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FCA Asking Wholesale Brokers to Prepare for a Series of Risks

FCA Asking Wholesale Brokers to Prepare for a Series of Risks

By Sofia Österberg, Director of Client Success, Eventus


In their latest “Dear CEO” letter, the FCA highlighted a series of risks that wholesale brokers must be focused on, with some brokers likely requiring immediate attention and improvement in a number of areas. Despite progress in governance and compliance controls at larger firms, the FCA sees “many false starts and laggards.”  

The FCA is keen to get ahead of and prepare for changes in the macroeconomic environment across global markets that are causing heightened system risks and episodes of volatility. Like the FCA, Chief Executives and relevant staff are advised to remain agile to new issues as they arise and to address several risks  through their Senior Managers and Certification Regime (SMCR).

  1. Financial Resilience: The FCA noted that firms sometimes fail to develop their own competence or hire appropriate expertise to address inherent and evolving liquidity risks. Further, the FCA is  concerned that the past 12 months have produced a series of events that were previously considered implausible based on historic modeling. 
  2. Remuneration Structures: Conduct risk is magnified when brokers are incentivized through larger bonuses based on value and volume of activity, especially during periods of heightened volatility. The FCA reminded firms that remuneration must be balanced with individual performance taking both financial and non-financial criteria into account.
  3. Governance and Culture: The FCA consistently identified whistleblowing and enforcement subjects that demonstrate poor decision making and failures in oversight that exacerbate underlying issues, i.e., oversight risk. Junior employees and brokers hired with prior regulatory references pose a risk that should be evaluated and recognized within the context of the SMCR. 
  4. Control Functions: Adequately resourced risk management and control functions, and the influence of those functions with the Board, continue to be themes for the FCA. Financial crime and market abuse risks continue to suffer from widespread deficiencies, particularly with small to medium sized firms. The FCA highlighted both Market Watch 62 relative to Personal Account Dealing and Market Watch 69 relative to market abuse surveillance.


ViP: Historically, compliance teams have dealt with the challenge  of maintaining an appropriate surveillance program during times of macroeconomic difficulties, i.e., doing more with less. Widespread layoffs and belt tightening are evident as firms prepare for a potential recession. Simultaneously, as the FCA points out, the markets are experiencing increased volatility with pressure on business teams to perform. This all requires heightened review and surveillance during a time of pressure to reduce human and financial resources. 

Compliance teams will focus on ensuring their surveillance tools are fit-for-purpose while lowering the total cost of ownership to maintain effectiveness. As discussed in Market Watch 69, they need to be responsive to changes in activity, different types of market abuse, the different areas of business in which they operate, how that business is undertaken, and the different asset classes and instruments traded.

Eventus engages with our clients to solve hard problems. Recently, we worked closely with a new client to resolve an overwhelming number of false positives while her compliance team struggled to add new markets, making it difficult to scale in a time of volatility. As Validus offers comprehensive surveillance coverage of many markets and asset classes, we were able to work with this client to quickly deploy both out-of-the box and bespoke solutions. The client is now a prolific user of Validus Automations to focus on the most actionable alerts. The result is we programmatically reduced certain alert categories by more than 95%, freeing time and resources for more critical work.


About Eventus

Eventus is a leading global provider of multi-asset class trade surveillance and market risk solutions. Its powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets. Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centers, buy-side institutions, energy and commodity trading firms, and regulators. The company’s rapidly growing client base relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit  www.eventus.com.