FCA top official expects surge in online frauds and scams

Rick Steves

“In the context of Gamestop, however, it is relevant, however, to draw attention to the increase in retail trading accounts in the UK during 2020. The trend preceded the lockdown but accelerated during the first lockdown in particular, perhaps fuelled by people spending more time online, more time at home, and the increase in so-called commission-free trading.”

Mark Steward, Executive Director of Enforcement and Market Oversight at the Financial Conduct Authority, said there is a risk that new retail investors may become subject to misleading online marketing.

Mr. Steward’s speech, at the Expert Forum: Market Abuse 2021, mentioned there was an overall increase of 34% in transactions and transaction reports in 2020 largely due to heavier trading in the first lockdown period between March and June 2020.

The UK financial watchdog will have social media trading forums, such as the WallStreetBets subreddit, on sight.

“While here in the UK we did see an overall reduction in the value of net short positions during the Gamestop incident, we have not seen short positions of the size generated in US markets in this incident, nor would such short positions be created without substantial scrutiny by us and the market, as they are built up.

“As we know – and I am not commenting on Gamestop – abusive shorting can lead to distortions in a market, especially when there is insufficient cover and inevitable squeeze opportunities arise.

“In the context of Gamestop, however, it is relevant, however, to draw attention to the increase in retail trading accounts in the UK during 2020. The trend preceded the lockdown but accelerated during the first lockdown in particular, perhaps fuelled by people spending more time online, more time at home, and the increase in so-called commission-free trading”, said Mr. Steward, adding that “there is a risk that new retail investors may become subject to misleading online marketing, as we have seen in the case of online scams and frauds during 2020.”

The FCA has recently launched the Potentially Anomalous Trading Ratio (PATR), which focuses on the underlying trading behavior around specified price-sensitive announcements and assesses whether the behavior can be deemed anomalous. The PATR measures the volume of such trades against the total trading volume for the same period.

“Our first results under PATR produced a figure of 6.7% anomalous trades for 2019 across around 958 price sensitive announcements, which is very close to the ATV metric result for the same period. And as we said in September, that is 6.7% of 0.8% of the total volume of trades in the market”, said Mr. Steward.

The FCA will continue to tackle market abuse in order to ensure reliable prices for genuine supply and demand, and to protect global capital.

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