According to the watchdog, weaknesses in FFA’s systems and controls meant the investment firm failed to properly assess a significant number of instances of suspicious trading that should have been reported. This is despite FFA Private Bank having outsourced responsibility for the monitoring and assessment of client trading, with the DFSA ruling that the firm failed to effectively supervise these activities.
This penalty poses a stark warning to financial institutions operating in the region: that poor risk management will not be tolerated when it comes to market abuse. As stated by DFSA chief executive Ian Johnston, ‘This case serves as a reminder that firms cannot rely blindly on those to whom they delegate responsibility for the performance of key compliance activities’.
The regulator’s message comes at a critical juncture for Dubai – a city seeking to cement its position as the leading trading hub in the Middle East and bolster its standing on the global stage. The UAE government recently unveiled a 10-year economic plan called D33, which aims to double the economy’s size and make Dubai one of the top four global financial centres within a decade. In addition, the UAE is on track to be delisted from the Financial Action Task Force’s ‘grey list’ of global financial crime, which had tarnished Dubai’s reputation as the top choice for global financial firms looking to establish a base in the Gulf.
Ensuring the enforcement of rigid financial markets regulation will be critical if Dubai is to achieve its lofty growth ambitions. Financial services firms based in the region can therefore expect the city’s markets watchdog to come down hard on those found to be lacking the appropriate processes surrounding trade surveillance over the coming months. With this in mind, it seems prudent that companies operating in the area ensure they possess robust capabilities with regards to the detection and reporting of market abuse.
The truth of the matter is that investment into many financial institutions’ approach to trade surveillance and communications monitoring has been put on the back burner over recent years, with companies instead opting to prioritize systems that support the sexier front-office function. As a result, firms often rely on a patchwork of multiple vendor solutions to fill surveillance gaps across the entire organisation. Trade information and communication data subsequently sits in two entirely separate buckets, and the manual process of sifting through these disparate data sets and connecting the dots between trades can become a real headache – particularly when a regulator comes knocking.
Dubai-based firms must depart from this cumbersome and costly approach to market abuse monitoring – and fast. Those that fail to do so cannot expect the DFSA to turn a blind eye. After all, Dubai’s reputation as a global trading hub is at stake, and this watchdog does not seem the type to throw a firm a bone.
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