Regulatory Enforcement: SEC, FCA And SFC

Regulatory Enforcement: SEC, FCA And SFC

Abusive market activity will continue to be a focus area for regulators globally, notes Kinetic Partners, after analyzing regulatory enforcement trends at the SEC, FCA and SFC.

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Kinetic Partners published a report titled “Global Enforcement Review- 2014” after analyzing the regulatory enforcement trends at the U.S. Securities and Exchange Commission (SEC), the UK Financial Conduct Authority (FCA) and the Securities & Futures Commission of Hong Kong (SFC). For this exercise, the team studied published data released by the SEC, FCA and SFC between 2008 and 2013.

Market abuse – a high focus area

The Kinetic Partners’ report highlights that market abuse and market conduct issues have been a focus for each of the three regulators. The report points out that the regulators share this common priority area, with increasing cooperation between jurisdictions.

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As elucidated in the following exhibit, market abuse accounted for a greater share of the total value of fines to individuals than any other category in both the UK and Hong Kong:

The report highlights that in the U.S., market abuse enforcement actions, which typically relate to insider trading, market manipulation and financial fraud/issuer disclosure, accounted for 162 actions taken by the SEC in fiscal year 2013.

As can be deduced from the following graph, in 2013 in Hong Kong, market abuse was the leading cause of enforcement action. In particular, investigations relating to market manipulation increased more than any other category besides corporate misgovernance:

SFC investigations Market Abuse

Fluctuating investigative activity

The Kinetic Partners’ report points out that in recent years, investigative activity has fluctuated across the various jurisdictions.

Investigative activity Market Abuse

For instance, in the U.S., while the number of new investigations opened has remained relatively consistent over the last five fiscal years, the SEC saw an increase of over 65% in the number of investigations closed since 2009.

Moreover, relative to the number of enforcements, the average value of penalties is rising substantially in both the U.S. and the UK. As set forth in the following picture, penalties imposed by the FCA and SEC have noticeably increased since April 1, 2008:

Penalties Market Abuse

Enhanced resources

The Kinetic Partners’ research highlights that budgets and staffing levels at regulatory agencies have grown substantially in the last seven years, with a focus on increased surveillance. As captured in the following diagram, from 2006 to 2013, the SEC, FCA and SFC have enhanced the number of employees by roughly 22%, 53% and 51%:

Enhanced resources Market Abuse

The report concludes that considering the dynamic nature of the regulatory environment, it is imperative that firms adjust and adapt to regulatory changes as the market evolves or face not only penalties, but also the possibility of substantial business losses in the long run.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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