Out-Law News 3 min. read

FCA to adopt lower notification threshold as part of market abuse rule changes


The Financial Conduct Authority (FCA) will require firms to publicise managers’ market dealings above an annual €5,000 threshold once new EU-level market abuse rules come into force, it has confirmed.

The EU’s Market Abuse Regulation (MAR), which takes effect on 3 July, allows member states to increase this threshold to €20,000 within a calendar year where market conditions permit. However, the FCA said that it had not received evidence of a “significant” difference in expected reporting levels under each of the proposed thresholds during its consultation on how it intends to incorporate the new rules within its regulatory handbook.

“Although there are differences in the number of notifications that will be submitted between the two thresholds, evidence from respondents indicates this difference is not significant,” the regulator said in a policy statement setting out its response to the consultation.

“We have not received evidence of market conditions that would be sufficient justification for setting the thresholds at €20,000. We are therefore maintaining our position of setting the threshold at €5,000 … and will not at this stage be increasing the threshold to €20,000. We note the feedback made for issuers to disclose all transactions on a voluntary basis, regardless of the €5,000 threshold. Issuers may do this if they wish,” it said.

Financial regulation expert Josie Day of Pinsent Masons, the law firm behind Out-Law.com, said that the lower threshold would allow the FCA to “receive information in greater detail about shareholdings”.

"Firms and their compliance teams will need to ensure they are properly prepared to implement the new requirements, have systems to do this and have briefed relevant staff so they know what they need to do – and by when," she said.

"Firms are obliged to publicise managers' dealings within three working days of the date of the trade but the persons caught by the regime also have the same three-day period to inform their firms. So there is a risk firms might not meet their disclosure deadline if managers and their associates - which includes their close family - delay passing the information onto them," she said.

Unlike existing EU-level market abuse rules, the new MAR takes the form of a directly-applicable regulation, meaning that national governments and regulators have little discretion over how the rules should be incorporated within the domestic regulatory regime. Parts of the existing UK legal framework governing market abuse will have to be repealed or amended to make way for the new regime.

However, the FCA does have some discretion over its approach to the new requirement for firms to provide an explanation of the delay to their disclosure of inside information, as well as the threshold for disclosure of managers’ transactions. The FCA has confirmed that it will not require firms to provide a written explanation of how they have complied with the conditions allowing delayed disclosure in certain circumstances unless explicitly requested by the regulator, in order to reduce unnecessary regulatory burdens on firms.

MAR will allow firms and Emission Allowance Market Participants (EAMPs) to delay the public disclosure of inside information where this is not likely to mislead the public, where the issuer is able to ensure the confidentiality of that information and where immediate disclosure is likely to prejudice the issuer or EAMP’s “legitimate interests”.

“MAR offers the option for the FCA to either require issuers or EAMPs to provide a written explanation of how these conditions were met as soon as the information is disclosed to the public, or to allow for such an explanation to be provided only if the FCA requests it,” said financial regulation expert Josie Day. “The FCA has decided to adopt the proposal made in the consultation paper that the written explanation need only be provided at the request of the FCA since it did not see any regulatory benefit in applying the additional burden to firms.”

“This disclosure regime is a measure against market abuse that can provide valuable information to investors about the [person discharging managerial responsibilities’] possible view on the issuer, which goes towards enhancing market transparency,” she said.

Once in force, the MAR will extend a harmonised market abuse regime across Europe which also seeks to catch abuse that takes place on electronic trading platforms, and to clearly prohibit abusive strategies enacted through high frequency trading. It will also cover offences related to the manipulation of benchmarks, such as LIBOR and EURIBOR. Market abuse offences across the EU will come with a common set of criminal sanctions, including prison sentences for individuals under the directive running in tandem with MAR. The UK is not implementing this directive, so the UK's criminal market abuse regime will remain substantially 'as is'.

The FCA noted in its consultation response that not all of the final Level 2 texts of the MAR had been finalised and published in the Official Journal of the European Union at the time of publication. It said that it would “monitor any changes” to the final form of the legislation, and make any “consequential amendments” needed to its handbook where required.

"This means that, despite the imminent July deadline for the requirements to take effect in the UK, the FCA's handbook may still be subject to some changes which firms will need to keep track of," Day said.

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