The Market Abuse Regulation (MAR) is enforced across the European Union (EU) since 3 July 2016 and aims to prevent and punish those who engage in market abuse. Preventing market abuse is a vital part of the Financial Conduct Authority's (FCA) drive to protect consumers, to enhance integrity in the market and to promote healthy competition amongst financial service providers. The FCA holds entire firms and individuals responsible for market abuse, and therefore the consequences for breaching MAR can be damaging. The consequences for breaching the MAR are taken very seriously by the FCA, law enforcement agencies and other regulators across the EU. Therefore, it is important to understand the MAR and how to comply.
Why is MAR important?
The MAR is of utmost importance as it aims to protect consumers in the financial services industry and to enhance confidence in the market. The MAR ensures that financial services firms are bound to a regulatory framework and sets the precedent that market abuse will not be tolerated.
The MAR is enforced across the EU Member States to reduce the effects of market abuse. The MAR replaced the Market Abuse Directive which was in place before July 2016 and essentially extends regulation over more financial venues, instruments and behaviours.
What constitutes a breach of MAR?
If someone conducts an act of market abuse, this will constitute a breach of the MAR. Market abuse refers to incidents where a consumer has been unfairly affected or disadvantaged due to the actions of an individual in a position of financial authority.
There are two types of market abuse:
Insider Dealing: This refers to an individual who has access to inside information, which they do not inform others about, and then uses this information for a personal gain.
Market Manipulation: This refers to an individual who intentionally gives out misleading information to influence a price or a share for personal gain.
Enforcement and penalties for breaching the MAR
To detect market abuse, the FCA actively analyse the financial market and the various forms of data leaving financial services firms, such as transaction reporting data, order book data, benchmark submission and other market data.
The FCA deter individuals from engaging in market abuse by imposing unlimited fines, injunctions and criminal sanctions on those who have breached the MAR previously. For example, insider dealing and market manipulation are considered to be serious breaches of the MAR and thus incur custodial sentences of up to 7 years, as well as unlimited fines.
Shortly after the MAR came into force in July 2016, the FCA had to investigate a small AIM traded investment company, known as Tejoori Limited. Tejoori Limited was found guilty of breaching Article 17 (1) of the MAR, which refers to the handling of inside information and thus was fined £70,000 by the FCA. Since the FCA considers MAR to be of utmost importance, investigations and penalties are taken very seriously.
How to report a breach of MAR
If you suspect suspicious activity within the firm in which you work or deal with, then you must report this suspicion to the FCA. The FCA will subsequently investigate the suspected market abuse thoroughly.
The FCA has created the Suspicious Transaction and Order Reporting (STOR) regime for individuals to follow if they need to report a suspicious incident to the FCA. Details on how to report incidents to the FCA under this regime are available on the FCA website.
The FCA considers breaches of the MAR to be serious acts of misconduct and thus are punished with severe financial penalties and criminal sanctions. Therefore, it is important to understand how to comply with the MAR properly.