Failure in Trade Surveillance Costs Broker €14 Million

An international institutional brokerage firm was fined around €14 million for failing to meet the trade surveillance requirements of the Market Abuse Regulation (MAR). The regulator of a European country, in which the firm was headquartered, found that the company had remained non-compliant with the regulation for 18 months after it was introduced. This serious oversight left the firm’s processes exposed to potential market abuse and manipulation, an unacceptable risk in today’s stringent regulatory environment.

What are the trade surveillance requirements?

MAR outlines specific responsibilities for firms engaged in arranging or executing transactions in financial instruments. These firms must establish robust systems and procedures to detect and report any suspicious orders or transactions.

Article 16(2) of MAR explicitly states that:

“Any person professionally arranging or executing transactions shall establish and maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions. Where such a person has a reasonable suspicion that an order or transaction in any financial instrument, whether placed or executed on or outside a trading venue, could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation, the person shall notify the competent authority… without delay.”

Firms must engage in proactive surveillance and maintain continuous oversight of trading activities. The absence of an effective surveillance system can allow harmful activities like insider trading, wash trades, front running and other forms of market manipulation to go unchecked. In this case, the brokerage firm’s inability to prioritise and address compliance obligations highlighted systemic issues and ultimately led to regulatory intervention.

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The seriousness of the case

This anonymised case study emphasises how regulators don’t necessarily wait for explicit evidence of wrongdoing before taking action. The brokerage firm did not implement adequate risk mitigation strategies or appropriate surveillance mechanisms, which were required to monitor and report potentially abusive activities effectively. The regulator's scrutiny revealed that the brokerage’s internal processes were alarmingly deficient and had failed to evolve in-line with regulatory expectations.

Specifically, the firm's delay in performing a comprehensive MAR gap analysis was a critical factor. The gap analysis should have been carried out promptly to assess compliance shortfalls and prioritise the most urgent market abuse risks. However, the delay resulted in the firm being slow to adapt its practices to meet MAR's standards. Additionally, the firm neglected to develop a risk assessment strategy tailored to identifying and managing high-risk transactions. This omission was another significant shortcoming, as it failed to equip the firm with the ability to prevent market abuse proactively.

The regulator's findings and justification for the fine

The regulator conducted both scheduled and surprise inspections to evaluate the adequacy of the firm’s surveillance measures. Upon investigation, the regulatory authority found that the brokerage firm had consistently breached its duty to conduct business with skill, care and diligence. These inspections revealed that while the firm had attempted to implement MAR, its approach was fundamentally flawed and neglected secondary legislation that provided additional guidance and requirements.

Key weaknesses included:

Inadequate systems for surveillance. The firm’s systems failed to generate alerts that would identify potentially abusive trading patterns, such as wash trades or insider trading.
Lack of effective reporting mechanisms. The brokerage did not have robust procedures for escalating suspicions or reporting suspicious activities to the competent authority as required by MAR.
Deficient staff training. Employees were insufficiently trained on MAR compliance, weakening the firm's overall surveillance capabilities.

Delayed risk prioritisation. The absence of a timely and structured risk assessment strategy meant that critical threats were not identified or addressed effectively.

Despite there being no direct evidence of market abuse within the firm, the lack of effective preventive measures and surveillance made it liable for substantial regulatory fines. The regulator stressed that implementing adequate controls is not optional but a fundamental obligation for firms operating in financial markets. The substantial fine of approximately €14.5 million underscores the severity of non-compliance and serves as a stark warning to other financial institutions about the importance of proactive regulatory adherence.

The importance of compliance culture

This case highlights the broader implications of compliance culture gaps. Financial institutions cannot afford to be complacent when it comes to meeting regulatory standards. Firms must ensure that every department, from compliance to trading, understands and prioritises its obligations. Regular training sessions, robust surveillance processes and a clear reporting hierarchy are essential components of an effective compliance framework.

The regulator’s action reinforces the principle that preventing market abuse is not just about protecting the firm’s reputation but is crucial for upholding the integrity of the financial markets. Companies must realise that even in the absence of actual abuse, the potential for abuse—if left unchecked—can result in severe financial and reputational consequences.

How TradeLog can help

TradeLog is an online platform to manage employee trade pre-clearance and conflicts of interest. Based on rules you set, it can automatically decline trade requests that contravene your policies. With TradeLog, your firm can demonstrate a proactive approach to MAR compliance, significantly reducing the risk of regulatory scrutiny and financial penalties.

TradeLog helps you: