Important Considerations for Public Companies & Financial Services Firms
Keith Kessel, who has served as a 25 year veteran in the financial services industry and been employed by two Finnish banks and two Finnish law firms, in addition to working with various firms in the US prior to his assignments in Finland, has written a blog to make the Amcham community aware of the important EU Market Abuse Regulation (“MAR”).
The EU Market Abuse Regulation (“MAR”) has significant implications for public companies and financial services firms transacting business in financial instruments and derivatives (dependent upon or affecting the market prices of such markets). MAR seeks to eradicate market abuse in its various forms, including, but not limited to, trading on the basis on non-public information (“NPI”), frontrunning, market manipulation, capitalizing on the basis of market-based conflicts of interest (“COI”) and “market sounding” (the sharing of NPI with customers to gauge interest in participating in a future transactions).
MAR affects professional arranging, trading and investment practices; NPI administration/list management practices, public disclosure practices and transactions by insiders and their closely associated persons (“CAPs”); rate fixing operations for reference/panel banks; algorithmic trading, certain buyback and stabilization practices that do not otherwise qualify for the specified exemptions of MAR; among other market operations. MAR obligations also extend to specified pledging/lending transactions, certain life insurance transactions by policyholders, etc.
Both manual and automatic/systemic surveillance are required. Such surveillance processes and systems need to consider the firm’s mix of products, services and market presence.
MAR generally requires public companies to maintain internal controls to mitigate risks of market abuse associated with its insiders, their family members closely associated with them, as well as companies that they control. It has specific requirements for company officials exercising managerial authority (“manager’s transactions”).
MAR-based compliance controls also have implications for certain service providers of public companies such as law firms, auditors, rating agencies (“3rd party personnel”); such firms should maintain internal, written controls to ensure compliance with MAR, and they should consider meaningful written controls in their client agreement and employment agreements.
For progressive compliance programs, in order to enhance the effectiveness of the surveillance program, one should also consider the correlations between certain market manipulations and financial crimes contemplated in governing financial crime and corruption legislation.
Compliance training and education also form essential aspects of any market abuse compliance program. Firms should invest the necessary resources to train their personnel, and obtain acknowledgements from its employees and consultants.