Market conduct enforcement activity back on the rise

Comparative value of penalties rises nearly three-fold ($630m vs $1,857m) for the first three quarters of 2016 to first three quarters of 2017 Regulators are getting personal; enforcement actions are focused on changing behaviours and non-financial sanctions are on the rise Global regulators have levied over USD 26.41bn in market conduct fines since 2012 Almost 80% of those fines were issued by US regulators 2015 was the peak year for market conduct fines, but fines are rising again both for firms and individuals Market abuse was the most frequent violation 28 enforcement actions led to imprisonment between 2012 and Q3 2017 Over 139 market bans in market conduct since 2012 New data from Corlytics, the global leaders in determining regulatory risk impact, shows that market conduct enforcements are back on the rise. Fines have increased threefold in the last year, from $630m in Q3’16 to $1.857bn in the first three quarters of 2017.

Since 2012, of the $26.4bn levied in market conduct fines worldwide, 80 percent of all fines have come from US regulators. Interestingly, seven European banks were responsible for 45 percent of all US fines over the period.   2015 was the peak year for fines for firms and individuals. Market abuse practices uncovered because of foreign exchange rigging, led to heavy fines from US and European regulators. Enforcement actions globally settled down in 2016 by in the first three quarters of 2017 the data shows a steep increase as regulators remain vigilant on market conduct breaches.

John Byrne, CEO of Colytics said, “This is borne out both by what we are hearing from our customers as well as the activities we are seeing from regulators. For example, with this week’s announcement that the Hong Kong SFC is launching a two-month consultation on over the counter derivatives and conduct risks. Our customers are working with us to dig into these activities and to identify concrete actions that can be taken to reduce their market conduct regulatory risk.”

The Corlytics Barometer, which examines global regulatory enforcement patterns globally this issue focuses on market conduct. Data reveals that there has been a similar uptick in non-financial consequences. 139 market bans for senior executives since 2012, 46 specific activities suspensions, 11 cases of market suspension and 28 cases of imprisonment. Financial markets are learning from past mistakes but regulators are being increasingly firm on individuals.

In most markets, conduct regulation means consumer protection, market conduct rules and ethical codes of conduct. However, in more developed regulatory markets, such as the United States (US) and mature European and Asian regulators, conduct regulation also extends to corporate governance and incentives, organisational systems, competition and anti-trust.

John Byrne said, “Making individuals responsible for their own actions through threat of penalties is becoming a favoured mechanism for regulators to improve compliance with market conduct regulation.

From the Corlytics Barometer, we can clearly see that both market bans and injunctions are favourites for regulators.”  He continues, “It is apparent that conduct and culture are high on the agenda of many financial services businesses.

Although many financial institutions have put programmes in place to address the culture that often leads to bad behaviour and market conduct issues. Many financial institutions are lacking the data that can provide insight as to where the greatest risks lie. Thus, violations are repeated. The regulators are looking for us to learn from one another and not make the same mistakes. These are more heavily fined each time.”