In this article we provide some recent updates from Ireland and the UK on the topic of the Market Abuse Regulation ("MAR").
The Central Bank of Ireland (the "CBI") recently published its Securities Markets Risk Outlook Report 2023 (the "Report") and while the focus is on informing regulated financial service providers, investors and market participants of the key risks and areas of focus for markets supervision, which will inform the CBI's supervisory engagements over the coming year, it also contains updates and guidance to listed companies with regard to MAR. See Matheson's general update on the Report here.
In the Report, the CBI highlighted that it continues to observe ineffective frameworks and controls for the management of inside information and the maintenance of insider lists. As outlined in its MAR thematic review industry communication regarding inside information (July 2021), issuers are required to ensure compliance with all elements of MAR regarding insider lists. To ensure compliance with all aspects of Article 18 of MAR, issuers should have frameworks, including comprehensively evidencing how access to inside information is controlled. Failure to comply may result in the CBI taking action, up to and including enforcement.
The CBI expects issuers of financial instruments to:
- ensure that frameworks for the identification, assessment and reporting of suspected instances of market abuse are sufficiently robust to identify, manage and mitigate emerging risks in what is a rapidly changing market environment; and
- maintain robust frameworks and associated controls to comply with the provisions in MAR concerning inside information.
In August 2022, the UK Financial Conduct Authority (the "FCA") issued a final notice to former non-executive Chair of ConvaTec Group Plc, Sir Christopher Gent, and fined him £80,000 for committing market abuse by unlawfully disclosing inside information in contravention of MAR.
The unlawful disclosure related to Sir Gent disclosing to two shareholders of ConvaTec that the Company expected to make imminent announcements revising its guidance and announcing that the CEO was retiring. In its findings, the FCA found that for a number of reasons, the disclosures made by Sir Gent were made otherwise than in the normal exercise of his employment, profession or duties in his role as Chair of ConvaTec. These reasons included that:
- the disclosures were not reasonable, proportionate or necessary in order for Sir Gent to perform his proper functions or duties;
- even though the FCA accepted that shareholder relations were part of Sir Gent's duties, the reason given by Sir Gent, that he did not want to surprise the shareholders of that scale with such an announcement, was not a legitimate reason for making the disclosure;
- there was a more appropriate means by which Sir Gent could have communicated with the shareholders, such as providing access to the ConvaTec’s senior management team in calls held immediately after the announcements (as was the case for other major shareholders); and
- there was no good reason for the timing of the disclosures, which took place at least two working days before Sir Gent believed any announcement would be released, and making the disclosures at that time was also contrary to the ConvaTec's procedures, whereby discussions with shareholders were to be held following approval of the announcement but the evening before its release, after the markets had closed.
The FCA concluded that the market abuse was committed negligently and found that, having received training on MAR from the ConvaTec's external legal advisers and based on his own considerable experience and position, Sir Gent should have realised that the information he disclosed may have amounted to inside information and that it was not in the normal exercise of his employment, profession or duties to selectively disclose it.
The FCA, taking all of these factors into account, concluded that the seriousness of the market abuse amounted to a Level 3 fine, being 20% of relevant income, plus a 2 x multiple of the profit made or loss avoided by the individual for their own benefit, or for the benefit of other individuals, which, in Sir Gent's case was nil.
- The FCA's decision provides a clear example of the unlawful disclosure of inside information and the enforcement of MAR. It reminds issuers and those who have access to inside information that:
- the knowledge of an expected occurrence of an event does not need to be certain to be sufficiently precise to constitute inside information, the test is whether events are “reasonably expected to occur”;
- the obligation to inform the public of inside information “as soon as possible” does not mean “immediately”;
- there must be a legitimate reason for sharing inside information with shareholders, not wanting to surprise shareholders is not enough;
- there may be market abuse even where there is no profit gained or loss avoided by any party;
- policies and procedures, in particular those for analysing and classifying inside information, should be reviewed and refresher training provided to all individuals who are dealing with inside information; and
- where there is any uncertainty as to whether information could be deemed inside information, parties should seek formal advice from their legal and financial advisers and maintain records of all advices sought and obtained; it would be prudent to retain appropriate contemporaneous records of the advice received.
UK MAR Update
Lastly, on 24 March 2023, His Majesty's Treasury and the FCA, following completion of their joint review of the UK criminal market abuse regime, which the UK government committed to as part of its Economic Crime Plan 2019 to 2022, published "Statement: Criminal Market Abuse Regime".
The statement notes that the joint review identified a number of areas where the government believes it would be appropriate to update the criminal market abuse regime. The UK government will consider any changes to these offences alongside its plans to reform the civil market abuse regime set out in the retained UK Market Abuse Regulation ("UK MAR"). The statement further notes that the UK government proposed to implement the Fair and Effective Markets Review (FEMR) recommendations in relation to market abuse, and will bring forward secondary legislation in 2023.
The review of the criminal regime is being undertaken within the wider context of the Future Regulatory Framework (FRF) Review, which was established to determine how the financial services regulatory framework should adapt to the UK’s new position post-Brexit. As part of this, it is planned that the UK will repeal UK MAR and replace it with UK-specific legislation under the new financial services legislative architecture proposed in the Financial Services and Markets Bill. The timing for this has not yet been released., but it is understood that the UK government will consider how to implement the recommendations of the criminal regime review at that time.
For more information on the above, or for further guidance and insight in respect of the corporate governance of public limited companies generally, please contact Susanne McMenamin, Anna O'Carroll or your usual Matheson contact.