10 Key Regulatory Focus Areas for UK/European Wholesale Markets in 2019

By David Berman, Carl Fernandes  Nicola Higgs, Rob Moulton, and Charlotte Collins

The fourth post in this 10-blog series considers the latest developments in relation to the Market Abuse regime. This is taken from our wider publication: 10 Key Regulatory Focus Areas for UK/European Wholesale Markets in 2019 – Progress Report. Read the full publication here.

FCA’s focus areas

The FCA’s latest speech on market abuse emphasised the importance of having appropriate market abuse controls that help prevent harm occurring, rather than merely detecting when an issue has arisen. The FCA also repeated its message that firms need to be on the lookout for market manipulation, not just insider dealing, and that firms need to focus on fixed income markets just as much as equities.

In line with enforcement trends more generally, the FCA is opening many more investigations into suspected market abuse (although many are closed without further action). The FCA 2019/20 Business Plan states that the FCA will continue to work with issuers to ensure they fully understand their obligations under MAR. Recent fines imposed on issuers for inappropriate handling of inside information demonstrate the FCA’s low tolerance for errors in this area. The FCA also indicated that it will be focusing on the control of inside information within M&A businesses and corporate broking functions. Further, the FCA flagged that it is developing new monitoring and detection tools focusing on delayed disclosure and misleading statements by issuers, and secondary market behaviour, including cross-market manipulation.

Signalling increasing crossborder cooperation between regulators in detecting crossmarket and cross-product abusive behaviour, the FCA has also recently announced that it is working with the US SEC and CFTC to address concerns relating to manufactured credit events in credit derivatives markets.

Finally, the FCA has raised concerns about the use of data in wholesale markets. While the regulator sees the positive potential of new capabilities for gathering and processing data, the growth of firms’ abilities to harvest and manipulate large quantities of data also raises some important questions. The FCA is particularly apprehensive about whether such data could introduce risks of collusion, and plans to launch a Call for Input this summer to understand the potential regulatory issues.

EU review

The European Commission has asked ESMA to provide technical advice on the application of MAR, in order to feed into a report that the Commission is mandated to produce. This report will underpin any future changes to the Level 1 text. MAR itself specifies which areas of MAR should be reviewed. However, the Commission has also asked ESMA to report on various other areas. These include considering whether spot FX contracts should be brought within scope of the regime, as well as looking at ways in which the rules on delayed disclosure of information, disclosure of PDMR transactions, and reporting under the buyback exemption might be tweaked to make the obligations more proportionate. ESMA has been asked to consult widely, and so market participants should look for opportunities to feed in their views.