The Financial Conduct Authority’s (FCA) Primary Market Oversight Department attended the QCA Primary Markets Expert Group's meeting in February 2018 to discuss the UK’s progress in implementing the Market Abuse Regulation (MAR), which came into force on 3 July 2016.
The FCA were particularly keen to emphasise its willingness to engage more regularly with small and mid-size quoted companies, so that it could better understand the aspects of MAR which these companies find the most challenging to comply with.
Enforcement of MAR
The FCA explained that it would be increasing its level of enforcement activity in the coming months. It reported a higher number of enquiries and investigations regarding MAR disclosure obligations.
The root causes of many enquiries were atypical market movements including, but not necessarily limited to, volume changes and fluctuations in share prices. The FCA explained that it scrutinised a range of specialist media outlets to gauge and assess the context of any unusual market events, noting that some economic sectors were more prone than others to such fluctuations.
The FCA acknowledged that recognising what is inside information can be challenging for small and mid-size quoted companies to determine. Citing a speech by Julia Hoggett, the FCA’s Director of Market Oversight, it noted that “compliance with MAR is a state of mind”, which depended on pragmatic situational judgements instead of following prescriptive rules. It was therefore difficult to provide clear guidance on this.
The QCA Primary Markets Expert Group and the FCA observed that although AIM companies were now exempt from the requirement to create and maintain insider lists – since AIM had been granted SME Growth Market status under MiFID II on 3 January 2018, which allows for a more flexible regulatory regime – it was unclear whether companies were aware of such the exemption and/or would change their behaviour.
Many members of the Primary Markets Expert Group noted that many issuers were including all insiders in their lists, despite the fact that this is not necessary.
The FCA clarified that issuers were not required to have a disclosure committee, although some companies found such committees useful. Instead, ensuring that the correct documentation was correctly completed should be a company’s top priority. There was consensus among the Expert Group that small and mid-size quoted companies were slowly coming to terms with how to comply with the requirements.
Persons discharging managerial responsibilities (PDMRs)
Although AIM companies appear to define a PDMR in a variety of different ways, QCA Primary Markets Expert Group members reported that they had not received any queries from their clients.
Regarding persons closely associated (PCAs), the FCA emphasised the importance of following a sensible approach – particularly with regards to children, who should not be considered PCAs if they would clearly be unable to act on any information shared with them.
The QCA Primary Markets Expert Group noted that there were fewer soundings taking place since July 2016. Neither the Expert Group nor the FCA were clear on whether this was specifically due to the MAR requirements or whether it is due to wider market conditions.
The FCA suggested that some principles have not been properly understood, which could have influenced the decline in the number of market soundings. It added that some of the confusion originates from different compliance strategies from the buy-side market participants and that, as a result, some investors are refusing to be made insiders until very late on in a transaction.
Ultimately, the FCA recognises that MAR continues to be a work-in progress for many small and mid-size quoted companies. Therefore, as the way the FCA supervises capital markets evolves, we will continue to maintain a dialogue with them to ensure that our members’ concerns are heard.