Citi Fined by FCA for MAR Surveillance Gaps

Citigroup Global Markets has been fined over £12.5 million by the UK’s Financial Conduct Authority (FCA) for failing to properly implement the Market Abuse Regulation (MAR) trade surveillance requirements relating to the detection of market abuse across its financial markets businesses.

The FCA says that Citi could not effectively monitor its trading activities for certain types of insider dealing and market manipulation. It adds it warned the bank in 2015 about its concerns over the unsystematic approach to the prioritisation of risk following the expansion of its automated surveillance programme into non-equity markets, but says the bank took too long (December 2017) before even starting a risk assessment based upon the regulator’s concerns.

MAR was introduced in 2016 and expanded requirements to detect and report potential market abuse. It introduced a requirement to monitor both orders and trades to detect potential and attempted market abuse across a broad range of markets and financial instruments.

The FCA found, however, that Citi failed to properly implement the new requirement when it took effect, and took 18 months to identify and assess the specific market abuse risks its business may have been exposed to and which it needed to detect. The bank’s flawed implementation resulted in significant gaps in its arrangements, systems, and procedures for additional trade surveillance, the FCA finds.

The UK regulator observes that “little or no” profits were made or losses avoided due to the failures, but the breach of Article 16 (2) “had an adverse effect on markets that was serious because [Citi] is a globally significant broker-dealer”.

Under the FCA’s framework for establishing fines the original fine could have been over £98.6 billion, however the Authority says it considers that level of penalty disproportionately high and adjusted it down to just over £16.3 million – the bank received a further 30% discount for working with the FCA and agreeing to resolve the issues raised.

“The framework for market integrity depends on the partnership between the FCA and market participants using data to detect suspicious trading,” says Mark Steward, executive director of enforcement and market oversight at the FCA. “By not fully implementing the new provisions when required, Citigroup Global Markets did not carry its full weight in this partnership, impacting market integrity and the overall detection of market abuse.”