Inside KBC’s Fight Against Market Abuse

“Market integrity means that investors can trust the market to function properly. Prices should be determined by genuine supply and demand, not by what we call ‘market abuse’. Market abuse can take many forms, like insider trading or market manipulation.

The rules are set out in the 2016 European Market Abuse Regulation (MAR). It determines that banks must have systems in place to help prevent abuse, detect suspicious patterns and analyse transactions that require closer examination. A suspicious transaction is not automatically proof of wrongdoing. Our task is to identify situations that may warrant further investigation and, where necessary, report them to the responsible authorities.” 

“More retail investors are entering the market. That is a positive development: people increasingly use investing as part of their financial planning. But these retail investors are being targeted by fraudsters.

A typical example is a pump-and-dump scheme. Fraudsters use WhatsApp groups, fake investment advisers or professional-looking websites to encourage people to buy a particular share. As more investors buy, the price rises. The fraudsters then sell the large position they built earlier, while the other investors are left with shares that may be worth very little and are difficult to sell.

Another important area of attention is automated and algorithmic trading. These technologies are widely used to improve efficiency and execution, but they can also be misused. AI-driven algorithms can send very large numbers of transactions to the market at high speed, making unusual or potentially abusive trading patterns more difficult to identify and assess.” 

“Every financial institution that arranges transactions in financial instruments has the same regulatory responsibility. However, that does not mean every monitoring model looks exactly the same. Here at KBC Securities Services, we are human with a digital touch, meaning we pride ourselves on our human expertise. Some of the colleagues in our team have a decades-long expertise in KBC Securities Services and dealing room, and thoroughly know how the market works. Combined with a deep understanding of our clients and internal systems, that expertise proves very valuable in our daily monitoring and controls.

When an alert appears, we discuss the case within the team. We ask whether an order could realistically have influenced the price, whether the pattern makes commercial sense and whether there are indications of intentional abuse or external fraud.

We also look beyond KBC. We collaborate closely with our brokers and wider financial network. We also monitor market and regulatory developments to identify emerging risks. This helps us determine where to strengthen our controls and whether particular shares or schemes require closer monitoring." 

“I cannot go into too much detail about individual cases, but in one instance we noticed unusual order behaviour and a build-up of positions in a particular share. We started digging deeper and found that a fraudulent party was calling people and encouraging them to invest in it. We temporarily blocked the share to prevent more clients from falling into the trap and to make sure no further orders could pass through our systems unnoticed.

However, market abuse rarely reaches this stage. We process hundreds of thousands of transactions a day and millions over the course of a year, but only a small proportion trigger closer review by our team, and an even smaller proportion are considered potentially suspicious. This shows that our preventive controls already have a positive effect and that intentional market abuse is, fortunately, very rare.

Market abuse continues to evolve, and our controls evolve with it. We review our monitoring framework at least annually and adjust it where necessary, while also making ad hoc changes in response to new risks and behaviours. Our monitoring tools continue to develop as well, with new detection capabilities and refinements to existing alerts.”