Failure to identify the risk of market abuse.