On 12 July 2021, the Central Bank of Ireland published the findings of its long-awaited review of compliance with the Market Abuse Regulation (MAR). Its work has uncovered systemic failings on the part of firms to comply with reporting requirements, and has seen the bank move to impose risk mitigation programmes on certain market participants.
The Bank’s review follows its designation of market abuse compliance as a key area of focus in its February 2021 Securities Markets Risk Outlook Report. It launched a cross-industry investigation into securities market conduct risk in January 2020, however the advent of the COVID-19 pandemic saw this exercise uncover more nuanced issues than might otherwise have been expected.
In this article, we summarise the Central Bank’s key findings and explain how they compare with the views of other regulators on Market Abuse.
The Central Bank of Ireland’s review of market abuse compliance uncovered a mixed set of results, illustrating that the European Market Abuse Regulation (EU MAR) is still widely misunderstood.
Its report shows that the risk of regulated firms, issuers, and advisors committing market abuse has risen due to factors including post-Brexit growth and new trading technologies. It also indicated that market volatility and home working along with other pandemic-related issues have led to increased instances of unlawful behaviour by market participants.
More specifically, the Central Bank’s report shows that significant improvement is needed in terms of trade surveillance and reporting.
1. Regulated Firms Must Enhance Trade Surveillance and STOR Reporting
Notably, the Bank found that many regulated firms do not have a sufficient framework in place to ensure compliance with their trade surveillance and suspicious transaction and order report (STOR) obligations.
Firms are required to monitor for and report any orders or transactions that could constitute insider dealing, attempted insider dealing, or market manipulation pursuant to Articles 16(1) and (2) of EU MAR. An almost identical duty is incumbent on UK regulated firms pursuant to the UK Market Abuse Regulation (UK MAR).
2. Issuers and Professional Advisors Must Improve the Quality of Insider Lists
Similarly, the review highlights that some regulated firms are failing to disclose inside information in a timely manner.
Listed firms in particular are required to make regular disclosures to the markets pertaining to price-sensitive information. Insider information is defined across both bodies of MAR legislation as information that:
- has not yet been made public;
- directly or indirectly relates to one or more issuers, or financial instruments; and
- would be likely to have a significant effect on the prices of those instruments if it were made public.
Insider trading has been illegal in the UK since 1980, however it is governed by a complex body of law that makes it hard to ensure compliance. In its review, the Central Bank suggests that issuers and their professional advisors should improve the quality of its insider lists (details of company directors, employees, and major shareholders who may become party to ‘insider information’).
3. Market Participants Must Improve Market Abuse Training for Staff
Continuing from its comments on insider trading, the Central Bank also highlighted the need for issuers to improve staff training and awareness of their market abuse obligations. In particular, it is suggested that issuers should write to insiders to inform them of their MAR obligations and to underscore the severe consequences of committing market abuse offences.
The review also draws attention to the need for market participants to recognise the unique factors that affect their business activities, and encourages a risk-based approach to stakeholder training.
Market Abuse in the Spotlight
Ireland is not the only jurisdiction that has seen increased market abuse activism from regulators in recent times. The MAR compliance review report was released against a backdrop of announcements from global regulatory bodies, each reiterating the importance of market abuse compliance.
On 13 July 2021, the UK’s Financial Conduct Authority (FCA) announced a joint review of open-ended investment funds with the Bank of England (BoE). This follows from an earlier commitment by the G20 nations to reform derivatives markets to safeguard against market abuse, and a further commitment by the BoE to improve market resilience.
With recent reports having brought financial regulation into focus, it’s clear that more will be expected of firms in the coming months and years. The FCA has already signalled its intention to impose stronger sanctions for market abuse, and it seems that other regulators are likely to follow suit.
As the Central Bank of Ireland’s Direct General for Financial Conduct, Derville Rowland, put it: “as the scale of securities market activity […] increases, so too does the obligation of market participants to ensure their organisational arrangements to identify, mitigate, and manage market abuse risk are effective.”
Staying Compliant in a Complex Market
The Central Bank’s review draws particular attention to the failings of certain firms to manage compliance as their business grows in scale and complexity. It is in such situations when manual monitoring and reporting frameworks may prove insufficient to meet compliance obligations, leaving firms open to the risk of sanctions and intervention by regulators.
eflow’s TZ compliance platform and TZTR transaction reporting software makes it easy to stay compliant with market abuse regulations. With full-market monitoring and reporting capabilities, it offers a scalable approach to MAR compliance that will stand up to regulatory scrutiny.
For more information, book a demo or contact eflow today.
*This article is provided for informational purposes only and should not be relied upon as legal or financial advice. Its contents are current at the date of publication and do not necessarily reflect the present state of the law.
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