On 12 July 2021, the Central Bank of Ireland ("CBI") published the findings of its industry-wide review of compliance with the Market Abuse Regulation (Regulation (EU) No. 596/2014) ("MAR"), carried out during the course of 2020. The CBI's review focused on firms that professionally arrange or execute transactions in financial instruments subject to MAR ("Regulated Firms"), issuers and advisors who act on behalf of issuers. The CBI's findings are detailed in three separate Dear CEO Letters addressed to each of those categories of market participant:
- Persons who transmit or execute orders ("Letter to Regulated Firms");
- Issuers ("Letter to Issuers"); and
- Persons who act on behalf or on account of issuers ("Letter to Advisors").
In issuing its findings, the CBI noted that the risk of market abuse occurring has increased in recent times due to factors such as post-Brexit growth, new technologies and pandemic-related issues, including remote-working. This briefing summarises the main findings of the CBI and the steps that market participants should take now to address their obligations and to achieve the standard of compliance expected by the CBI.
CBI Findings – Letter to Regulated Firms
The CBI's review of Regulated Firms' compliance with MAR focused on the arrangements they have in place to detect and report suspicious transactions.
The CBI's review identified issues related to Regulated Firms’ risk assessments, trade surveillance systems and MAR compliance frameworks. The CBI's key findings were as follows:
- Firms must improve their frameworks to identify and mitigate market abuse risk;
- Firms must improve the efficacy and integrity of their trade surveillance systems;
- Firms must enhance their governance arrangements for trade surveillance;
- Firms must assess and enhance their resourcing arrangements and avoid key person risk;
- Firms must improve the quality, frequency and distribution of Management Information (MI); and
- Firms should examine the volume of Suspicious Transaction and Order Reports (STORs) they submit against the volume and complexity of their orders and transactions.
The Letter to Regulated Firms also details the measures that it expects Regulated Firms to take to address each of the issues listed above.
The CBI notes that it expects all Regulated Firms that engage in relevant transactions "to critically assess their activities, frameworks, organisational arrangements and controls against the findings and expectations" in the Letter to Regulated Firms and to put in place a plan to remediate any deficiencies that are identified.
The CBI also expects Regulated Firms to present the results of their internal review and any necessary remediation steps identified to their board of directors for discussion and approval by the end of 2021. As such, Regulated Firms should commence their internal review of their MAR compliance framework without delay.
CBI Findings – Letter to Issuers
The CBI's Letter to Issuers arises from its thematic review of issuers of equity instruments listed on Euronext Dublin.
This part of the CBI's review focused on the organisational arrangements that issuers employ to comply with the MAR requirements to recognise and publish inside information, to securely maintain insider lists and to avoid insider dealing, unlawful disclosure of inside information or related attempts.
The CBI noted that many of the issuers they engaged with had good practices in place to identify inside information and to promptly publish details of that inside information. However, the CBI identified the following as areas where improvements were required:
- Issuers must enhance their frameworks to identify inside information and publish it as soon as possible;
- Issuers must ensure compliance with all elements of MAR regarding insider lists;
- Issuers must provide entity-specific market abuse training to all relevant staff.
The Letter to Issuers also notes that issuers are expected to carry out a review of their internal compliance framework in light of the CBI's findings and expectations. Issuers should present the results of their review and a plan to remediate any issues that are identified to their board of directors by the end of 2021.
CBI Findings – Letter to Advisors
The CBI's review of advisors focused on the measures such entities had in place to avoid insider dealing, unlawful disclosure of inside information or related attempts and the requirements on them to prepare and maintain lists of persons with access to inside information.
The CBI noted that it observed issues related to advisors' insider lists, including, a failure to understand that advisors have an independent obligation to identify inside information and that they may not rely solely on clients and clients' legal advisors to identify inside information.
The CBI also identified issues such as permitting staff to access inside information where such access is not necessary. Advisors should not grant access to inside information to entire teams/departments without assessing whether the specific staff member is actually working on the matter. Another issue observed by the CBI in its review of advisors was a failure to secure access to insider lists.
