Other regulations may have taken the spotlight in the three years since the EU’s Market Abuse Regulation (MAR) came into force in July 2016, but its overarching goal of harmonised capital market transparency remains a key regulatory focus – and it would be a mistake to think that the authorities have taken their eye off the ball. In fact, a recent spate of activity suggests that if anything, MAR compliance is inching back up the agenda – and firms that are not ticking every box are exposing themselves to heavy penalties.
In the UK, the regulators have been cracking firmly down over the past year, with a handful of record fines issued in 2019 including a swingeing £34.4 million for Goldman Sachs from the FCA, and an even higher £44 million penalty for Citigroup from the PRA for failings in reporting. In December 2019 the FCA also issued the first PDMR (person discharging managerial responsibility) fine to former Braemar Shipping executive Kevin Gorman for failing to disclose personal trades, in the clearest indication yet that any initial grace period for compliance is firmly now drawing to a close.
The scope for compliance is also widening – the FCA recently conducted a specific assessment on the adequacy of market abuse controls in the UK’s financial sector, including visits and individual feedback to numerous firms, and a questionnaire sent to a large sample of firms across the buy side. And just this week (January 20), the watchdog issued a stringent Dear CEO letter to alternative asset managers warning that “market abuse controls across the sector have significant scope for improvement” and cautioning that “where firms do not comply with MAR, we will consider the need for enforcement action.”
Across the EU too, MAR is raising its profile once more. In December 2019 the European Securities and Markets Authority (ESMA) published its final report on the compliance of Member States with suspicious transaction and order reports (STOR) under MAR, in which it called upon national regulators to stop relying on “moral suasion and bilateral engagement” and instead to be “mindful of their full supervisory toolkit (including sanctions and measures) and escalate their supervisory response in appropriate cases.” In other words – scale up the fight.
In this climate, technology is playing an increasingly vital role. And with LEIs now mandatory for trading entities under MiFID II and coming into force for clients under SFTR in April, regulators across Europe are able to cooperate at a scale never seen before to capture cross-product and cross-broker abuse – highlighting the twin imperatives of efficient data management and effective reporting.
From the top down, ESMA has urged national regulators to upgrade their IT tools in order to “fully maximise the usefulness of regulatory data” – while for firms themselves, the sheer scale of data and tracking that MAR requires has seen administrative costs soar, with innovation in technology solutions one of the few ways to keep a lid on this burden.
But in this scenario, a holistic approach is needed. Regulatory firefighting does not encourage a comprehensive view of market abuse patterns, while attempting to handle regulatory requirements piecemeal can be expensive and inefficient. As such, we are seeing a growing number of solutions that bring together expertise and automation across a broader church.
Just this month, for example, regulatory reporting solutions provider Cappitech joined forces with MiFID II compliance specialist Red Deer to launch a new Holistic Surveillance service providing a combined MiFID II and MAR compliance and best execution monitoring solution for investment managers. Under the partnership, the two businesses will offer the other’s services to their respective client bases, with a view to providing an integrated solution that helps compliance teams manage the complexities of both regulations.
“There are competitors across different aspects of this combined offering, however the partnership addresses a gap in the market for a more holistic approach to solving for the key regulatory complexities across MAR and MiFID II that affect investment managers,” explains Alistair Downes, Vice President of Product at Red Deer, speaking to RegTech Insight.
“There is a growing demand for solutions for MAR compliance as well as automated regulatory reporting and best execution monitoring,” adds Cappitech CEO Ronen Kertis. “The partnership provides a fully integrated solution which helps clients to seamlessly meet the requirements for mitigating the risk of market abuse and complying with multi-jurisdiction regulations in an efficient and cost-effective solution without affecting investment or operational workflows.”
As rumblings around MiFID III grow ever louder, we are likely to see a continued push from the regulators to clear the decks and clarify MAR positioning and compliance before moving on to any major new upgrade. For practitioners, this means more regulatory activity is almost certainly on the cards. Is your house in order – and are your current solutions robust enough to stand up to the scrutiny?