HFMCompliance Quotes Ezra Zahabi on Curbing Hedge Fund Market Abuse

Ezra Zahabi, a partner in the litigation practice at Akin Gump, has been quoted in the HFMCompliance article “Market abuse warning: Lawyers urge hedge funds to get into MAR ‘state of mind’.” The article describes how market manipulation and insider trading have continued, despite the introduction in 2016 of the Market Abuse Regulation (MAR).

According to the article, the UK’s Financial Conduct Authority (FCA) has uncovered a range of concerning behavior by hedge funds, including deliberate criminal and regulatory wrongdoing. Some say hedge funds remain a special focus for the FCA due to their generally having higher transaction volumes and investment staff being more likely to trade on significant events than others in the broader investment management space.

“It was a really clear indication from the FCA to the market that the rule-based approach – looking at how exactly MAR is worded, analyzing on a ‘black-letter reading’ whether a particular course of action would breach a specific provision of MAR – will not be considered adequate,” said Zahabi.

To solve the problem, Zahabi suggests, “Fundamental internal safeguards and processes should be in place that inform the way firms are set up and the way they approach their business.”

Later this year, the article notes, a new senior managers and certification regime (SM&CR) from the FCA will take effect, in an effort to hold individuals accountable were something to go wrong.

“This ultimately connects to the FCA’s emphasis on firms having a culture that places compliance with the FCA’s rules and principles at the core of the business,” said Zahabi. Market abuse, she added, is a key ongoing focus for senior management and firms should be able to demonstrate the importance of compliance both at a micro level for the firm and its employees, but also “more broadly as part of the proper operation of the market.”

Looking ahead, Zahabi observed that there is “a cultural shift underway at the moment, in how to structurally and procedurally change the way that firms undertake, receive, assess and use information. This includes the monitoring of trades and decision making to incorporate sufficiently effective oversight, training and internal messaging about market abuse that would meet the FCA’s expectations.”