Market Abuse Regulation: UK FCA sets out expectations of market conduct in light of COVID-19

Introduction

On May 27, 2020, the Financial Conduct Authority (FCA) published Market Watch 63 (MW 63) setting out its expectations of market conduct in the context of increased capital raising events and alternative working arrangements due to COVID-19.

Among other things, MW 63 reminds issuers of their obligations under various provisions of the Market Abuse Regulation (MAR)¹ and sets out some additional considerations relevant in this context in light of COVID-19. Issuers would be well advised to ensure they have reviewed and considered this information, as the aspects of MAR covered are likely to be indicative of those areas where the FCA considers there to be a heightened risk of non-compliance in the current circumstances and failure to heed these messages could be an aggravating factor in the context of consideration of any breach.

The contents of MW 63 are discussed in further detail below, but key takeaways for UK-listed companies include:

1. Inside information: Ensure careful consideration is given to whether inside information has arisen and, where it has, whether delay is permitted (being mindful that delay may be misleading where information is materially different from previous forecasts, guidance etc. that the issuer has announced). Be aware that the FCA will expect issuers to carefully judge what information a reasonable investor would now be likely to use as part of their investment decisions in the context of COVID-19. See also our separate briefing COVID-19: Disclosure issues for UK listed companies under MAR.
2. Record keeping: Ensure that appropriate contemporaneous records are kept of decisions taken around disclosure and delayed disclosure and that any legally privileged communications are appropriately marked and segregated.
3. Delayed disclosure: Where disclosure of inside information is delayed, ensure draft holding announcements are prepared and be particularly vigilant about potential leaks and rumours.
4. Systems and controls: Consider whether any changes to existing systems and controls are required, including as a result of remote working arrangements, and whether refresher training on key MAR requirements may be appropriate (in particular for Directors).
5. Access to inside information: Ensure access to inside information is restricted to those who need it for the proper fulfilment of their role and review, control and monitor who has access to inside information. Where appropriate, consider reaffirming that those who have access to inside information understand their associated duties and obligations.
6. Confidential lists: Ensure a clear distinction (including in terms of list titles) between confidential or restricted lists that do not relate to inside information and insider lists. Be vigilant as to when information may move from being merely confidential to becoming inside.
7. Wall-crossings: Ensure the information disclosed during any wall-crossing exercise is appropriately controlled and consider compliance with the market soundings safe harbour where applicable.

Identification and disclosure of inside information

MW 63 reminds issuers that they should continue to assess carefully what information constitutes inside information as COVID-19 and public policy responses to it may alter the nature of information that is material to a business’s prospects, and that is material in the context of any recapitalisation.

The FCA notes that issuers should carefully judge what information a reasonable investor would now be likely to use as part of their investment decisions in the context of COVID-19, and gives some examples of information that could have a significant effect on an issuer’s share price, including access to funding and finance and changes in strategy or business plans.

It also reminds issuers of the circumstances in which delayed disclosure is permitted and notes that, given market uncertainties and changed working arrangements, they should be extra vigilant about the possible of leaks and rumours and identifying whether there has been a breach of confidentiality.

It is noted that, where judgment is used and the FCA has questions on the decisions reached, issuers who maintain contemporaneous and complete records of decisions and actions taken will find it easier to reconstruct and justify their approach.

For further information on disclosure obligations (including more detail on the relevant sections of MW 63) see our separate briefing COVID-19: Disclosure issues for UK listed companies under MAR.

Review of existing systems and controls

As noted by the FCA, the pandemic and, in particular, the move to working from home or from alternative sites creates new challenges and considerations when managing risks around the identification, handling and disclosure of inside information.

In the context of home working arrangements, issuers should consider whether their existing systems and controls continue to protect effectively against unlawful disclosure of inside information in the same way as they would in an office environment and whether they continue to mitigate identified risks effectively. In this context, the FCA notes market participants may, for example, consider reviewing the availability or application of controls for restricting access to inside information on secure IT systems and how staff access to inside information can be remotely supervised. It is also noted that for some market participants repeating or updating training to refresh staff on how they should be handling inside information may be a sensible consideration.

Insider lists and selective disclosure

MW 63 reminds issuers that they should continue to ensure all staff who have access to inside information are included on insider lists and notes that, given the different risks that arise from working from home, issuers may want to reaffirm that individuals on insider lists continue to be aware of when they have access to inside information and their associated legal and regulatory duties. The FCA recognises that issuers often use additional lists (such as confidential or project lists) to record individuals who may have access to information that is confidential but which is not considered by the issuer to be inside information and notes that these types of lists can be an important tool in the current circumstances for identifying, monitoring and assessing new sources of potential inside information both for issuers and the FCA when revisiting decisions made in respect of inside information subsequently.

Issuers are also reminded that those handling inside information should ensure it is only disclosed where this is necessary in the normal exercise of employment, a profession or duties and that it cannot be selectively disclosed simply because the recipient owes a duty of confidentiality. In this context the FCA notes that, for example, it must be necessary for issuers and advisers to disclose inside information to members of staff even where they are on an insider list and that the insider list should record the reason for a person being included and having access to inside information.

Market soundings

The FCA notes that “wall-crossings” play an important role in facilitating capital raising transactions but that the information disclosed should be strictly controlled to prevent the risk of unlawful disclosure and insider dealing. It also notes that the MAR market soundings regime provides a framework for controlling inside information when market participants undertake wall-crossings and is intended to protect against allegations of unlawful disclosure.

Disclosing market participants are reminded to maintain appropriate records of their interactions – for example through recorded lines or written minutes. Receiving market participants are reminded that they should assess whether the disclosure includes inside information and be aware of their associated obligations in relation to confidentiality and dealings as well as ensuring that information received is only internally communicated where necessary.

How we can help

• Extensive experience of advising companies on their obligations under MAR and on internal policies and procedures in this area.
• We regularly provide training (including refresher training) on this topic to boards and disclosure committees.
• We also advise companies in relation to FCA investigations and disciplinary matters, including in relation to disclosure issues and so we are well placed to provide input as to the FCA’s approach and expectations.