Summary: Andrew Tuson analyses the implications of Brexit on the new Market Abuse Regulation, coming into effect in the United Kingdom on 3 July 2016 for authorised firms.
The Market Abuse Regulation comes into effect in the United Kingdom on 3 July 2016, notwithstanding the result of the referendum on the United Kingdom’s membership of the European Union.
Authorised firms conducting trades in financial instruments and companies listed in the United Kingdom should continue to implement the changes necessary to ensure that they are compliant with MAR.
Uncertainties will arise in particular for authorised firms arranging or executing transactions in financial instruments where there are new obligations to:
- file reports to the FCA in relation to suspicious orders, as well as transactions;
- conduct surveillance to identify suspicious orders (including quotes).
Authorised firms in the United Kingdom have been building out their surveillance systems in order that suspected market abuse in relation to orders can be identified through automated surveillance systems. This work is often being conducted as part of the MiFID 2 / MiFIR implementation programmes, through which firms are designing systems in order to comply with the pre and post trade reporting obligations which will be introduced through MiFID 2 and MiFIR, which are due to take effect on 3 January 2018.
In order to ensure that authorised firms have appropriate systems in place to detect suspected market abuse, firms should continue to build their systems in order that automated surveillance can be conducted under MAR. The FCA has made clear that it is focusing on firms’ systems and controls to prevent market abuse and that it places as strong an emphasis on identifying weaknesses in regulated firms’ controls as it does in pursuing market abuse. Firms therefore need to continue to implement their changes and prepare for MAR.
There has been some uncertainty over the extent to which financial institutions which arrange or execute transactions in the United Kingdom should file reports in relation to orders and transactions in financial instruments traded on European markets which have been conducted by overseas entities. The obligation to report applies to financial instruments which are arranged and executed by firms, as opposed to trades conducted by all group entities. Through conducting appropriate surveillance on the orders and transactions which they execute, and reporting suspicions in relation to those transactions, firms should comply with their reporting obligations under MAR. However, where filing a suspicious transaction and order report, firms need to take into account all the information which they see and / or know. Therefore, to the extent that UK financial institutions receive information from overseas group entities in relation to orders and transactions in financial instruments traded on European markets, this information should be considered by firms as it may need to be notified to the FCA.
Given the United Kingdom’s future relationship with the European Union is to be negotiated, the status of MAR following Brexit remains unclear. That said, in order for UK-based financial institutions to be able to have access to the single market (whether through membership of the single market, bilateral trade deals or a customs union by way of example), it is likely that the European Union would require the United Kingdom to maintain a market abuse regime which was compatible with the requirements of the Market Abuse Regulation.
With regard to listed companies in the United Kingdom, they still need to comply with the new obligations introduced under the Market Abuse Regulation relating in particular to:
- Market soundings – MAR introduces a new regime in relation to the disclosure of inside information passed through wall crossings. Significantly, those who conduct market soundings are required to notify the people they have wall-crossed when the information which was the subject of the sounding has ceased to constitute inside information;
- Persons discharging managerial responsibilities are required to notify transactions in securities within three days of a transaction taking place;
- Listed companies are to publish their inside information without delay, save for in certain circumstances. Listed financial institutions may only delay disclosure of inside information with the prior consent of the FCA.
If you have any questions in relation to the implementation of the Market Abuse Regulation, please contact our Financial Regulation team.
For more information, please visit BLP's Brexit page.