Citi fined £12.5m for MAR failings. Consumer Duty projects take note

The FCA has fined Citigroup Global Markets £12.5m for market abuse failings. On the face of it the fine doesn’t have much to do with Consumer Duty. However once under the bonnet of the fine it is clear that the fine is for the poor implementation of new regulatory requirements. For MAR you could easily substitute MiFID II, Money Laundering Regulations, or……Consumer Duty.

Citi’s MAR Implementation Failings

MAR was published in June 2014 and came into effect on 3 July 2016. Citi’s implementation of the new regulations failed primarily due to:

1. Setting up the implementation project incorrectly in the first place. Citi did not account for the full scope of what needed to be implemented:

   • Specific indicators of market manipulation in DR 2016/552 were not taken into consideration.

   • The firm did not begin preparing their Article 16(2) risk assessment until December 2017.

   • Their initial gap analysis (not completed until October 2017) did not provide them with a means to prioritise the most serious market abuse risks.

2. Senior management not providing adequate oversight in tracking the implementation of MAR. Examples of this failure include:

   • The MAR Working Group failing to provide sufficient oversight of the implementation of the requirements of MAR.

   • The firm failed to define the scope of the MAR implementation objective in its 2016 EMEA Compliance Plan. As a result, compliance with Article 16(2) was not agreed as a prerequisite for the completion of the objective.

   • The firm’s UK Business Risk, Compliance, and Controls committee and the Global Markets Board were both wrongly informed in late 2016 that MAR implementation was complete.

   • EMEA Compliance failed to properly evaluate and monitor work relating to MAR implementation that was conducted as part of a global markets remediation programme.

As a result, some 18 months after MAR coming into effect, Citi were in a state of non-compliance.

Regulatory Soundings resulted in little action

The other overarching theme that comes out in the Final Notice is the direct and indirect communications with the Regulator. Directly, the FCA wrote to the firm in January 2015 asking the firm to conduct a market abuse risk assessment. The firm did not start preparing an Article 16(2) risk assessment until December 2017. A properly executed risk assessment would have identified the gaps relating to market manipulation. From an indirect perspective, the Final Notice references the FCA’s Market Watch newsletters – for example Market Watch 48 from June 2015 advised firms to conduct a detailed market abuse risk assessment. What is clear is that the FCA expects firms to listen AND take action regarding the publications it issues.

Summary Takeaways for firms

1. From a Governance perspective ensure that your regulatory change projects are set up with unambiguous objectives, responsibilities and timelines. What success looks like for the project should be very clear.

2. Make sure your technical interpretation of the scope of the project is spot on.

3. Take action when the Regulator tells you to do something (directly or indirectly).

We’ve managed a large number of regulatory change projects providing detailed project plans, appropriate terms of reference, subject matter expertise, QA, and Board challenge. Get in touch if you’d like assistance with your Consumer Duty journey.