Surge in suspicious trade reports to FCA

Article by Brooke Masters for the Financial Times

UK brokers and bankers are flagging twice as many suspicious trades to the Financial Services Authority following warnings that the watchdog plans to spot check industry compliance efforts.

During each of the past few months, financial institutions in the City of London have filed an average of 100 "suspicious transaction reports". The monthly average of such reports for last year was 50.

The quality of the warnings, known as STRs, has been deemed to be good and several have sparked investigations by the regulator’s market monitoring divisions.

The shift came after Patrick Spens, the division head, wrote to 300 City firms in January asking why they were filing fewer STRs than competitors of similar size.

Mr Spens then followed up with a second letter to the rest of the industry. warning that the City financial regulator planned to visit up to a dozen firms to check up on their monitoring efforts.

"Personally I am pleased with the level and quality of the industry’s response," said Mr Spens. "People are sending in more STRs and we haven’t seen a downgrade in the quality."

Consultants and lawyers who work with banks and brokers said Mr Spens’ letter had forced the industry to take the issue more seriously. Ruth Gevers, a former FCA regulator now with Promontory consultancy, said: "Suspicious transaction reporting is now moving up the agenda in many firms partly as a result of continued FCA attention."

The letters have galvanised some firms to take a closer look at their reporting procedures to make sure they pass muster on inspection. Some firms had apparently set a high threshold for flagging transactions and are now reconsidering.

Aaron Stephens, partner at Berwin Leighton Paisner, said: "We know of firms who are looking more carefully at their STRs as a result of the FCA’s focus, particularly where there is a backlog. There is a heightened awareness on the part of clients. If firms are not doing this, then they ought to be."

The importance of the transaction reports was highlighted this week with the conviction and sentencing of six members of an insider trading ring that profited from confidential information stolen from the print rooms for two of the City’s biggest investment banks.

The case, the most complex prosecution in the FCA’s history, involved more than 250,000 emails, 5,000 text messages and 375,000 lines of telephone call records. But the investigation would not have started without an STR.

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