Powers to require information from issuers, PDMRs and persons closely associated to PDMRs

The Financial Services and Markets Act 2000 (Market Abuse) Regulations 2016 (the "regulations") were passed to ensure that UK law was compatible with the Market Abuse Regulation (MAR), to give effect to those parts of MAR which required implementing legislation, and to ensure it is fully enforceable in the UK.

This issue of #MAR_bitesize considers the new power to require information from issuers, persons discharging managerial responsibilities within issuers (PDMRs), and persons closely associated to PDMRs under section 122A of FSMA.

Section 122A of FSMA enables the FCA to require the provision of information by:

  • an issuer
    • a legal entity governed by private or public law, which issues or proposes to issue financial instruments
    • for depository receipts representing financial instruments, the issuer of the financial instrument represented
  • a PDMR within an issuer
    • a member of the administrative, management or supervisory body of an issuer; or
    • a senior executive who is not a member of such a body but who has regular access to inside information relating directly or indirectly to that issuer and power to take managerial decisions affecting the future developments and business prospects of that issuer.
  • a person closely associated with a PDMR
    • a spouse or civil partner;
    • a dependent child (who is under 18, unmarried and without a civil partner);
    • a relative who has shared the same household as the PDMR for at least one year on the date of the transaction concerned; or
    • a legal person, trust or partnership, the managerial responsibilities of which are discharged by a PDMR (or by a spouse, dependent child or relative sharing the same household), which is directly or indirectly controlled by such a person, which is set up for the benefit of such a person, or the economic interests of which are substantially equivalent to those of such a person.

The FCA may use this power when:

  • it reasonably requires the information for the purpose of protecting either the interests of users of, or the orderly operation of, financial markets and exchanges in the UK; or
  • it reasonably requires information or an explanation to verify whether requirements under Article 17 (public disclosure of inside information) or Article 19 (managers’ transactions) of MAR are being, or have been, complied with.

The FCA, and its predecessor the FSA, had been limited in their ability to supervise compliance with the requirements imposed on PDMRs and persons closely associated with them, as they had been essentially been confined to investigation powers available in cases of suspected breach. This power enables the regulator to request information about ongoing compliance with the disclosure obligations now set out in Articles 17 and 19 of MAR respectively. However, HM Treasury has now also given the FCA considerable discretion to use the power to enable the collection of information from unregulated persons (including minors) for wider purposes connected with the protection of users of the markets and the orderly operation of the markets.

Although the provisions do not require the request to be made by notice in writing, the FCA must specify a reasonable period, and a place for production of the information. The FCA may require the information to be provided in a specified form, and to be verified in a particular manner (by attestation, for example) although there is a requirement for it to exercise the power reasonably.

The FCA is able to impose a range of administrative sanctions in respect of a failure to comply with a requirement to provide information under this section. These include fines, censure, a prohibition on dealing in investments or managing an investment firm (see previous #MAR_bitesize), or a suspension or restriction of permission to undertake regulated activities (in the case of an authorised firm). However, given that this power is broadly cast and exercisable in respect of persons who do not make a choice to participate in the financial markets (e.g. the children of a director), such a breach will not constitute an offence under section 122F of FSMA and will not therefore be punishable as a contempt of court.

When dealing with possibility of insider dealing, unlawful disclosure or market manipulation under MAR, the FCA has still broader powers and sanctions available under section 122B of FSMA, which we will consider in our next edition of #MAR_bitesize.