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Watch Out PLCs: New EU Rules On Market Abuse

Posted on March 17, 2015 at 5:35 PM

Watch Out, Watch Out - There's (more) new EU regulation about. OK, not until July 2016:  but listed companies need to wake up now to the implications, and prepare.

The new Market Abuse Regulation (MAR) sets out a regime around market manipulation and insider dealing, as well as new rules on disclosure of inside information, insider lists and restrictions on dealings by those individuals discharging managerial responsibilitites, as well as their sidekicks. It applies to listed companies, including those quoted on AIM : thus bringing their obligations more in line with the main market.

If you have glazed over, let me wake you up. In January 2015, the UK regulator, the Financial Conduct Authority (FCA) fined Reckitt Benckiser Group Plc (RB) £539,800 for inadequate systems and controls to monitor share-dealing by its senior executives in its own shares. "This contributed to late and incomplete disclosure to the market of share dealings by two senior executives" said the FCA.

Georgina Philippou, the FCA's acting director of enforcement and market oversight at the time, said:

 "Clear and timely disclosure of share dealings is an important way of ensuring that markets are fair and are seen to be fair. RB failed on a number of counts in relation to share dealing by two of its senior executives over a number of years. The FCA expects all listed companies to learn the lessons from this case and to ensure they have the right controls and training in place."

Reckitt Benckiser is, of course, a FTSE 100 company. Many of its peers may well think that MAR does not change a great deal for existing UK listed businesses in terms of existing law, suggests Lucy Fergusson , a Partner at Linklaters, the global law firm.

But she believes such complacency could prove risky.

Reckitt Benckiser's experience could be "a lesson for all listed companies to get it right" says Ms Fergusson. It agreed to settle at an early stage of the investigation qualifying for a 30% discount, without which the FCA would have imposed a financial penalty of £771,190.

It seems to me that, in terms of regulation, MAR appears to sit in the 'no man's land' between precaution and deterrence. There are those who describe some of it as "tedious." Will it do anything to stop bad behaviour? An EU-mindset clearly believes that it contributes in setting an important tone for corporate governance - and it is coming.

Another key change introduced by MAR as identified by Linklaters: "an obligation for an issuer to notify its competent authority if it has delayed disclosure of inside infromation."

This means that plcs are going to have to think hard about whether - and at what point in time - they have inside information. It isn't always an easy point to determine - and it is going to require a new process of minuting to pinpoint the moment of 'recognition.' It sounds very much like a need for new processes being put in place.

MAR is also relevant for companies involved in share buybacks. Judging by the spate of recent regulatory announcements, there are many in the FTSE 100 who might want to pay attention. It's a rare morning when I don't hit Investegate before 8am to find the likes of - Glencore, say - announcing yet another share buyback....

"Share buybacks are not market abuse if they are announced and are conducted within certain parameters set out in a current EU regulation. There will continue to be a safe harbour for share buy-backs under MAR, but there will be slight differences. For example, the new rules will clarify how the volume limit should be calculated when shares are traded on more than one venue" says Linklaters.

So, you have been warned. And it is not just the FTSE 100 that needs to pay attention. Here is the recent FCA activity on market abuse, even while MAR is still just a twinkle in the eye of EU regulation.

Categories: Training, Governance, Scrutiny