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Market Abuse Regulation three years on: is this still a priority for the regulator?

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Market Abuse Regulation three years on: is this still a priority for the regulator?

By Charlotte Longman, Senior Principal Consultant, ACA Compliance Group

This week marks three years since the Market Abuse Regulation (MAR) overhauled the civil market abuse regime across Europe, repealing and replacing the Market Abuse Directive (MAD) and the UK’s own domestic legislation.

Developed in parallel with the revised Markets in Financial Instruments legislative package (MiFID II), MAR significantly extended the reach of the European regulatory regime to capture a wider scope of markets, instruments and behaviours, and contained specific provisions to address the proliferation of technology-driven trading practices and platforms. Designed to tackle misconduct and restore market confidence, MAR aimed to increase both market integrity and investor protection.

Three years on, we examine the impact of the regulation and ask if market abuse is still a priority for the FCA. Here are eight outcomes resulting from the legislation: 

A rise in STORs submissions indicate an increase in firms’ awareness of risk:
It‘s evident that MAR had a galvanising effect on the industry as seen from the substantial increase in the submission of Suspicious Transaction and Order Reports (STORs). There was a 70% increase in submissions in the six months post-implementation, and a further 30% increase between H2 2016 and H2 2018. Market participants are clearly more alive to the risks present within their organisations.

Understanding of obligations is good, but actions still fall short:
In 2018, the FCA issued its Market Abuse Questionnaire, which was announced at the Asset Management Conference in the summer. The survey was issued to over 400 firms, a statistically significant portion of firms supervised in the alternative and asset management portfolio and focussed on firm’s systems and controls. The findings were published in Market Watch 58. These generally indicate that many market participants have a good understanding of their obligations, however there are areas which present challenges, including surveillance of all orders and transactions. Quote surveillance technology was in its infancy when MAR came into force but, given the lapse of time since July 2016, the FCA now expect firms to be fully in compliance.

The FCA is turning a more focused lens on market abuse: We saw a flurry of market abuse related communications from the FCA late in 2018. This followed little new guidance or clarity from the FCA during the preceding period, aside from the consultation and subsequent enactment of the updates to the Financial Crime Guide, which also took effect in December. This rise in communication indicates that the FCA is increasing its focus on this topic in an attempt to improve standards and ensure that the UK has a clean, orderly and transparent market in which participants can trust.

Regular reinforcement from the regulator:
Published in April each year, the FCA’s business plan is the best indicator of the regulator’s priorities for the forthcoming year. Preventing and detecting market abuse features regularly in these publications. The plan released after MAR implementation focused on embedding the new regime but also pointed attention to MiFID II and the enhanced transaction reporting obligations under the accompanying Regulation. In its 2018/19 plan, the regulator explicitly highlighted that supervision on fixed income, commodity and non-standard derivative markets has historically received less focus than equities, noting “we will monitor, detect and investigate potential abuse in these markets and enforce against unlawful behaviour where appropriate.” The FCA’s most recent business plan for 2019/2020 highlights that the regulator will concentrate on “key areas in firms’ control frameworks, focusing on areas such as the control of inside information”. It states its “work will aim to ensure that firms respond appropriately to the 2018 update to the FCA’s Financial Crime Guide for Firms on the risks of insider dealing and market manipulation.”

In addition, earlier this year, the FCA issued a Dear CEO letter to wholesale broking market participants. The FCA feel that “the wholesale broking business model poses an inherently high risk of market abuse” as it can be used to facilitate abusive trades but also regularly hold confidential, or inside, information. The FCA warned that the dissemination of this style of informationmust be carefully managed as it can be easily abused, with the inference being that employees use it in their personal trading as low levels of trading were being reported in some firms. All firms can take this as a warning to ensure their Personal Account Dealing policies and procedures are sufficiently robust.

Complete and accurate transaction reporting is instrumental in supporting the prevention of market abuse: MiFID II significantly expanded the FCA’s ability to survey for market abuse by increasing the number of firms in scope of the reporting requirements, whilst simultaneously increasing the data within the reports to include, for examples, individual decision makers and where executions involved in algorithms. The importance of this change in regime was highlighted by the FCA in its 2017/18 business plan, where it noted that information in the expanded transaction reports “will significantly increase the effectiveness of our market abuse work”. Additionally, the message has recently been repeated in the context of enforcement action for transaction reporting failings. This highlights the reliance the FCA place on complete and accurate information in helping “the FCA identify potential instances of market abuse and combat financial crime”.

