On November 15, the European Securities and Markets Authority (ESMA) published its annual report into the administrative sanctions issued by national competent authorities (NCAs) around the Market Abuse Regulation (MAR). MAR came into force in July 2016 and this marks the first time ESMA has reported back on sanctions associated with the Regulation. This current report spans the period between the introduction of MAR and December 2017.
As a reminder: MAR was designed to increase market integrity and investor protection and enhance the attractiveness of the EU securities markets for purposes of capital raising. The Regulation imposes restrictions around insider dealing, unlawful disclosure of inside information and market manipulation, and requires firms provide for the prevention and detection of such abuses. One of the main focuses of MAR has been in enhancing the market surveillance capabilities of firms to ensure abusive behavior is identified and reported in good time.
Importantly, many pre-existing abuse regulations were in force across the EU at the time MAR was introduced, and ESMA’s report does not include sanctions carried out under these legacy laws. Moreover, with some investigations from this period still ongoing, ESMA is keen to point out that the report cannot be used to identify trends or tendencies in the imposition of sanctions, and that it does not provide a fair representation of the market abuse activities performed in that time-span by the NCAs.
However, what the report does make clear is that MAR is now an active regulation and that NCAs and criminal authorities (in countries where MAR has been written into the criminal code) are proactively pursuing non-compliers.
When it comes to administrative sanctions, the report reveals that 42 measures were imposed for the infringement of market manipulation during 2017 and a further two for the infringement of insider dealing and unlawful disclosure of inside information. In addition, 107 pecuniary sanctions and 111 ‘other than pecuniary measures’ were imposed for other infringements. With regard to criminal sanctions, a total of seven criminal pecuniary sanctions were imposed, all in Germany.
While most firms will by now have taken some action to prepare for MAR, these firms need to question whether they have done enough. One area that has been highlighted time and again as a cause for concern is around market surveillance. Firms that are using manual market surveillance processes may not be able to pick up on market abuse instances in the timely manner demanded by MAR. These organizations need to adopt automated surveillance systems that can handle the complexity of market surveillance. To be fit-for-purpose these systems should have the right coverage, rapid reporting capabilities and the ability to stop orders or trades that could have been executed based on material non-public information.
With time a critical factor, we recommend firms enable these capabilities through managed RegTech services. The alternative of in-house compliance transformation is now too timely and disruptive to risk. By taking market surveillance services from cloud providers like RIMES, firms can ensure they are ready when the regulators come knocking.
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