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US Regulatory Enforcement Compared to the Rest of the World

Written by Douglas Moffat

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US Regulatory Enforcement Compared to the Rest of the World

The regulatory enforcement landscape worldwide reveals a significant disparity in approaches, with the US leading both in terms of volume and severity of fines for market abuse.

From Q1 2019 to Q3 2023, US regulators issued 133 fines amounting to $2.67 billion. While the total value of these penalties was significantly influenced by a single $920 million fine imposed on JP Morgan Chase and Co., the figures remain notable even when excluding this case, with the average fine in the US equalling $13.2 million.

While significant in their own right, these figures become all the more noteworthy when compared to the enforcement actions taken by other global regulators. For instance, while the AFM in France led activity across European regulators, issuing 23 penalties totalling $111 million and surpassing both the UK ($87m) and Germany ($15m) in monetary terms, the volume and severity of their enforcements still trailed far behind the US.

Contrast of APAC and US Regulatory Approaches

The approach of regulators in APAC presents perhaps the greatest contrast to US enforcement strategies.

During this period, Hong Kong’s SFC issued just one fine of $9 million, while Singapore’s MAS issued 21 fines totalling only $20.7 million. This is primarily due to the region’s reserved enforcement approach. Unlike the US, which uses substantial fines as a deterrent, APAC regulators tend to operate with greater discretion. This reflects cultural values that emphasise individual accountability and societal harmony over public reprimand. In this environment, the monetary value of fines is relatively less important, as reputational damage carries a higher cost.

A Detailed Look at US Enforcement Action

As we’ve already seen, during the period analysed for this report, American regulators ranked first in both the frequency and value of fines for market manipulation compared to other global regulators.

Amongst US regulators, the CFTC (Commodity Futures Trading Commission) led the way in terms of enforcement severity, with an average fine exceeding $57 million. In terms of frequency, FINRA (The Financial Industry Regulatory Authority) issued the most fines, totalling 67, followed by the Securities and Exchange Commission with 41 enforcement penalties.

For comparison, all non-US regulators combined issued 71 fines during the same period. This stark difference underscores the aggressive stance of US regulators in addressing market manipulation and enforcing financial regulations.

Lek Securities serves as a prime example of the aggressive enforcement actions taken by US authorities. In 2019, Lek Securities was fined twice for its involvement in manipulative trading practices. FINRA imposed a $900,000 fine for failing to supervise and prevent manipulative trading activities by foreign traders on their platform, including layering and spoofing. Additionally, the SEC fined the firm $1.5 million for being complicit in the layering and cross-market manipulation activities of a Ukraine-based firm Avalon FA Ltd, between 2014 and 2017. This case highlights the stringent measures US regulators take to ensure market integrity and deter unlawful trading practices.


The volume of short selling-related enforcements from US regulators is another notable point. FINRA was the only regulator to consistently enforce short selling fines in the observed period, accumulating $21.6m across 15 fines. During the same period, the SEC issued $20.9 million in short selling fines, despite enforcing only five penalties.

The Bank of America adds a significant dimension to the analysis of short selling-related enforcements. Over the observed period, the bank faced three fines from FINRA for short selling violations. They were fined $150,000 in 2020 for multiple reporting and supervisory failures between May 2012 and September 2017, $850,000 in 2021 for improperly netting trading activities of affiliated broker-dealer customers for close-out obligations and claiming undue pre-fail credit, and $1.5 million in 2021 for an inadequate supervisory system.

Comparatively, other jurisdictions saw limited enforcements of short selling fines. While the SFC was active between 2019 and 2022, it did not record any penalties in the first three quarters of 2023. Despite this, their accumulated $7.8 million in short selling fines accounted for 70% of their total core fines. Notably, other regulators exhibited low activity in this area, with FCA issuing just one fine in 2020. The CFTC, AFM, MAS, BAFin and ESMA did not enforce any short selling fines during this period.


Commodities Enforcement

In the commodities market, single and cross-market spoofing, alongside insider trading, constitute the primary market abuse risk typologies, driving the majority of enforcement actions.

The CFTC bolstered its enforcement efforts in 2023, recording a record number of penalties targeting manipulation and spoofing actors. These cases underscore the CFTC’s dedication to enforce regulations against manipulative and deceptive practices in commodity markets, focusing on holding individuals and entities accountable across a wide array of commodities and trading platforms.

Conclusion

As global regulators adapt to modern market dynamics and challenges, the laissez-faire era of regulatory action appears to be fading, giving way to a new age of proactive oversight and diligence. While U.S. regulators have been at the forefront of stringent enforcement actions during the examined period, they are also setting a precedent for more proactive enforcement action that is likely to be adopted globally.

As financial markets become increasingly globalised and interconnected, collaborative regulation is poised to become more common, with regulators around the world following the lead of their U.S. counterparts. The heightened scrutiny of digital assets, where the risks of market manipulation, wash trading, and other fraudulent activities are significant, underscores the necessity of robust regulatory frameworks.

The shift towards more rigorous and coordinated regulatory efforts, spearheaded by U.S. regulators, sets the stage for a global regulatory landscape that prioritises transparency, fairness, and investor protection in an increasingly complex financial environment.