Prevention is better than cure: 
Julia Hoggett was appointed Director of the Market Oversight Division of the FCA in April 2017. Hoggett has since made two important speeches on Market Abuse, the first approximately six months after her appointment in November 2017. The initial speech discussed compliance with MAR being a ‘state of mind’ and involves critical thinking and enhancing trust, plus evolution. The second speech in 2019 built on the evolution point asking the industry to do more to improve its capacity and ability to conduct surveillance in the non-equity space, with a focus on prevention rather than detection of market abuse. Evolution was also considered in the context of the changes to the market environment – for example the increase in the use of algorithmic trading, and the need to ensure that market participants keep pace.

Enforcement is real:
The FCA continues to pursue enforcement action where it has identified breaches of rules, both in criminal and civil proceedings. We’ve seen a number of high profile sanctions on both individuals and investment firms for a variety of crimes ranging from insider dealing and engaging in market abuse, to inadequate systems and controls preventing the firm from identifying and reporting suspicious activity.

Effective trade surveillance for all Financial Crimes is imperative: 
Most recently, the FCA published the findings of its thematic review into money laundering risks and vulnerabilities in capital markets, which highlighted that many firms’ “main focus was detecting market abuse”. It also identified “a potential disconnect between some participants’ trade surveillance for market abuse and AML transaction monitoring functions, with the result that participants were not always recognising the potential for correlation between market abuse and money laundering.” The FCA also confirmed its expectation that firms must have regard to both their obligations under the Proceeds of Crime Act for submitting a Suspicious Activity Report (SAR), and the Market Abuse Regulation, for submitting STORs.

What’s next?

Protecting and enhancing the integrity of the UK financial system is, and continues to be, a key operational objective for the FCA. Over the next few years, we expect the detection and prevention of market abuse will remain an absolute priority area for the FCA.

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Australia says no further Facebook, Google amendments as final vote nears

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Australia says no further Facebook, Google amendments as final vote nears 1

By Colin Packham

CANBERRA (Reuters) – Australia will not alter legislation that would make Facebook and Alphabet Inc’s Google pay news outlets for content, a senior lawmaker said on Monday, as Canberra neared a final vote on whether to pass the bill into law.

Australia and the tech giants have been in a stand-off over the legislation widely seen as setting a global precedent.

Other countries including Canada and Britain have already expressed interest in taking some sort of similar action.

Facebook has protested the laws. Last week it blocked all news content and several state government and emergency department accounts, in a jolt to the global news industry, which has already seen its business model upended by the titans of the technological revolution.

Talks between Australia and Facebook over the weekend yielded no breakthrough.

As Australia’s senate began debating the legislation, the country’s most senior lawmaker in the upper house said there would be no further amendments.

“The bill as it stands … meets the right balance,” Simon Birmingham, Australia’s Minister for Finance, told Australian Broadcasting Corp Radio.

The bill in its present form ensures “Australian-generated news content by Australian-generated news organisations can and should be paid for and done so in a fair and legitimate way”.

The laws would give the government the right to appoint an arbitrator to set content licencing fees if private negotiations fail.

While both Google and Facebook have campaigned against the laws, Google last week inked deals with top Australian outlets, including a global deal with Rupert Murdoch’s News Corp.

“There’s no reason Facebook can’t do and achieve what Google already has,” Birmingham added.

A Facebook representative declined to comment on Monday on the legislation, which passed the lower house last week and has majority support in the Senate.

A final vote after the so-called third reading of the bill is expected on Tuesday.

Lobby group DIGI, which represents Facebook, Google and other online platforms like Twitter Inc, meanwhile said on Monday that its members had agreed to adopt an industry-wide code of practice to reduce the spread of misinformation online.

Under the voluntary code, they commit to identifying and stopping unidentified accounts, or “bots”, disseminating content; informing users of the origins of content; and publishing an annual transparency report, among other measures.

