Implementation of the Market Abuse Regulation
The new Market Abuse Regulation (MAR) will expand and develop the EU market abuse regulatory regime. Given that MAR will take direct effect from 3 July 2016, on 5 November 2015 the Financial Conduct Authority (FCA) published suggested amendments to its Handbook to make it compatible with MAR. Changes will also be made to relevant provisions of the Financial Services and Markets Act 2000 (FSMA). But companies and advisers will need to look further than the implementing measures taken in the UK and become familiar with MAR itself and European implementing measures and guidance in order to remain compliant with the new market abuse regime.
The content and structure of the Handbook will be kept, to the extent that this does not conflict with MAR, but the FCA have proposed a substantial number of changes. The key changes include:
- Code of Market Conduct: The content and legal status of the Code of Market Conduct will be amended. The FCA is currently required to publish the Code by section 119 of FMSA and section 122 provides that, where the Code contains descriptions of behaviour which, in the FCA's opinion, does not amount to market abuse, that is conclusive of the matter. These sections will be repealed and the Code will remain only as guidance to FCA's views and expectations about market abuse. Many of the existing provisions of the Code will be replaced with signposts to relevant provisions of MAR and others will be amended to conform to MAR.
- Stabilisation: Many of the existing Handbook provisions on stabilisation will be replaced with signposts to the relevant provisions of MAR. The safe harbour for stabilisation in certain third country jurisdictions will be retained as well as guidance on adequate public disclosure and details of notification requirements.
- The Model Code: The Model Code on share dealing by directors and others, which applies to premium listed companies, is incompatible with MAR and will be replaced with guidance on the systems and controls companies should put in place in relation to clearance procedures for director share dealings. Consequential changes will be made to the Listing Rules.
- Disclosure Rules: The FCA's power to make Disclosure Rules under FSMA will be repealed and the Disclosure and Transparency Rules will be renamed as the Disclosure Guidance and Transparency Rules. The current Disclosure Rules in DTR 1 (general provisions about Disclosure Rules), DTR 2 (disclosure and control of inside information) and DTR 3 (transactions by persons discharging managerial responsibilities (PDMRs)) will be amended to comply with MAR and retained as guidance on certain aspects of the disclosure obligations under MAR. Unlike the current DTR 1, 2 and 3, this guidance would apply to AIM companies as well as main market companies. The rules on PDMR transactions under MAR will catch a wider range of transactions than the current DTR 3, including gifts and donations and transactions will have to be announced in three business days rather than four.
The FCA is consulting on two areas where there is a discretion under MAR. In relation to transactions by PDMRs, MAR requires transactions to be notified once a minimum threshold of €5,000 has been reached. The FCA is proposing to apply this threshold, rather than increasing it to €20,000, on the basis that it is not aware of any specific market conditions that justify setting the limit at the higher level.
In relation to disclosure of inside information, MAR permits a company to delay disclosure where immediate disclosure is likely to prejudice its legitimate interests, the delay is not likely to mislead the public and the company is able to ensure the confidentiality of the information. If a company relies on this provision to delay disclosure, it must inform the FCA of the delay as soon as the information is publicly disclosed. The FCA is proposing not to require companies to explain how the conditions for delay were met in all cases of delay, but for such an explanation to be given only on request by the FCA.
In a separate consultation, the FCA is proposing to amend DTR 2 to clarify that companies may have legitimate reasons to delay disclosure of inside information other than the reasons specified in DTR 2.
The FCA has invited participants to send their responses to its consultation by 4 February 2016.
The FCA notes that the amended Handbook will not provide a comprehensive overview of the new market abuse regime. Companies and advisers will also need to be aware of MAR, its implementing measures and any relevant guidelines issued by the European Securities and Markets Authority (ESMA). For example, MAR covers new aspects of the market abuse regime, such as in relation to market soundings, and insider lists will have to be kept in a format prescribed by ESMA. The FCA will no longer be the arbiter of what amounts to market abuse in the UK, and will no longer be able to create safe harbours.
Companies will have to review their procedures and internal training in relation to the disclosure of inside information and transactions by PDMRs, and amend their internal codes governing dealing by PDMRs, to reflect MAR, the new European and FCA Handbook guidance on market abuse and the deletion of the Model Code on share dealing. AIM companies will need to have regard to the guidance in the revised DTRs 1, 2 and 3 as well as other market abuse guidance, and we have already reported on the proposal by AIM Regulation to retain a disclosure rule in the AIM Rules for Companies and the consequent dual regulator regime which AIM companies will face.