January 10, 2022
Estimated reading time: 4 minutes
Market Watch 63: FCA sets out market conduct expectations during COVID-19
The UK’s Financial Conduct Authority has published Market Watch 63, in which it explains its expectations surrounding market conduct in relation to increased market activity and alternative working arrangements during the coronavirus pandemic.
On 27 May 2020, the UK’s Financial Conduct Authority (FCA) published Market Watch 63, in which it explained its expectations surrounding market conduct in relation to increased market activity and alternative working arrangements during the coronavirus pandemic.
While the FCA recognizes the uncertainty and increased challenges faced by many – its overriding objective is, of course, to protect and maintain the integrity of the markets. As such, it expects firms to continue to meet all relevant regulatory obligations, including those under the Market Abuse Regulation (MAR). The current pandemic may well lead to an increase in primary market activity which, when paired with current remote working arrangements, will require strict controls around market abuse, conduct and the management of conflicts of interest.
The 63rd edition of Market Watch places a particular focus on the management of inside information during the period of COVID-19. It expects market participants to assess their procedures, systems and controls in the context of the current climate and ensure they are compliant with obligations under MAR, specifically with regard to the identifying, handling and disclosure of information. The FCA wants to see that the protections put in place to protect the unlawful disclosure of information are as effective in the home as they are in the office environment.
As an example, the FCA suggests that market participants could review the availability of certain controls for restricting access to insider information on secure IT systems. They could also consider how staff’s access to inside information can be supervised remotely. The Regulator further suggests repeated or updated training to refresh staff on how they handle inside information as a “sensible consideration”.
With regard to market surveillance, the FCA has suggested that firms could review and update their risk assessments in response to coronavirus, so that they are able to modify their systems to ensure they remain “adequately and appropriately calibrated to detect any new or heightened market abuse risks.”
For issuers and advisers, the FCA expects to see that they should exercise careful judgment when determining what information a reasonable investor would be likely to use as part of their investment decision – in the renewed context of coronavirus. They should also monitor whether any new information is materially different from previous forecasts – to avoid misleading investors.
- Maintain insider lists to ensure all staff with access to inside information are documented
- Subject to delayed disclosure agreements, issuers should continue to comply with disclosure obligations under MAR and disclose such information as soon as possible.
Despite the ongoing pandemic, the FCA will continue to exercise its powers and, if necessary, use its full range of tools to take enforcement action to protect the market.
The FCA has published Primary Market Bulletin 28 alongside Market Watch 63, which provides an update on extensions to the publication of half-yearly financial reports.
After a slew of information from global regulators suggesting that they are allowing a degree of leniency or creativity surrounding some regulatory requirements – it is interesting to see that the FCA is maintaining a strict approach. For many, this will come as a welcome message, given the risks that working arrangements surrounding COVID-19 have presented: from data storage to reporting obligations, cybersecurity and everything in between. For others, who may have been expecting a more relaxed approach from the Regulator, this may be a wake-up call.
As we heard from Terri Duhon in our recent webinar, financial institutions are – and have always been – expected to keep up with and meet their regulatory obligations. Market Watch 63 will certainly put the pressure back on firms to ensure their systems and controls are effective and watertight. The regulators may not be as lenient as initially thought when faced with evidence of breaches or misconduct during this uncertain time. Coronavirus, it seems, is no excuse for inadequate compliance practices.