10/13/16 - The EU Market Abuse Regulation: Challenges to Achieving Full Compliance
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10/13/16 - The EU Market Abuse Regulation: Challenges to Achieving Full Compliance

Financial companies are adjusting to compliance demands introduced by the European Union’s stringent new rules for preventing market misconduct. The Market Abuse Regulation [1] entered into force in July 2016, 13 years after original publication of the Market Abuse Directive, which EU lawmakers had intended to enhance investor protection and strengthen market integrity in response to well-publicised control failures, particularly at wholesale financial institutions.

The new regulation extends the previous regime to address the changing nature of financial markets and increased sophistication of financial products, trading venues, and market participants, whilst imposing greater penalties for misconduct.

Buy-side and sell-side firms arranging or executing transactions, along with firms operating trading venues, have already felt the regulation’s impact. In moving towards compliance by the regulation’s July deadline, firms have not only had to update their policies and procedures, but to revisit the fundamental capability of their data management, record keeping, and systems for detecting market abuse.

Key Areas of Impact from MAR

Key Areas of Impact from MAR

Key Challenges

The firms subject to the new requirements already faced a full agenda of regulatory demands, and some appeared unable to turn their full attention to MAR compliance until the deadline loomed. In some cases, efforts to achieve full compliance continue — with the rules governing investment recommendations and trade surveillance posing a particular challenge. Many firms chose to focus on implementing short-term tactical solutions by the July compliance deadline — with the aim of developing strategic solutions later that would fill identified compliance gaps.

Key Areas of Challenge for MAR Compliance

Key Areas of Challenge for MAR Compliance

Steps towards Full Compliance

Institutions regulated under the new rules can divide their ongoing compliance projects into discrete components and phases:

1

IMPLEMENTATION REVIEWS

Given the extent of the compliance effort required and the tight deadline, many firms have undertaken post-implementation reviews to understand the extent to which they have met the requirements. Firms that have not reviewed their implementation efforts should consider doing so.

2

INTERIM SOLUTIONS

The many firms that have implemented short-term, tactical compliance solutions — particularly for the rules governing trade surveillance and investment recommendations — should make sure that senior management fully understands that interim solutions will mitigate risk less effectively than long-term, strategic ones do, and how that higher risk is being managed.

3

FAST FORMALISATION OF STRATEGIC SOLUTIONS

Regulators expect firms to implement strategic solutions for full MAR compliance as soon as possible — and to make their long-term technological solutions a priority.

4

CONSIDERATION OF THE BIGGER QUESTIONS

MAR — along with other key regulations like the EU’s MiFIR/MiFID II — demands more holistic approaches to data management, record-keeping tools, trade and communication surveillance systems, behavioural analysis, conduct risk management, firmwide culture, and other key areas, to ensure firms operate in a sustainably compliant way.

How Promontory Can Help

Promontory continues to support financial institutions in their ongoing MAR compliance projects. We provide detailed mapping of market-abuse risks by product, desk, and business area, to inform a risk-based approach to compliance; expert-led training tailored to business and control functions; and reviews of investment recommendation and trade-surveillance arrangements. Our capabilities also include:

  • Post-implementation reviews
  • Support with ongoing implementation work (tactical and strategic)
  • Market-abuse risk assessments
  • Data-quality assessments
  • Support with embedding changes in firmwide conduct and culture
     

Contact Us

To discuss how Promontory can assist you with your MAR needs, please contact:

Henry Raine
Managing Director
hraine@promontory.com
+44 207 997 3467

Carlo Comporti
Managing Director
ccomporti@promontory.com
+33 1 44 79 17 25