FMSB Targets Unauthorised Trading with New Good Practice Statement

The Financial Markets Standards Board (FMSB) has published a consultation paper in the form of a draft State of Good Practice (SGP) aiming to help the financial industry establish effective controls and oversight of unauthorised trading.

The paper lays out the issues around the practice, noting that at a high level the characteristics are similar across markets, and provides 13 Good Practice Statements. These seek to help firms establish a framework and perimeter for authorised trading, including making clear the consequences for unauthorised activity.

FMSB says the financial services industry has been investing heavily in the design and implementation of risk management frameworks to ensure that activities are conducted within authorised boundaries. This includes avoidance of incidents of unauthorised trading which are a potential source of significant financial loss and reputational damage at industry as well as firm level.

“Notwithstanding significant efforts, there is a continuing risk that novel or existing vulnerabilities could allow unauthorised trading to occur or remain undetected,” FMSB states.

It observes that active cross-jurisdictional regulatory engagement on unauthorised trading has been bilateral, with detailed feedback provided to individual firms, however it warns, “In the absence of comprehensive industry guidance or published expectations, baseline standards for unauthorised trading frameworks have not been advancing consistently across markets or jurisdictions.” 

Following on from its work on Front Office Supervision, FMSB convened a Working Group to develop an industry-wide framework to support firms in their efforts to prevent or mitigate the risk of unauthorised trading activity in wholesale markets. The SGP reflects input from across FMSB Members, with both buy-side and sell-side firms contributing. It also benefits from contributions and support from the global regulatory community.

The paper can be accessed here, and the consultation is open until 15 September.