The Financial Services and Markets Act 2000 (Market Abuse) Regulations 2016
On 29 June 2016, the Government adopted the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2016 (the "regulations"). This left negligible time for Parliamentary scrutiny before they came into force with the Market Abuse Regulation (EU) 596/2014 ("MAR") on 3 July 2016.
The purpose of the regulations was to amend UK law to ensure its compatibility with MAR, to give effect to those parts of MAR which required implementing legislation, and to ensure it is fully enforceable in the UK. The regulations amend the Financial Services and Markets Act 2000 (FSMA) and give the Financial Conduct Authority ("FCA") new powers to:
- require information from issuers and other persons;
- compel the publication of information by issuers,
- compel the publication of corrective statements by issuers and other persons;
- suspend trading in financial instruments; and
- impose penalties, prohibitions and suspensions or restrictions for contraventions of the market abuse regulation.
This issue of #MAR_bitesize considers the new prohibition power which the regulations inserted into FSMA as section 123A.
Power to prohibit individuals from managing or dealing
The new provision empowers the FCA to prohibit an individual from:
- holding an office or position involving responsibility for taking decisions about the management of an investment firm ("disciplinary prohibition on managing"); or
- from acquiring or disposing of financial instruments whether on his own or someone else's account, and whether directly or indirectly ("disciplinary prohibition on dealing").
The power is not confined to persons employed in regulated firms. The FCA can exercise the power against any individual where it is satisfied that he or she has:
- committed market abuse by breaching the prohibitions in Articles 14 or 15 of MAR against insider dealing, unlawful disclosure of inside information or market manipulation;
- breached or been knowingly concerned in the breach of other provisions of MAR or of supplementary EU regulations made under MAR (e.g. disclosure obligations); or
- breached a requirement imposed on him or her by the FCA under specified provisions in FSMA, including information gathering and investigation powers.
The provisions enables the FCA to permanently prohibit an individual who has committed market abuse from holding an office or position involving responsibility for taking decisions about the management of an investment firm. Otherwise, in imposing a prohibition under section 123A, the FCA must specify a period after which the prohibition will expire, although this does not prevent the FCA from imposing a new prohibition. In line with the scope of MAR, the FCA may impose a disciplinary prohibition against an individual located outside the United Kingdom or indeed outside the EEA.
The FCA has set out in DEPP 6A.3.2G the factors it will take into account in determining the appropriate length of a disciplinary prohibition under five principal headings:
- the seriousness of the breach
- aggravating and mitigating factors
- the impact of the prohibition on the individual
- the impact of the prohibition on other persons (consumers, markets).
The FCA will usually consider the full circumstances of each case, and whether it is appropriate to impose a disciplinary prohibition, at the same time as it considers whether or not to impose a financial penalty or a public censure. The FCA views the power to impose a disciplinary prohibition as a measure which it may use in addition to, or instead of, a fine or public censure. It will primarily use the power to promote high standards of regulatory and/or market conduct by deterring the individual from committing further breaches, helping to deter others from committing similar breaches, and demonstrating the benefits of compliant behaviour.
A disciplinary prohibition on managing may prohibit an individual holding an office or position involving responsibility for taking decisions about the management of a particular named firm, of a specified type of firm, or of any investment firm.
Section 123A(6) of FSMA requires investment firms to take reasonable care to ensure that no individual who is subject to a disciplinary prohibition on holding an office or position involving responsibility for taking decisions about the management of that firm holds such an office or position. This broadly equates to the requirement that an authorised person take reasonable care to ensure that no function is performed by a person who is prohibited from performing that function by a prohibition order (section 56(6) of FSMA).
There is no equivalent statutory requirement on investment firms to take reasonable care to ensure that they do not facilitate the breach by an individual of a disciplinary prohibition on dealing through the provision of investment or execution services.