Guidance

Market Abuse (Amendment) (EU Exit) Regulations 2018: explanatory information

Updated 30 November 2018

1. Context

The EU Withdrawal Act 2018 (EUWA) repeals the European Communities Act 1972 on the day the UK leaves the EU and converts into UK domestic law the existing body of directly applicable EU law. The purpose of the Act is to provide a functioning statute book on the day we leave the EU.

The EUWA also gives Ministers powers to make Statutory Instruments (SIs) to prevent, remedy or mitigate any failure of EU law to operate effectively, or any other deficiency in retained EU law. We refer to these contingency preparations for financial services legislation as ‘onshoring’.

HM Treasury is using these powers to ensure that the UK continues to have a functioning financial services regulatory regime in the event of a no-deal scenario.

This SI is part of the wider work the government is undertaking to prepare for the UK’s withdrawal from the EU. It is not intended to make policy changes, other than where appropriate to reflect the UK’s new position outside the EU, and to smooth the transition. The changes made in this SI would not take effect on 29 March 2019 if, as expected, we enter an implementation period.

2. Notice

The accompanying draft SI is intended to provide Parliament and stakeholders with further details on our approach to onshoring financial services legislation. The draft instrument is still in development. The drafting approach, and other technical aspects of the proposal, may change before the final instrument is laid before Parliament.

3. Policy background and purpose of the SI

3.1 What does the underlying EU regulation and UK law do?

The Market Abuse Regulation (MAR) aims to increase market integrity and investor protection, enhancing the attractiveness of securities markets for capital raising. It contains prohibitions of insider dealing, unlawful disclosure of inside information and market manipulation, and provisions to prevent and detect these.

As part of its work to make financial markets more sound and transparent, the EU enacted new rules against market abuse which strengthened and replaced the original Market Abuse Directive (MAD). MAR broadened the scope of the market abuse framework, extending the regime to new markets, platforms and behaviours, strengthening, in particular, the regime for commodity and related derivative markets. It explicitly bans the manipulation of benchmarks (such as LIBOR, the London Interbank Offered Rate) and reinforces the investigative and sanctioning powers of EU regulators. It also ensures a single EU rulebook while reducing administrative burdens on smaller and medium-sized issuers where possible.

3.2 Deficiencies this SI remedies

This SI addresses deficiencies in retained EU law related to market abuse that arise from the UK leaving the EU to ensure that it continues to operate effectively. These deficiencies include:

Maintaining the scope of the regulation

UK MAR will capture conduct related to instruments admitted to trading or traded on both UK and EU trading venues. As far as is possible in a no deal scenario, this will ensure the Financial Conduct Authority (FCA) maintains the ability to prohibit, investigate and pursue cases of market abuse related to financial instruments which affect UK markets and its reputation, thereby maintaining the integrity of UK markets.

Transaction reporting

There is an explicit link between MAR and the Markets in Financial Instruments Directive (MiFID) II. The transaction reporting regime in MiFID II (2014/65/EU) provides for the collection of data used to identify possible instances of market abuse, and MAR provides for its investigation and enforcement. Further information on how the transaction reporting regime will continue to operate after EU withdrawal is available here: https://www.gov.uk/government/publications/draft-markets-in-financial-instruments-amendment-eu-exit-regulations-2018.

Notification requirements will be retained

UK MAR will retain EU MAR’s notification requirements for issuers to report certain information to the relevant national competent authorities. This includes obligations to report manager transactions, any delay in publicly disclosing inside information and provide, on request, insider lists. UK MAR will also retain the EU regulation’s requirement that firms and venues located in the UK provide suspicious transaction and order reports to the FCA.

Transfer of functions

Under UK MAR, the European Securities and Markets Authority’s powers and functions will be transferred to the FCA to enable it to enforce MAR to the extent necessary for a functional UK regime.

Supervisory cooperation and information sharing

When the UK is no longer part of the single market, it will not be appropriate for UK supervisors to be obliged to share information or cooperate unilaterally with EU authorities without any guarantee of reciprocity. As such, provisions in legislation relating to cooperation and information sharing have been removed. However, this will not preclude UK supervisors from sharing information with EU authorities where necessary, as the existing domestic framework for cooperation and information sharing with countries outside the UK already allows for this on a discretionary basis.

3.3 Relevant Rulebook and Binding Technical Standard changes

The FCA will be updating its rulebook and relevant binding technical standards to reflect the changes introduced through this SI, and to address any deficiencies as a result of the UK leaving the EU. The FCA has confirmed its intention to consult on these changes in the Autumn.

3.4 Stakeholders

This SI affects the FCA, and all natural and legal persons which issue or trade in financial instruments admitted to trading or traded on an UK and EU venue, including legal firms, professional service firms, and any legal person who obtains access to the inside information of an issuer are within scope of UK MAR. These stakeholders are already regulated in the UK under EU MAR, which is familiar to market participants.

The SI will largely continue the status quo. Firms will not experience significant change under UK MAR, as issuers, firms and trading venues who currently report to the FCA under EU MAR will continue to report the same information to the FCA.

This SI does not include provisions that will be necessary to ensure Gibraltarian financial services firms’ continued access to UK markets in line with the UK Government’s Statement in March 2018, and other provisions dealing with Gibraltar more generally. Provisions covering Gibraltar will be included in future SIs.

As already noted, the intention of this SI is not to make policy changes, other than to reflect the UK’s new position outside the EU, and to smooth the transition to this position. HM Treasury has engaged with industry bodies where possible to ensure awareness of these changes.

4. Next steps

HM Treasury plans to lay this instrument before Parliament before exit.

5. Further information

Read HM Treasury’s approach to financial services legislation under the European Union (Withdrawal) Act 2018.

6. Enquiries

If you have queries regarding this instrument, email FSlegislationEUWA@hmtreasury.gov.uk.