On 27 May 2020, the UK Financial Conduct Authority (“FCA”) published the latest issue (“Issue 63”) of its Market Watch newsletter focusing on market conduct and transaction reporting issues. Market Watch 63 sets out the FCA’s expectations of market conduct in the context of increased capital raising events and alternative working arrangements due to the current pandemic. The newsletter is intended to highlight that firms need to be more vigilant where there is an increase in the likelihood of potential leaks and rumours in the current market, and as more businesses are heading to the market to recapitalize or raise other funds, the FCA notes that there is far more inside information circulating than is usual. Firms are advised to consider whether their existing procedures, systems and controls are still appropriate.

Key issues raised in the Market Watch newsletter are summarised as follows:

1. Firms should continue to comply with their market conduct obligations during the current COVID-19 crisis

The FCA makes clear that while it recognises the uncertainty created by the COVID-19 crisis and operational challenges arising from the public policy on social distancing, it expects all market participants to continue to comply with the relevant rules around market conduct and act in a manner that supports the integrity and orderly functioning of financial markets.

Issuers, advisors and anyone handling inside information should therefore ensure that they and their staff continue complying with all their obligations under relevant regulations including the Market Abuse Regulation (596/2014/EU) (“MAR”).

2. Issuers seeking to raise additional funds should ensure that they have the right systems and controls in place

The FCA has anticipated that as a response to the current pandemic, many issuers will need to seek additional capital, leading to an increase in primary market activity. Given that firms are already having to make alternative working arrangements, it is especially crucial that the right controls around market abuse, conduct, and managing conflicts of interest are in place.

The FCA emphasises that it will use its range of powers to monitor, make enquiries, investigate and where necessary, take enforcement action to protect the integrity and orderly function of the financial markets.

3. Firms should ensure their systems and controls are adequate for key focus areas

The FCA encourages firms to focus on following areas during the current period:

  1. Identification of inside information – ensuring that inside information continues to be appropriately identified and handled by all persons involved in the information chain so that it is not misused for insider dealing or for commercial advantage;
  2. Disclosure of inside information – ensure inside information is appropriately disclosed by issuers so that investors are not misled;
  3. Robust market surveillance – maintain robust market surveillance and suspicious transaction and order reporting by relevant market participants, in the context of changes in market conditions and the current use of alternative working arrangements;
  4. Transparency and short position requirements – ensure firms continue to meet the transparency and short position covering requirements under the Short Selling Regulation (236/2012/EU) (“SSR”) for market participants to support the effective functioning of the market; and
  5. Conflict of interest management – identify and managing conflicts of interest by market participants that may arise around capital raising events.

Firms should take this opportunity to assess their procedures, systems and controls to ensure that they continue to comply with their regulatory obligations under all applicable regulations and laws, including in particular, MAR.

Please reach out to the contacts above, should you wish to discuss the above in the context of your business.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

Photo of Kirsten E. Lapham Kirsten E. Lapham

Kirsten Lapham is a partner specialising in financial services regulation. She advises a broad range of both institutional and individual clients on a variety of financial services regulatory and compliance issues. Her practice has a specific emphasis on the regulatory issues arising under…

Kirsten Lapham is a partner specialising in financial services regulation. She advises a broad range of both institutional and individual clients on a variety of financial services regulatory and compliance issues. Her practice has a specific emphasis on the regulatory issues arising under the AIFMD, and MiFID II for a range of EU and indirectly impacted firms outside of the EU.

Experience in this area includes advising multiple clients on the EU marketing and registration regimes and overlaying local regulatory considerations, such as the U.K. retail distribution review and Financial Promotion regime. Kirsten has also worked on MIFID II implementation projects and provided ongoing support for well-known asset managers and advised multiple clients on re-papering arrangements under the Directive. Kirsten also routinely advises on the regulatory issues that impact M&A transactions. She has represented some of the largest and most well-known alternative investment managers, including: TPG; PIMCO; Citi Private Bank; Dragoneer Investment Group; and a number of US and UK boutiques among many others.

Photo of John Verwey John Verwey

John Verwey is a partner in the Corporate Department and a member of the Private Funds Group.

John advises on a wide number of regulatory issues at a national UK and European level, including firm authorisations, change in control, market abuse, Electronic Money…

John Verwey is a partner in the Corporate Department and a member of the Private Funds Group.

John advises on a wide number of regulatory issues at a national UK and European level, including firm authorisations, change in control, market abuse, Electronic Money Regulations, Payment Services Regulations and client money rules. He represents a variety of clients that range from private equity firms and insurance intermediaries to global investment banks and sovereign wealth funds.

Photo of Amar Unadkat Amar Unadkat

Amar Unadkat is an associate in the Corporate Department and a member of the Private Funds Group.

Amar advises on a variety of regulatory issues both from a UK and European perspective, including the implementation of the AIFMD, MiFID II and the PRIIPs…

Amar Unadkat is an associate in the Corporate Department and a member of the Private Funds Group.

Amar advises on a variety of regulatory issues both from a UK and European perspective, including the implementation of the AIFMD, MiFID II and the PRIIPs Regulation. His clients include private equity firms, investment managers, FinTech companies, wealth management businesses, banks and sovereign wealth funds.