Introduction
Strict oversight over the flow of sensitive information is important in the world of Market Abuse compliance. It helps to ensure that there is complete compliance in terms of the EU and UK Market Abuse Regulations (MAR). Navigating MAR can be complex however, and it is easy to fall into a number of pitfalls. Understanding these can put you ahead and help you better prepare and avoid costly errors and penalties. Here are 6 common pitfalls to look out for (and some suggestions on how to avoid it).
1. Insufficient Internal Controls
Many organisations fail to implement robust internal controls to monitor and prevent market abuse. This includes poor management of insider lists, inadequate surveillance systems, and weak information barriers.
How to avoid it:
- Strengthen Surveillance: Use advanced surveillance technology to detect unusual trading patterns and potential insider trading.
- Regular Audits: Conduct periodic reviews and audits of compliance procedures and trading activities.
- Clear Procedures: Establish and enforce clear procedures for handling inside information and maintaining insider lists.
2. Inadequate Training and Awareness
Employees often lack proper training regarding MAR, leading to unintentional breaches. Insufficient understanding of what constitutes inside information and how to manage it can result in severe penalties.
How to avoid it:
- Comprehensive Training Programmes: Implement ongoing training to educate all employees about their responsibilities under MAR and the importance of compliance.
- Regular Updates: Keep training programmes current with the latest regulatory developments and compliance practices.
- Engagement Programmes: Use quizzes, workshops, and simulations to reinforce learning and engagement.
3. Poor Management of Insider Lists
Ineffective management of insider lists includes delays in updating lists, inaccuracies in the information recorded, and failure to ensure that the information remains confidential.
How to avoid it:
- Use of Technology: Adopt specialised compliance software like InsiderList to automate and secure the management of insider lists.
- Real-Time Updates: Ensure insider lists are updated in real-time as soon as someone gains access to inside information.
- Accuracy Checks: Regularly verify the accuracy of the details recorded in insider lists.
4. Disclosure of Inside Information
Companies sometimes delay the disclosure of inside information without legitimate reason or fail to document the rationale behind delaying disclosure, which can attract scrutiny and fines from regulators.
How to avoid it:
- Clear Disclosure Policy: Develop a clear policy outlining the conditions under which disclosure of inside information can be delayed and the procedures for such delays.
- Documentation: Keep meticulous records of all decisions related to the delay of disclosure, including the reasons for delay and who made the decision.
- Review and Approval: Set up a process for quick review and approval by senior management for all decisions to delay disclosure.
5. Failure to Report Transactions
Under MAR, all transactions conducted by persons discharging managerial responsibilities (PDMRs) must be reported. Failure to report these transactions accurately and on time is a frequent non-compliance issue.
How to avoid it:
- Automated Reporting Tools: Implement tools that automatically track and report transactions made by PDMRs.
- Clear Communication: Ensure that PDMRs are aware of their reporting obligations.
- Compliance Checks: Conduct regular compliance checks to ensure all required transactions are reported correctly and timely.
6. Misinterpretation of Market Soundings
Misunderstanding the regulations surrounding market soundings can lead to non-compliance. This includes incorrect assessments of whether information is inside information and failures in conducting soundings according to MAR procedures.
How to avoid it:
- Detailed Protocols: Establish detailed protocols for conducting market soundings that comply with MAR.
- Record-Keeping: Maintain thorough records of all market soundings, including participant lists, information disclosed, and recipient consents.
- Legal Oversight: Involve legal counsel in the design and review of market sounding protocols.
Conclusion
Avoiding these common pitfalls in MAR compliance requires a well-rounded strategy involving robust internal controls, comprehensive training, and the use of advanced technological tools. By recognising and understanding these potential issues, organisations can develop more effective compliance practices that meet regulatory requirements and uphold the integrity of financial markets. Maintaining compliance is not just about avoiding penalties, but also about fostering trust and stability in the markets the companies operate in.
