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In some cases, firms conduct a combined assessment (an enterprise risk assessment), which considers market abuse along with other types of risk, such as credit and AML. Some do so across the firm as a whole, while others look at the risk by desk without assessing different types of market abuse. Some firms consider market abuse at a high level, as a single risk. While we continue to see good examples of work in this area, we have observed some firms that are less effective at identifying the market abuse risks to which they are exposed. In our experience, the most effective assessments involve consideration of the different types of market abuse and how they apply across different areas of the business and asset classes. Where firms do undertake such an assessment, we have observed a range of methodologies and ways of presenting the end result. We have previously discussed the benefits of a comprehensive, accurate and up-to-date market abuse risk assessment and how it can help ensure effective surveillance coverage. While it is for firms to assess what is appropriate and proportionate in the context of their specific business, some of the observations in this Market Watch may be useful.
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A firm must have effective arrangements, systems and procedures in place to detect and report suspicious activity, which should be appropriate and proportionate to the scale, size and nature of their business activities. Identifying and reporting instances of potential market abuse is required under the Market Abuse Regulation (‘UK MAR’). We consider it is now helpful to discuss some of the recurrent themes and observations from the responses to the questionnaires and our subsequent follow-up work. As well as visits, our supervisory work involves other types of engagement, one of which is the periodic sending of a STOR questionnaire, which we have done several times since 2014. In previous Market Watch issues ( 48, 50 and 56), we discussed our observations from our ongoing programme of STR/STOR supervisory visits to firms. Lastly, we discuss investigations into potential market abuse by firms’ employees and when firms should submit a STOR. We also discuss some observations about obligations involving policies and procedures to counter the risk a firm is used to further financial crime, specifically criminal market abuse, as per SYSC 6.1.1R. While the topics covered apply to all firms subject to surveillance requirements under Article 16(2) of UK MAR, they may also be particularly relevant for firms with less complex business models. In this Market Watch, we discuss firms’ arrangements for market abuse surveillance, drawing on our observations from engaging with small and medium-sized firms.