FCA consults on implementation of the Market Abuse Regulation
Published on 14th Dec 2015
Following on from our previous article on the key features of the new Market Abuse Regulation (MAR) which comes into force in July 2016, the FCA has published its policy proposals and proposed Handbook changes relating to the implementation of MAR. The changes will come into effect from 3 July 2016, the date that MAR comes into force with the existing regime continuing in force until that date.
As a European regulation, MAR is directly effective in the UK, and accordingly the UK is required to ensure that its domestic rulebooks do not conflict with MAR. These rulebooks include those parts of the Financial Services and Markets Act 2000 (FSMA) and the FCA Handbook (Handbook) which formed the mechanism by which the UK gave effect to the EU Market Abuse Directive – the forerunner to MAR which will cease to have effect when MAR itself comes into force. The consultation focuses on changes to the Handbook.
General approach to Handbook amendments
The Handbook is a familiar resource to market participants and their advisers, and so, following feedback, the FCA is proposing to retain the general structure and content of the Handbook, save where it conflicts with MAR. That said, given the regulatory scope of MAR, the changes to the Handbook will be material and the Handbook will certainly look and feel different come July. In terms of its general approach, the FCA intends to:
- delete Handbook provisions where there is an equivalent provision in MAR; and
- retain existing provisions to the extent they are compatible with the new regime, with retained provisions ceasing (where appropriate) to have their current binding, evidential or conduct status.
For existing Handbook rules that are sufficiently addressed by an equivalent provision MAR, the Handbook will instead contain a signpost to the MAR provision but won’t copy out the MAR provision in the body of the Handbook. Where there is no MAR equivalent, the FCA will retain existing provisions to the extent compatible with MAR and the existing provision helps to clarify MAR principles. Where an existing Handbook provision does not conform to a new MAR concept, the existing guidance will also be deleted.
Consultation on obligations following delayed disclosure of inside information and PDMR dealing notification threshold
As MAR is directly effective, the UK has limited discretion in its implementation. However, MAR gives member states discretion in two areas, and the FCA is consulting on how the UK should approach these areas.
Notification of delay of inside information
As under the existing regime under Disclosure and Transparency Rule (DTR) 2, under MAR issuers are permitted to delay disclosure of inside information where:
- immediate disclosure is likely to prejudice the legitimate interests of the issuer;
- delay of disclosure is not likely to mislead the public; and
- the issuer is able to ensure the confidentiality of that information,
but this is now coupled with an obligation on issuers to notify the relevant competent authority (in the UK, the FCA) after the fact that it had delayed disclosure and provide a written explanation as to how the three conditions set out above were met. Competent authorities in each member state can choose to make notification a default obligation or, alternatively, require issuers to provide information on request. The FCA (together with the UK government) favours the latter option and is consulting on that basis.
Consideration threshold for PDMR reporting
The PDMR dealing notification regime (currently in DTR 3) is largely preserved, with PDMRs and their “closely associated persons” being obliged to notify all dealings in the financial instruments of the issuer. Under MAR a default €5,000 annual dealing threshold will apply before the notification requirement bites (although this may be increased to €20,000 by the relevant competent authority in each member state). The FCA is proposing to adopt the minimum €5,000 threshold.
Specific Handbook amendments
The principal amendments to the Handbook include the following proposed changes.
Disclosure and Transparency Rules
As DTRs 1 to 3 (the “Disclosure” half of the Rules which deal with the control and disclosure of inside information and notification of PDMR dealing) essentially represent the UK’s implementation of relevant provisions of the outgoing EU Market Abuse Directive (the key principles of which are being carried forward into MAR) it is proposed that those DTRs are re-cut as disclosure guidance to support issuers in complying with the new MAR regime. Accordingly, the FCA proposes to change the name of the DTRs to the “Disclosure Guidance and Transparency Rules Sourcebook”.
Model Code
The Model Code is a share dealing code (appended to Chapter 9 of the Listing Rules) which companies with a premium listing are required to adopt. The Model Code places restrictions on persons discharging managerial responsibilities (PDMRs) within premium listed companies beyond those imposed by general law to ensure that they do not, and are seen as not, abusing their position by, amongst other things, restricting dealings during periods running up to financial results announcements. The FCA has identified that the Model Code is partially inconsistent with MAR. However, given the value and familiarity of market participants with the Model Code, the FCA is proposing to replace the Model Code with similar guidance on what systems and controls an issue should put in pace to regulate PDMR dealing as required by MAR.
The Code of Market Conduct
The FCA’s Code of Market Conduct provides guidance on whether or not certain market behaviours should be regarded as abusive under the UK’s existing market abuse regime. It deals with behaviours such as insider dealing and improper disclosure of inside information. Because the statutory provisions (in the Financial Services and Markets Act 2000) under which it is published will be incompatible with MAR, in common with other Handbook changes it is proposed that the Code will be recast as guidance on the market abuse provisions of MAR, with as much of the existing content being retained as is consistent with MAR’s regulatory perimeter. It will simply be referred to as “MAR 1” guidance.
Next steps
The deadline for responses to the consultation is 4 February 2016.
