For investment companies that use automated market abuse testing, this reminder is an important area of attention for making sure that compliance supervision of these systems takes the sensitivity and quality of the data into account.

Offering scalable compliance, risk, and technology solutions, ACA has investigated the regulatory obligations pertaining to market misuse.

Firms are required to have efficient systems in place to identify and report suspicious trading activities under the Market Abuse Regulation (MAR). Due to the growing dependence on automated techniques for assessing market misuse, compliance teams are now using these technologies in real-time across large transaction data sets. However, the quality of the data, controls, and tolerances built into these tools determines how effective they are.

Several fundamental concerns were brought to light by the FCA's Market Watch, including whether automated tests were appropriately back-tested using actual trading data and if the tolerances were set at levels adequate for the frequency of trading by the business. Inconsistencies in flagged trades, missed alarms resulting from unaccounted trading segments, and insufficient testing of particular abusive behaviors during the setup phase were among the deficiencies found.

Notably, the FCA noted that companies sometimes take weeks or months to rectify these flaws, and that one of the biggest challenges in conducting market misuse surveillance testing is identifying vulnerabilities. In order to challenge data quality and results and provide meaningful remedial and proportionate testing outcomes, competent compliance and operations staff are essential.

When companies have not evaluated the foundation for their testing in spite of modifications to investing strategies, platforms, news, and price feeds, this is a frequent cause for concern during client meetings. The robustness of the testing is compromised by this lack of evaluation, giving compliance teams a false feeling of security and allowing risks to go unchecked.

Instances where systems failed because of poor implementation were identified in the FCA's Market Watch 79. These examples included a lack of thorough back-testing and a failure to question data integrity, which resulted in inaccurate alarms and insufficient alert types' flexibility for different instruments.

The FCA highlights that putting in place a surveillance program needs to be a continuous process that is examined and modified on a regular basis. Businesses ought to take market abuse into account when making decisions on continuous surveillance models, data governance, and risk management. This entails routinely verifying the parameters of the monitoring model, keeping an eye on the integrity and completeness of the data, and reviewing market abuse risk matrices on a regular basis.

With the help of ACA's comprehensive surveillance solutions, businesses may monitor trade risks and conduct in order to comply with international regulations and industry best practices. Designed to satisfy the specific requirements of every company, their Market Abuse Surveillance system assists in identifying and looking into any instances of insider trading, market manipulation, and preferential allocations.