This month marks the first anniversary of the implementation of the Market Abuse Regulation (MAR) in Europe. The EU passed the Regulation to enhance existing market abuse policies and crack down on insider trading and market manipulation. RIMES has been following closely the impact of the Regulation, due to its significance to asset managers. MAR brings with it a wide range of market surveillance and reporting obligations that in most cases requires a completely new approach to compliance within buy-side firms.
Earlier this month, expert analysis from Ropes & Gray LLP revealed the impact the Regulation has had on asset managers during its first year. One of the most obvious has been the extension of insider dealing and market manipulation restrictions to trading venues that are outside the main EU stock exchanges, such as ‘dark pools’ and MTFs – even when trading is based on privately negotiated deals. The extension of regulation to these venues is reportedly having a negative impact on their use, as asset managers shy away from the additional compliance burdens.
Another key consequence of MAR has been an increase in the amount of data asset managers must retain in case it is needed to prove that inside information was not used in a trade. As the latest legal analysis makes clear, however, this is only the beginning of the compliance challenge for buy-side firms.
Under the MAR regime, asset managers must introduce systems and procedures to detect and report on potentially suspicious transactions and orders. This has reportedly led to most firms deciding they will require automated surveillance for orders and transactions across both pre- and post-trade.
When deciding about the type of system to put in place, firms have had to assess the likely volume and frequency of their trading in the light of the increased number of trading venues covered by MAR. The analysis makes the further point that in over-the-counter or in ‘dark’ markets, asset managers will also be challenged to collect a sufficient amount of market data to identify instances of potential fraud.
In the light of these challenges, asset managers need to ensure they make the right investment decisions. The good news is that the market is reacting to the challenges of MAR and other regulations through new ‘RegTech’ services: solutions that streamline compliance processes and deliver compliance functions as-a-service. By investing in such solutions, which include RIMES’ RegFocus®, asset managers can achieve compliance with less disruption and at a lower cost than in-house alternatives.