On 3 July 2016, the Market Abuse Regulation (MAR) took effect across the EU. This new European legislation extended the previous Market Abuse Directive (MAD), introducing additional rules and guidance on insider dealing, unlawful disclosure of inside information, trading by PDMRs and market manipulation. Importantly, there is no requirement for persons to be within the UK or other EEA state for a market abuse offence to be committed. Conduct engaged in entirely outside of the UK is therefore caught, provided that it relates to products that are within scope (or conduct that could affect the price of such products).
Firms operating in the financial services sector are still feeling their way around the wider scope and obligations introduced by MAR, which, in light of other regulatory changes introduced in 2016, may have been neglected and it is still too early to tell what the long term implications of the legislation will be.
Nevertheless, the regime has introduced a number of wider issues for firms to monitor as market practice develops. Given the approach of the FCA to date in taking enforcement action for market abuse offences against non UK firms, there is no doubt that this focus will continue in the coming year, particularly in light of the continued push towards cooperation with foreign regulators.
So what areas should Foreign Banks be thinking about in the short term?
In light of the obligations MAR has introduced, on 28 September the FCA issued a consultation on Whistleblowing in UK branches of overseas banks. The FCA’s current proposals are that:
· UK branches of overseas banks tell their UK-based employees about the FCA and PRA whistleblowing services; and
· Where a branch of an overseas bank sits alongside a UKincorporated bank that is subject to FCA whistleblowing rules, the UK-based staff of that branch should be informed of the subsidiary’s whistleblowing arrangements.
The FCA does not envisage requiring UK branches of overseas banks to implement any other of its rules related to whistleblowing but advises that the rules do represent good practice guidance for these firms. The Consultation closes on 9 January 2017.
Suspicious transaction and order reports (STORs)
Due to the MAR obligation on firms to report suspicious ‘orders’ as well as ‘attempted market abuse’, the past year has seen firms grapple with the introduction of more comprehensive systems and controls. The robustness of those procedures will be a focal point for the regulator going forward. For Foreign Banks, although there is no geographical limitation on the reporting obligation, the FCA has confirmed that it would not generally expect to receive a STOR from a third country firm which has no connection to an EU or UK firm. Instead, that entity should report locally.
All firms should ensure that, as well as updating documented policies and procedures, they continue to roll out adequate training on the new regime. This should include Board level understanding of the key issues and bespoke training for internal teams focusing on the new rules and the practical application of systems and controls.
Article first published in the Association of Foreign Banks Update – November, which can be found here.