FCA Market Watch 79

### Enhancing Market Abuse Surveillance: Reflections on FCA Market Watch 79

**Published on: 28-May-2024**

The latest publication of FCA Market Watch 79 sheds light on critical issues surrounding market abuse surveillance and data governance. As specialists in market abuse surveillance, we at ComplyLens have closely analyzed the findings and recommendations of this edition. Here, we offer our reflections and insights on how firms can enhance their surveillance systems to mitigate risks effectively.

#### Overview of FCA Market Watch 79

Market Watch 79 highlights the persistent challenges faced by firms in maintaining robust market abuse surveillance systems. The FCA's review identifies common failures in surveillance, issues in data governance, and the results of a peer review on the testing of automated surveillance models. Key observations include:

- Surveillance alerts not functioning as intended due to various technical and procedural flaws.

- Insufficient testing and review of surveillance models leading to prolonged periods of undetected failures.

- Data ingestion issues that compromise the effectiveness of surveillance systems.

#### Common Surveillance Failures

**Firm A:** A new third-party surveillance system failed to generate alerts for insider dealing due to an inactive news feed. This oversight went unnoticed for over three years, illustrating the critical importance of comprehensive testing and validation.

**Firm B:** An in-house surveillance model for corporate bonds failed to detect potential insider dealing due to a coding error. This fault persisted because the system generated a reasonable number of alerts, creating a false sense of security.

**Firm C:** Direct Market Access (DMA) activities were not captured correctly by Firm C's surveillance system, leading to unmonitored trading activities for several years. This highlights the need for thorough data validation processes.

#### Reflections and Recommendations

**1. Data Governance and Accuracy**

Effective market abuse surveillance starts with robust data governance. Firms must ensure all relevant trade and order data is accurately captured and processed. Regular checks and audits are essential to identify and rectify data ingestion issues promptly.

**Recommendations:**

- Implement comprehensive data validation protocols to ensure the completeness and accuracy of data.

- Establish clear ownership and accountability for data management within the organization.

- Prioritize remediation efforts based on risk assessment to address identified issues swiftly.

**2. Rigorous Model Testing**

The FCA's peer review underscores the importance of regular and thorough testing of surveillance models. Firms must adopt a structured approach to testing that includes parameter calibration, logic verification, and data integrity checks.

**Recommendations:**

- Develop formalized procedures for model testing, incorporating both frequent light-touch tests and periodic deep-dive reviews.

- Use a risk-based approach to determine the frequency and scope of testing for different surveillance models.

- Ensure independent verification of third-party surveillance systems to confirm their proper functioning.

**3. Governance and Oversight**

Effective governance is crucial to maintaining the integrity of surveillance systems. Firms should streamline their governance processes to enable timely and efficient decision-making while ensuring thorough oversight.

**Recommendations:**

- Simplify governance structures to avoid unnecessary complexity and delays in approvals and validations.

- Engage second-line and internal audit teams to conduct regular reviews of surveillance systems and governance processes.

- Stay vigilant and proactive in adapting governance frameworks to accommodate technological advancements, such as the integration of artificial intelligence in surveillance functions.

#### Conclusion

The insights from FCA Market Watch 79 provide valuable lessons for firms aiming to enhance their market abuse surveillance capabilities. By focusing on data governance, rigorous model testing, and effective governance, firms can better safeguard against surveillance failures and mitigate associated risks. At ComplyLens, we remain committed to supporting our clients in achieving excellence in market abuse surveillance through expert guidance and innovative solutions.

For more detailed analysis and tailored advice, feel free to contact us at [Contact Information].

**References:**

- FCA Market Watch 79, May 2024. [FCA Market Watch 79](https://www.fca.org.uk/publications/newsletters/market-watch-79)

**Disclaimer:** The views and recommendations expressed in this article are based on the analysis of the FCA Market Watch 79 publication and the expertise of the ComplyLens team.