UK MAR and market abuse since Brexit
It may seem hard to believe, but it’s now more than four and a half years since the UK officially left the European Union. This seismic event has had significant political, social and economic repercussions for the country, and has also impacted the financial services industry that plays such an important role in the UK economy.
Regulatory matters have certainly been impacted by Brexit. Just as it was back in 2020, market abuse remains a serious concern for financial regulators. It’s why the European Union sought to further codify its regime back in 2016 with the Market Abuse Regulation, and why the UK’s Financial Conduct Authority (FCA) has paid such meticulous attention to monitoring firms and enforcing its provisions.
With the passing of the European Union (Future Relationship) Act 2020 and the end of the Brexit transition period, the UK severed its ties from the EU’s legal framework. From the EMIR reporting regime to the cessation of passporting rights for UK firms, Brexit has had a significant effect on the way financial services operate – including in terms of compliance with market abuse legislation which have been ‘on-shored’ as the UK Market Abuse Regime (UK MAR). With the express intention of providing continuity for UK markets and financial instruments, the regime provides welcome clarity against an otherwise unclear backdrop - but what does it really mean for businesses?
Here, we take a look back at the key provisions of UK MAR, and summarise the steps businesses need to take to comply with market abuse regulations in the post-Brexit environment.
What does Brexit mean for the market abuse regulation?
The Market Abuse Regulation (EU MAR) first came into effect on 3 July 2016, and replaced the previous Market Abuse Directive (MAD). In simple terms, the regulation is an instrument to discourage and penalise insider trading, market manipulation, and the unlawful disclosure of information.
Taking effect from 23:00 on 31 December 2020, the European Union (Withdrawal) Act 2018 effectively translates the UK Market Abuse Regime’s (UK MAR) European predecessor into domestic law. UK MAR is made up a collection of legislation, technical standards, and guidance, namely;
- the EU Market Abuse Regulation as amended by the UK’s Market Abuse Exit Regulations 2019;
- FCA Technical Standards that relate to UK MAR;
- ESMA Guidelines and ESMA Q&A documents that existed before the end of the Brexit transition period; and
- the FCA Handbook.
The regime applies to all issuers with securities listed or traded on UK markets or organised trading facilities (Main Market, AQSE, AIM). EU MAR continues to apply in cases where securities are listed or traded on a market or via an organised trading facility based in a European Economic Area (EEA) Member State. In essence, this means that listed companies have two key bodies of legislation that they need to pay attention to. A company that is listed on both the London Stock Exchange’s Main Market and the French Euronext Paris, for example, must comply with both UK MAR and EU MAR.
UK MAR: the key provisions explained
Although UK MAR broadly mirrors its EU counterpart, there are a few key provisions that businesses must consider and adhere to. It is worth keeping in mind that many things remain unchanged under the UK scheme – for instance the requirement for firms and trading venues to provide suspicious transaction reports to the FCA.
Since many of the provisions of EU MAR remain unchanged by the UK version, the following points focus on those areas introduced under The Financial Services Bill 2019-2021, where the UK has diverged from the European regime.
PDMR disclosures
Firstly, it’s important to note that there is continuing obligation under UK MAR for ‘persons discharging managerial responsibilities’ (PDMRs) and ‘persons closely associated with them’ (PCAs) to make disclosures to the issuer and home state regulator within a specified period after any notifiable transaction involving the issuer’s securities. UK MAR goes one step further than EU MAR by clarifying that these disclosures must be made within ‘three working days’ (versus the EU’s three ‘business days’), thereby expressly excluding UK public holidays along with Saturdays and Sundays.
In a welcome change to the existing regime, issuers now have two working days from receipt of notification from a PDMR or PCA to make a regulatory announcement of the transaction. This gives issuers some breathing space, since the previous regime required them to make their notification within the same three-day window following a relevant transaction.
Insider lists
The responsibilities of companies to maintain insider lists have been further clarified by UK MAR. In broad terms, the obligation to keep an up-to-date list of company insiders now also applies to any person acting on behalf of the issuer. Whilst the issuer itself will remain responsible for compliance, this change addresses confusion that has previously surrounded the role of professional advisers and other third parties who may act on its behalf.
Stronger sentencing
Further changes have been made to the Criminal Justice Act 1993 and the Financial Services Act 2021, where the intention is to increase the maximum sentence for insider dealing and market manipulation offences from seven to ten years. This will reconcile the penalty provisions of UK MAR with other those already found in UK law for comparable economic crimes.
The future of market abuse regulations in the UK
The implementation of UK MAR and the governance of market abuse by the FCA has followed a very recognisable path in recent years. Upon its launch, the FCA website stated that “UK MAR aims to increase market integrity and investor protection, enhancing the attractiveness of securities markets for capital raising” – which is strikingly similar to the statement they made at the inception of EU MAR in 2016. It seems, as far as the regulator is concerned, that business as usual is the order of the day for market abuse regulation.
In recent years, the UK regulator has demonstrated its focus on clamping down on market abuse, both through regulatory enforcement action and clear instructions on the measures that it expects firms to take in order to remain compliant.
The FCA’s Market Watch 79 publication was perhaps the clearest indication of its strategy. This highlighted not only the most common failures of firms’ trade surveillance strategies, but also the flaws that they had identified in the operational processes of firms that had measures in place to prevent instances of market abuse.
In terms of enforcement action, eflow research highlighted that the FCA issued 10 fines for instances of market abuse between Q1 2019 and Q3 2023, totalling $87m. While the number of fines issued was lower than the AMF in France, the average value of fines was the highest of all European regulators, suggesting that the FCA sees severe financial penalties as key to their enforcement strategy.
Staying compliant under UK MAR
As the UK continues to chart its own course outside of the EU, companies and investment firms must be more vigilant than ever when it comes to ensuring that they meet their legal obligations. This is especially the case for those companies who are listed in both the UK and on markets domiciled in EEA Member States – a situation which is likely to give rise to a dual reporting obligation.
The legislation that regulates market abuse and reporting is complex and ever-evolving and the penalties for getting it wrong have become increasingly severe post-Brexit. eflow’s TZTS Trade Surveillance system has been designed specifically to lighten the regulatory load and keep firms compliant.
For more information on how your firm can keep pace with its compliance, contact eflow today.
*This article is provided for informational purposes only and should not be relied upon as a legal or financial advice. Its contents are current at the date of publication and do no not necessarily reflect the present state of the law.
