It is now more than two years since the EU’s Market Abuse Regulation (MAR) came into force in July 2016. This landmark piece of regulation set out to create a harmonised EU framework for addressing market abuse issues, as well as significantly broadening the scope of the previous regulatory regime to cover new offences.
However, while firms have been working hard to implement it since then, the scale and intricacy of this ambitious regulation continues to present challenges, which risk undermining its overall aim of reducing market abuse. Furthermore, individual EU regulators are taking varied approaches to market abuse, which could threaten its efficacy as a harmonised EU-wide regulation.
MAR has a very broad scope, covering a wide range of different products and asset classes. It is also covers specific issues, such as rules on disclosure e.g. of inside information to potential investors as part of ‘market soundings’, in highly granular detail. This breadth and depth can make effective monitoring and surveillance challenging.
While firms are familiar with the types of abusive or manipulative behaviours they should be on the lookout for, such as price fixing or suspicious timings around trades, the need to monitor across varied types of trading activities, often across different geographical locations, makes this a complex task.
In some areas, technological solutions, such as programmes which analyse trade transactions or monitor electronic communications can help, but do not readily provide a holistic picture. This level of monitoring also generates huge amounts of data, which can make it hard to spot cases of market abuse amongst all the ‘noise’.
In other areas firms face the opposite problem, where it simply isn’t possible to obtain the data that MAR calls for. For instance, in some markets, reliable pricing information isn’t available (e.g. in lower volume trading areas) which can make it difficult to identify if prices are being manipulated.
Clearly, firms have a responsibility to review their systems and processes to ensure that they are taking a holistic and thorough approach, and are creating solutions to tackle market abuse to the best of their ability. But even with their best efforts it remains a very difficult task.
Firms are also operating within a fast-changing landscape. Not only are technological changes compounding the complexity of the challenge, but firms are also grappling with other regulatory shifts, such as MiFID II and the 5th Anti-Money Laundering Directive, which overlap in parts with MAR.
Despite the intention to create a harmonised regime, the term should be used advisedly, as we have seen significant differences in the application of MAR across EU member states. For example, some, but not all EU regulators and supervisors, see market abuse as a financial crime that should be reported to Financial Intelligence Units as well as to National Competent Authorities. This results in duplicative reporting which is neither helpful to the authorities nor an efficient use of banks’ resources. Therefore, the time is ripe to review how MAR fits into this wider landscape, to ensure it will be fit for purpose in the long term.
Ensuring MAR operates effectively and achieves its intended outcomes is vitally important to ensure that market abuse is being tackled head on. It is crucial that the planned European Commission review of its implementation, due during 2019, is carried out. This would provide an opportunity to take a step back and ensure that the intended outcomes of the regulation are aligned with the requirements it places on firms.
To be clear, serious and deliberate market abuse should be prosecuted as the criminal offence that it is. However, there is still more for regulators and supervisors to do in ensuring that the market abuse regime that underpins this work is effective. Where there are administrative and practical challenges on issues such as how insider lists are held or market soundings are conducted, these should be addressed through constructive engagement with industry participants, this is the best route to creating effective solutions.