The CBI noted that advisors are required to carry out an internal review of their compliance with MAR and present the findings of the review and any remediation steps to their board of directors by the end of 2021.
Conclusions and Next Steps
The CBI's continued focus on market abuse and expectation of high standards of compliance, as set out in each of the letters, reflects Ireland's status as a leading jurisdiction for issuer domiciliation and listings, particularly for debt securities.
While the CBI acknowledges that it has observed examples of good practices by firms in complying with their obligations under MAR, it is evident that the CBI's findings also recognise the challenges faced by Regulated Firms, issuers and advisors in maintaining the high standards of compliance expected of them.
The CBI's findings and expectations mean that all Regulated Firms, issuers and advisors will need to take immediate action to ensure that they meet those expectations and exhibit that they are striving to maintain compliance with their obligations under MAR.
Regulated Firms, issuers and advisors should prioritise taking this action to meet the CBI's expectation of undertaking a review, developing a remediation plan and presenting it to their board of directors by the end of 2021. Impacted parties should bear in mind that the CBI may have regard to the content and quality of the review and remediation plans in future assessments of compliance.
Other Recent Developments
On 15 July 2021, the European Securities and Markets Authority ("ESMA") published a consultation paper on delay in the disclosure of inside information and interactions with prudential supervision.
The purpose of this consultation paper is to build and expand on ESMA's MAR Guidelines on delay in the disclosure of inside information (the "Guidelines"). Article 17 of MAR provides that issuers can delay the disclosure of inside information when:
- immediate disclosure is likely to prejudice an issuer's legitimate interest;
- delay of disclosure is not likely to mislead the public; and
- the issuer is able to ensure the confidentiality of the information.
The Guidelines include a non-exhaustive and indicative list of legitimate interests of issuers that are likely to be prejudiced by immediate disclosure of inside information and a list of situations where delay of disclosure is likely to mislead the public.
The changes ESMA plans to make to the Guidelines, which are detailed in the consultation paper, include:
- adding to the existing list of legitimate interests:
- clarifying that in instances where institutions intend to carry out redemptions, reductions and repurchases of own funds, pending regulatory authorisation, the institution has a legitimate interest in delaying disclosure of inside information until that authorisation is granted by its prudential regulatory authority; and
- clarifying that in the case of draft Supervisory Review and Evaluation Process (SREP) decisions or any preliminary information thereof, the institution has a legitimate interest in delaying disclosure of inside information until that information becomes public;
- adding a separate section clarifying that certain capital requirements imposed by the ECB on institutions, once final, are likely to meet the definition of inside information under MAR and would in turn require public disclosure as soon as possible, unless the conditions for a delayed disclosure are met.
Responses to the proposals set out in the consultation paper must be filed with ESMA by 27 August and, following consideration of the responses received, ESMA plans to publish a final report including its amended Guidelines at the end of 2021.
How can Walkers help?
Walkers has one of the largest team of capital markets, regulatory and listing specialists in Ireland. We would be happy to assist you with any queries that you may have in relation to the CBI's findings, carrying out a review of your internal MAR compliance framework, or in relation to MAR compliance generally.
If you would like to discuss, please contact the below or your usual Walkers contact.
Garry Ferguson, Managing Partner, Ireland
Andrew Traynor, Partner, Finance & Capital Markets
Noeleen Ruddy, Partner, Finance & Capital Markets
Paddy Rath, Partner, Finance & Capital Markets
Ian McNamee, Partner, Finance & Capital Markets
Therese Redmond, Head of Listings
Niall Esler, Partner and Head of Regulatory
Shane Martin, Of Counsel, Regulatory
Conor Daly, Senior Associate, Regulatory
Bill Laffan, Associate, Regulatory
Brendan O'Brien, Partner and Head of Corporate
Disclaimer © The information contained in this advisory is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter.