The Financial Conduct Authority's (FCA) latest edition of Market Watch sets out its expectations of market conduct in the context of increased capital raising events and alternative working arrangements resulting from the COVID-19 crisis.
The FCA accepts the uncertainty and current operational challenges caused by the COVID-19 crisis, but warns that all market participants must act in a manner that supports the integrity and orderly functioning of the financial markets, and ensure that they comply with the Market Abuse Regulation.
Firms must have effective controls in place to address market abuse, conduct and managing conflicts of interest. The FCA encourages firms to particularly focus on:
- ensuring inside information continues to be identified and handled by all persons involved in the information chain so that it cannot be misused (e.g. for insider dealing)
- ensuring inside information is appropriately disclosed by issuers so that investors are not misled
- maintaining robust market surveillance and STOR reporting by relevant market participants in the context of changing market conditions and alternative working arrangements
- meeting the transparency and short position covering requirements under the Short Selling Regulation for market participants to support the effective functioning of the market
- identifying and managing conflicts of interest by market participants that may arise around capital raising events.
The FCA reminds market participants that they must assess market abuse risks in the context of the crisis and new working conditions. Firms need to consider whether their systems and controls continue to mitigate identified risks and may need to consider reviewing the availability or application of controls for restricting access to inside information and how access to inside information can be remotely supervised. Common industry controls such as a mandatory two week holiday for staff may be appropriate and/or updating and or repeating training to on managing inside information may also be helpful.
The regulator makes it clear that it will continue to monitor and investigate issues of market conduct and will take enforcement action where it considers firms have fallen short.
In the context of the pandemic, the nature of the information that is material to a business’s prospects may have altered, and what now constitutes inside information should be carefully assessed. In addition, working from home arrangements may raise new, additional risks around identifying and handling inside information.