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The Market Abuse Regulation (MAR) entered into force on July 3, 2016, with three main objectives. It seeks to ensure that the regulations develop at the same speed as the market. It strengthens the mechanisms to combat market abuse by laying down new requirements. And it is also intended to consolidate the power that regulators have to impose sanctions. But these three objectives serve a wider single purpose: to preserve market integrity, protect investors, and reinstil public confidence.
Companies affected by the regulation have an obligation: to comply with the new requirements of the MAR, especially by reviewing their financial communications.
What is ‘market abuse’?
The Market Abuse Regulation targets abuse of the market, but what does that mean exactly? What actions are defined as abuse of the market?
Market abuse refers to unlawful conduct within financial markets, as defined by European legislation. A distinction is made between three types of abuse:
- disclosing insider information to persons (who may benefit from it);
- manipulating the market in order to benefit one or more particular person(s), e.g. by disseminating false and/or misleading information;
- exploiting information that may affect the market even though it has not been made public (“insider trading”).
Market abuse harms the integrity of financial markets by removing the principle of equality, which requires all investors to have access to the same financial information. It goes against the idea of transparency in the market. Even worse, it undermines confidence by the public, who generally lack trust in the values, instruments, and players of the market. The Market Abuse Regulation is the European Parliament’s response to the risks of illicit behavior on the market.
Why the need for the Market Abuse Regulation?
The European legislation of April 16, 2014, which came into force on July 3, 2016, replaced the national directives that had applied until that time.
The Market Abuse Regulation seeks to improve the integrity of the market and protect investors by:
- strengthening the weapons available for use in the fight against market abuse;
- extending the scope of the regulations to new markets and all multilateral and organized trading facilities;
- introducing new requirements.
The Market Abuse Regulation imposes an obligation on the organizations affected (listed companies, companies seeking flotation in a regulated market, etc.) to communicate in good time anything regarded as “insider information”, which could influence their performance in the short or medium term and the actions they take. The sanctions provide a strong disincentive: a minimum fine of EUR 5 million for individuals, or EUR 15 million or up to 15% of total annual turnover for businesses.
When can the publication of insider information be deferred?
The Market Abuse Regulation does provide for exceptions. For an organization to be entitled to defer publication of insider information, such information must remain confidential, the deferral must not be intended to deceive the market, and the delay must be justified by the protection of the organization’s legitimate interests. Where appropriate, the competent national authority must be subsequently informed at the time of publication.
To this end, it is essential to maintain an up-to-date list of insiders – people who have had knowledge of this information – and provide it to the authority for the purpose of potential investigations and requests for information, in addition to having to demonstrate compliance with the three conditions imposed. In France, it is the Autorité des marchés financiers (AMF) which is competent.
The Market Abuse Regulation does not differ from the directive of 2003 in respect of the insiders list requirement. Only the option of deferring publication of insider information was introduced by the MAR.
How can you ensure you remain compliant with the MAR?
In itself, the Market Abuse Regulation is an excellent piece of legislation. It boosts market integrity, investor protection, and public confidence. But it does create a major hurdle for the organizations affected; that is the obligation to remain compliant with its requirements. This involves implementing a suitable framework, appointing certain individuals to verify that market operations and internal procedures conform to the European regulations.
Managing the insiders list can be a considerable challenge in itself. Insiders must be informed of their status, sign and return letters of commitment, and be reachable if needed. These actions must be duly documented in detail (including dates and times) in order to provide maximum clarity for the regulatory authority in case of an audit. For permanent insiders – those who deal with insider information very frequently – good practices should already have been adopted. But for occasional insiders, these processes are not necessarily obvious. And close monitoring is essential in view of the Market Abuse Regulation.
Staying compliant with the MAR requires an ever-changing list to be kept up to date and handling vast quantities of documents. In this sense, adopting a digital solution to manage insiders lists helps you enormously to simplify this task. In addition to providing documents electronically (an obligation imposed by the AMF), a solution like this allows you to improve efficiency while ensuring that the information you store and transfer is secure.
It is a win-win: remain compliant with the Market Abuse Regulation and keep your information secure!