MAR and Market Abuse After Brexit
Market abuse is a serious concern for financial regulators. It’s why the European Union sought to further codify its regime 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, however, the UK has 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 has 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 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 11:00 pm 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 new 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 will remain unchanged under the new 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 begun to diverge 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 obligations 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
Looking to the future implementation of UK MAR and the governance of market abuse, it seems that the FCA intends to follow a course that will be very recognisable. Their website suggests 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.
That’s not to say that there is no change on the horizon, and the government itself has wider ambitions for a shift in the UK’s approach to financial regulation. It has been widely reported that ministers are mulling over the implementation of further Basel III bank capital standards, and seeking out a ‘more proportionate’ approach to investment regulation whilst simultaneously reaffirming the FCA’s powers to conduct market management activities.
Although not much has changed for now, then, there is certainly scope for reform and as junior finance minister John Glen puts it: “now the UK has left the EU, we must ensure we have a regulatory regime that works for the UK and allows us to seize new opportunities in the global economy.”
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.
With the UK having transitioned to its own Market Abuse Regime, now is a good time for listed companies to revisit their existing share dealing manuals and ensure that their internal compliance protocols are reflective of the revised reporting timetable. Issuers should also continue to keep insider lists whilst making sure that their professional advisers and others acting on their behalf continue to do so where required as well.
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 TZ compliance software makes it easy to keep up with trade surveillance, transaction reporting, and regulatory disclosures – lightening the load and keeping firms compliant.
For more information on how your firm can keep pace with its compliance obligations, book a demo below or 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.
