The work of Financial Services Commission (FSC) to protect consumers with respect to non-banking financial investment products seems to have been crisis driven. The Sunkai and White-Dot scandals were followed by workshops aimed at promoting financial literacy. So much has been said on the Sobrinho case, that it would be pointless to add anything else.

But the reported stumbling blocks faced by the FSC to conduct a proper investigation relating to potential market abuse/market rigging offence(s) sheds light on how unprepared and unfocused the regulator has been to deal with such an investigation. We know too well what a failure of poor oversight on insurance companies can entail.

The FSC is a regulator which is still striving to build consumer confidence and market integrity. There have been too many failures, and it simply does not have a right to fail, again. Why these failures? The legal framework for the regulator to operate independently is in place, but then is it really doing its work independently? Does it have too many activities to supervise and thus is not be able to deliver? Should we consider splitting the institutional framework to allow for better and more effective supervision?

Sanctions are indeed taken by the FSC against firms and individuals. It’s unclear whether any one of them relates to offences under the securities legislation. In comparison, the UK Financial Conduct Authority (FCA) also has as mandate the protection of consumers in the financial markets.

The FCA has been publishing, since quite a few years now, the so-called “market cleanliness” statistics in its annual reports. The statistics are an indicator of insider trading in the UK equity markets and they demonstrate that there has been a decline in possible insider dealings from 2009 to 2015. This can be explained by a rise in the number of criminal prosecutions and the significant financial penalties imposed by the regulator which have served as effective deterrent for firms not to fall foul of regulatory requirements.

Insider trading remains notoriously difficult to spot and even more difficult to prove as a criminal offence. As trials are frequently lengthy, the trend has been subject to many possible market abuse offences to severe administrative sanctions. Under the EU “Regulation of Market Abuse”, relevant authorities can impose – for offences of insider dealing and market manipulation – a maximum administrative pecuniary sanction of EUR 5M/- against a person, and with respect to a company, a maximum administrative pecuniary sanction of EUR 15 M/- or 15% of the firm’s total annual turnover. In contrast, our Securities Legislation provides for the offences of market rigging and false trading to be criminal offences, hence requiring a high standard of proof. If prosecution is successful, it can be met by a custodial sentence but the fine imposed on any firm is but a maximum of Rs (Mauritian Rupees) 1 M.

The EU regulation also emphasizes that firms operating a trading venue should not only establish effective arrangements, systems and procedures aimed at preventing and detecting insider dealing, and markets manipulations. They should also report suspicious orders and transactions to the competent authorities.

Failure of having these arrangements and systems in place and failure of reporting suspicious orders are also met by severe administrative sanctions (Ranging from EUR 1 M to EUR 2.5 M or 2% of a firm’s annual turnover). These systems and procedures would include software capable of deferred automated reading, replaying, and analysis of order book data.

Software now available allow, for example, a compliance officer – by merely specifying a trade – to identify and group all communications relating to that trade, hence getting a bird’s eye view of the whole transaction. Software can even allow detection of suspicious conversations even when traders are speaking in euphemism, slang or such other vocabulary specific to the trading floor. Common practices of market manipulation are the following: (i) abusive squeeze, (ii) layering and spoofing, (iii)price positioning, (iv) wash trades, (v) painting the tape, (vi) momentum ignition, (vii) trash and cash, (viii) pump and dump, (ix) pinging and (x) quote stuffing.

The FSC through its newsletters should clarify whether (i) it has been pro-active in investigating possible market abuse offences, (ii) changes are required to compel trading floor operators to report suspicious orders, and if indeed such suspicious orders had previously been made, how many investigations, of market abuse/market manipulation the FSC, had previously carried out, and what have been the outcome. I ask these questions because investors, small or big, need to be reassured that the regulator is adequately skilled, and has the flexibility and courage to take prompt and effective sanctions.

It is only after the FSC has convinced us, through an active deterrent policy, that securities legislation is meant to be complied with and only when literacy of such legislation has been well ingrained with the prominent chief executive officers of reputed firms, that the FSC would, be able to further assist them in further implementing measures to prevent market abuse offences.

Firms should have (i) appropriate internal controls to manage the flow of information, (ii) a culture of integrity (integrity: a word commonly used, highly preached, but never understood), (iii) effective policies including those relating to conflict interest, (iv) effective monitoring of the transactions being effected, (v) proper governance such that risks associated to market abuse can be readily identified and met with prompt remedial actions, (vi) proper monitoring tools with respect to employee’s conduct, (vii) proper training dispensed to staff to identify acts that could lead or amount to market abuse. As is frequently the case, the challenge lies not only in having these measures or having a tick-box policy to demonstrate their existence, but for these measures to be adequate, relevant and truly effective.

I ask the above questions, such that we may trigger a national and dispassionate debate on the need to effectively protect the consumer of financial products, and the integrity of the financial markets. We owe this much to our financial sector.