As regulators fail to curb insider dealing, what are your responsibilities? In this blog post, we share some reflections on how you might address market abuse training within your organization.
Recent press coverage has focused on the fact that the Financial Conduct Authority (FCA) prosecuted just eight cases of insider trading in the past five years.
This is despite evidence that market abuse continues to be a problem in the financial sector. The Times cites various examples of share price changes ahead of either positive or negative news, such as profit warnings – as well as figures from the FCA which suggest abnormal share price movements ahead of takeovers are on the rise.
The Impact of Market Abuse
While 2017 may be looked back on as the year of ‘fake news’ in the political sphere, there has also been a rising sense of mistrust in big corporations, most recently in the tech sector. Once seen as the ‘big friendly giants’ of the corporate world, tech startups such as Uber have seen public opinion turn against them as some of their more dubious working practices have been exposed.
But while tech companies face a backlash for the first time, a general sense of distrust in the financial services sector has become deeply embedded in public opinion since the 2008 financial crisis.
Investigations like this only serve to reinforce the perception that the financial services sector hasn’t learnt from past mistakes and continues to operate as a self-serving entity. And as long as this opinion continues, it will damage the performance of the industry as a whole.
The problem with insider dealing is that it distorts markets and favors those with inside intelligence. As general investors see market insiders profit at their expense, they become unwilling to invest.
Why Is Market Abuse Still a Problem?
Since the financial crisis, regulations have become far stricter, with the FCA introducing the Market Abuse Regulation in 2016, which imposes strong penalties for those prosecuted for insider dealing.
There have also been some high-profile prosecutions, with the longest prison sentence so far handed out to Martyn Dodgson, a former senior investment banker who was found guilty of insider dealing offenses.
But as The Times suggests, it seems that more regulations and high-profile prosecutions are doing little to deter people from continuing to commit market abuse. And recent news that prosecutions are actually few and far between does little to serve as a warning to those financial professionals who are tempted to make the wrong decisions.
Market Abuse Training: It’s Your Responsibility
The threat of severe repercussions doesn’t seem to be changing employee behavior. Equally, we know that most inside dealing happens outside the office, in pubs or snatched conversations via untraceable phones. That means implementing stricter internal controls to track what your employees do on work systems is unlikely to have much effect either.
Ultimately, you can’t control the personal actions of your employees. So what is your role as an organization in reducing market abuse?
It may seem like ensuring you provide knowledge and guidance on regulations is all that you can do. But when market abuse has the potential to destroy the reputation of your firm and impact market performance as a whole, isn’t it time to take a different approach?
While you cannot control what your employees do, you can take responsibility to provide them with the support and context they need to make the right decisions.
Market Abuse Training: The Right Approach Is Key to Getting It Right
Employees in the financial services aren’t inherently ‘bad apples’ but they are far more likely to be tempted to make bad decisions because of their line of work. When presented with the opportunity to create vast personal wealth, or even support family members with that wealth, it can be challenging for them stay on the ‘straight and narrow’.
As an organization, you have a responsibility to engage with your employees to discuss the tempting opportunities that might come across their path. That means creating an open culture of dialogue where you can discuss ethical standards and moral compasses to explore how people rationalize their decisions.
This kind of support and context enables people to consider their actions in a different light. Alongside this, demonstrating the wider consequences of poor decisions is a key tool in lasting behavior change.
A considered approach to market abuse training should therefore involve a holistic blended learning approach. This should target behavior change with short, knowledge-based elearning, but most importantly, facilitated with discussion sessions and immersive, scenario-based experiences.