Trading for Recognition: The FCA Case That Changed the Rules
A notable example of the latter is a case from the U.K. Financial Conduct Authority (FCA), which has since influenced global best practices.
In this case, the perpetrator managed two funds side-by-side: an active hedge fund with high performance fees and a more conservative, low-fee “long-only” fund. He delayed allocations to identify the best-performing trades, allocating them to the hedge fund and the poor performers into the low-fee fund. A clear conflict of interest.
What’s particularly interesting is his motivation. According to the FCA’s detailed notice, he wanted to “gain recognition for his trading ability from his colleagues.” It goes on to say that “he had not been promoted despite being at Aviva Investors for a number of years and felt demoralised, stressed and under pressure to prove his trading ability in order to be promoted.”
Also notable: he delayed allocations by hours rather than days, so everything was happening at an intra-day level. Yet even within this short window he persistently misreported trades, with 56% of trades being misreported by over an hour.
Guarding Against Cherry Picking: Policies, Audits, and Performance Analytics
So, how can firms guard against cherry picking?
- Clear or Automated Allocation Policies: Firms should document and consistently apply transparency allocation criteria that is applied consistently to all clients.
- Regular Audits: Compliance officers of external auditors should routinely review trade allocations to detect anomalies, including an analysis of the timeliness of the allocation.
- Statistical Analysis: Comparing account performance managed by the same broker and keeping an eye out for unlikely high performance.
Why Cherry Picking Undermines Market Integrity
Though a fairly simple scheme, cherry picking wears down trust in the investment industry since it’s fundamentally unfair and non-transparent. If investors lose faith in those managing their savings, the entire financial ecosystem is called into question.
July 2025 Capital Markets Regulatory Updates
18 June 2025: The GENIUS Act (S.1582), now enacted into law, establishes a regulatory framework for payment stablecoins by requiring issuers to be federally or state-qualified, maintain one-to-one reserves in U.S. currency or similarly liquid assets, and comply with disclosure, oversight, and anti-money laundering requirements. It also permits foreign issuers to operate in the U.S. under comparable regulatory standards, while exempting permitted stablecoins from securities laws.
9 July 2025: The Financial Industry Regulatory Authority (FINRA) published its 2025 Industry Snapshot, offering a comprehensive overview of brokerage firms, registered representatives, and market activity, including new data on off-hours trading and Bitcoin exchange-traded products.
9 July 2025: The U.S. Commodity Futures Trading Commission (CFTC) issued an advisory outlining its framework for referring criminally liable regulatory offenses to the Department of Justice. The guidance details factors such as harm, gain, expertise and recidivism to be considered by the Division of Enforcement when making referrals.
9 July 2025: South Korea’s Financial Services Commission (FSC), Financial Supervisory Service (FSS), and Korea Exchange announced the formation of a joint response team to combat stock price manipulation.
4 July 2025: The FCA launched Consultation Paper CP25/20 proposing to remove the Systematic Internaliser (SI) regime for bonds and derivatives. The consultation also explores changes to matched principal trading, reference price waivers and OTF operation rules.
28 June 2025: Turkey’s Financial Crimes Investigation Board (MASAK) introduced new crypto regulations via Official Gazette No. 32940. The rules require platforms to detect and report suspicious activities, and to impose transfer limits, mandatory waiting periods and AML compliance obligations on crypto-asset service providers.
25 June 2025: The Canadian Investment Regulatory Organization (CIRO) released its 2025 Enforcement Report, highlighting 4,127 complaints reviewed, 176 investigations conducted and over $10.3 million in fines, costs and disgorgement imposed.
Latest Fines and Enforcement Actions
- The FCA fined a regional bank £21.1 million for systemic failures in anti-financial crime controls between 2018 and 2022, citing Monzo’s inability to scale its compliance systems with its rapid growth, including onboarding high-risk customers with implausible information.
- The Hong Kong Securities and Futures Commission (SFC) and the Independent Commission Against Corruption (ICAC) conducted a joint operation codenamed “Leverage,” targeting a syndicate suspected of manipulating a listed company’s shares and engaging in corruption, resulting in the arrest of its former chairman and executive director and the search of 14 locations including broker offices and company premises.
- South Korean authorities raided HYBE’s headquarters as part of a probe into Chairman Bang Si Hyuk for alleged market manipulation during the company’s IPO. Bang is accused of misleading early investors and profiting through undisclosed private equity arrangements, prompting a formal complaint by the Securities and Futures Commission.
- The Securities and Exchange Board of India (SEBI) issued an interim order barring a large proprietary trading firm from Indian markets over alleged index manipulation. SEBI accused the firm of distorting the Bank Nifty index through coordinated trades, while the proprietary trading firm defended its actions as standard index arbitrage.
- SEBI fined Aqua Proof Wall Plast and its director ₹45 lakh for front-running trades in KPIT Technologies. The regulator found that the firm used confidential client information to execute trades ahead of a major institutional order, resulting in illegal gains.
- The SEC secured a final judgment against a former South Carolina-based investment adviser representative for “cherry-picking” trades. The individual was found to have allocated profitable trades to personal accounts and losses to clients, violating antifraud provisions and resulting in over $160,000 in penalties.
- The U.K. Upper Tribunal upheld the FCA decision to ban three individuals from financial services for spoofing Italian Government Bond futures while at Mizuho International. The tribunal confirmed the traders’ conduct was dishonest and manipulative.
- The SEC obtained a final judgment against an individual for orchestrating a $2 million “free-riding” scheme using unfunded brokerage accounts to manipulate trades. Hernandez was ordered to pay over $648,000 in disgorgement and interest.
- The Hong Kong SFC fined Freeman Commodities (now Arta Global Futures) $3.4 million and suspended its former managing director for AML/CFT failures. The firm failed to monitor suspicious trading and assess risks from customer-supplied systems.
- The FCA and the Metropolitan Police Service seized seven crypto ATMs and arrested two individuals for allegedly operating an illegal crypto-asset exchange and engaging in money laundering. The FCA emphasized that all crypto-asset businesses must be registered under U.K. law and warned that unregistered operations face serious consequences.
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