(Reporting by Byron Kaye and Colin Packham; Editing by Sam Holmes and Hugh Lawson)

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GSK and Sanofi start with new COVID-19 vaccine study after setback

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GSK and Sanofi start with new COVID-19 vaccine study after setback 2

By Pushkala Aripaka and Matthias Blamont

(Reuters) – GlaxoSmithKline and Sanofi on Monday said they had started a new clinical trial of their protein-based COVID-19 vaccine candidate, reviving their efforts against the pandemic after a setback in December delayed the shot’s launch.

The British and French drugmakers aim to reach final testing in the second quarter, and if the results are conclusive, hope to see the vaccine approved by the fourth quarter after having initially targeted the first half of this year.

In December, the two groups stunned investors when they said their vaccine would be delayed towards the end of 2021 after clinical trials showed an insufficient immune response in older people.

Disappointing results were probably caused by an inadequate concentration of the antigen used in the vaccine, Sanofi and GSK said, adding that Sanofi has also started work against new coronavirus variants to help plan their next steps.

Global coronavirus infections have exceeded 110 million as highly transmissible variants of the virus are prompting vaccine developers and governments to tweak their testing and immunisation strategies.

GSK and Sanofi’s vaccine candidate uses the same recombinant protein-based technology as one of Sanofi’s seasonal influenza vaccines. It will be coupled with an adjuvant, a substance that acts as a booster to the shot, made by GSK.

“Over the past few weeks, our teams have worked to refine the antigen formulation of our recombinant-protein vaccine,” Thomas Triomphe, executive vice president and head of Sanofi Pasteur, said in a statement.

The new mid-stage trial will evaluate the safety, tolerability and immune response of the vaccine in 720 healthy adults across the United States, Honduras and Panama and test two injections given 21 days apart.

Sanofi and GSK have secured deals to supply their vaccine to the European Union, Britain, Canada and the United States. It also plans to provide shots to the World Health Organization’s COVAX programme.

To appease critics after the delay, Sanofi said earlier this year it had agreed to fill and pack millions of doses of the Pfizer/BioNTech vaccine from July.

Sanofi is also working with Translate Bio on another COVID-19 vaccine candidate based on mRNA technology.

(Reporting by Pushkala Aripaka in Bengaluru and Matthias Blamont in Paris; editing by Jason Neely and Barbara Lewis)

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Don’t ignore “lockdown fatigue”, UK watchdog tells finance bosses

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Don't ignore "lockdown fatigue", UK watchdog tells finance bosses 3

By Huw Jones

LONDON (Reuters) – Staff at financial firms in Britain are suffering from “lockdown fatigue” and their bosses are not always making sure all employees can speak up freely about their problems, the Financial Conduct Authority said on Monday.

Many staff at financial companies have been working from home since Britain went into its first lockdown in March last year to fight the COVID-19 pandemic.

One year on, the challenges have evolved from adapting to working remotely to dealing with mental health issues, said David Blunt, the FCA’s head of conduct specialists.

“During this third lockdown, there has been a greater impact on mental well-being, with many people struggling with job security, caring responsibilities, home schooling, bereavements and lockdown fatigue.”

Bosses should continually revisit how they lead remote teams, he said.

“The impact of COVID-19 is creating a huge workload for those considered to be high performers, while the remote environment potentially makes it much more challenging for those who were previously considered low performers to change that perception,” Blunt told a City & Financial online event.

Companies should consider “psychological safety” or ensuring that all employees feel confident about speaking out and challenging opinions.

“We’ve heard varying reports of how successful this has been,” Blunt said.

Pressures in the financial sector were highlighted this month when accountants KPMG said its UK chairman Bill Michael had stepped aside during a probe into comments he made to staff.

The Financial Times said Michael, who later apologised for his comments, had told staff to “stop moaning” about the impact of the pandemic on their work lives.

Blunt was speaking as the FCA next month completes the full rollout of rules that force senior managers at financial firms to be personally accountable for their decisions to improve conduct standards.

There have only been a “modest” number of breaches reported to regulators so far as firms worry about being “tainted” but more cases will become public as sanctions are revealed, Blunt said.

“Regulators won’t be impressed by lowballing the figures.”

(Reporting by Huw Jones; Editing by Mark Heinrich)

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