European regulation of insider dealing and market manipulation: build up to the new market abuse regime from 2016

14 October 2015


Warning! This blog post contains acronyms. 

The European Securities and Markets Authority (ESMA) has recently published its final technical standards on, inter alia, the Market Abuse Regulation (Regulation 596/2014) (MAR). The technical standards include proposed “regulatory technical standards” (RTS) and “implementing technical standards” (ITS). The RTS and ITS have now been passed to the European Commission, which has three months to decide whether to accept the final standards.

Background information  - MAD, MAD 2, CSMAD and MAR

The MAR will replace the existing Market Abuse Directive (2003/6/EC) (MAD) and its associated secondary legislation. MAR is supported by a Directive on Criminal Sanctions for Market Abuse (2014/57/EU) (CSMAD). The UK (along with Denmark) has however decided not to opt into CSMAD.
The new market abuse regime (encompassing MAD and CSMAD) is known as “MAD II” or “MAD 2” and is due to come into effect from July 2016 onwards.

What are the aims of MAR?

The key aim of MAR is to develop the existing EU market abuse regime under MAD. Market abuse is defined in MAR as “a concept that encompasses unlawful behaviour” in financial markets and includes:

  • Insider dealing.
  • Unlawful disclosure of inside information.
  • Market manipulation.

MAR and whistleblowing

MAR also makes provision for whistleblowing. MAR requires EU Member States to have in place mechanisms to make sure that actual or potential breaches of MAR can be reported to competent authorities. These must include:

(a) specific procedures for the receipt and follow-up of infringement reports, including the establishment of secure communication channels for such reports;
(b) appropriate protection in the workplace for whistleblowers reporting breaches or accused of breaches;
(c) measures to protect the identity of the reporting and reported persons. N.B. If national law means that confidentiality cannot be protected, the competent authority must inform the person about this.

MAR also requires employers who carry out regulated financial services to have in place appropriate internal procedures for their employees to report infringements. The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have recently published new rules on whistleblowing – these are summarised in our recent blog.

Where will MAR apply?

MAR will apply in EU Member States as well as the European Economic Area states.  Norway, Iceland and Lichtenstein are each in the process of introducing the measures into their system. Firms will therefore have to be alert to the market abuse statutory provisions and regulatory codes that will remain in effect in non-EU European countries, such as Switzerland. MAR also requires Member States’ competent authorities, such as the FCA, to conclude cooperation arrangements with non-participating jurisdictions to allow for information sharing about possible market abuse.

What will be the effect in the UK

MAR will take effect as a Regulation. This means that it will have immediate direct effect across the EU without the need for Member States to set down national rules to implement the legislation. This should benefit those firms that operate across EU jurisdictional boundaries as the black letter law will be the same in each jurisdiction and the regulations will take effect in each jurisdiction on the same date.

Existing UK legislation already provides for employment law protection for whistleblowers. In this regard, it is not expected that MAR will have a significant effect on the UK.

MAR also contains provisions (see Article 32(4)) to allow Member States to provide financial incentives for whistleblowers when reporting suspected market abuse. Incentive awards to whistleblowers exist in the US where disclosures to the SEC, the Commodities Futures Trading Commission, the DOJ, IRS and others can lead to substantial “whistleblower bounties”. The FCA and PRA have however indicated that they do not intend to make financial incentives available in the UK. The 2014 annual report to Congress on the SEC’s whistleblower programme indicated that the SEC had received more whistleblower tips from the UK than any other foreign country. The introduction of whistleblower bounties in European countries may lead to instances of “forum shopping” by whistleblowers by reference to the availability of a potential reward, as has already occurred since the SEC whistleblower programme was introduced. 

MAD II and its effect on UK criminal law

As noted above, the UK has opted out of CSMAD. Nevertheless, UK firms operating in the UK across EU Member States’ borders should be aware of the provisions since they could incur criminal liability in those jurisdictions subject to CSMAD including, for instance, in respect of trading carried out in London on a European exchange.

CSMAD will create minimum rules for criminal sanctions for market abuse (as defined under MAR). CSMAD has been introduced because some EU Member States only provide administrative sanctions for contraventions of MAD. The Commission has noted that “five member states do not provide for criminal sanctions for disclosure of inside information by primary insiders”.

The UK’s criminal regime for market abuse – as contained within the Criminal Justice Act 1993, the Financial Services and Markets Act 2000 and the Financial Services Act 2012 – remains unaltered. The Government had been considering introducing a new offence to tackle corporate criminal liability in relation to economic crime including market abuse, however these plans have now been shelved. For now, it seems as if this idea is off the table, as we discussed in detail in our recent blog.


The UK has already had well established regulatory and criminal regime for market abuse and MAR is unlikely to materially affect the FCA or PRA’s approach to such misconduct.   However, MAR will bring a unified approach throughout Europe which could result in an increase in detection and regulatory or criminal investigations and proceedings.  In addition, the whistleblowing provisions are likely to result in increasing number of whistleblowing reports around Europe, either to the employer or the regulators, even if they do not directly lead to a significant increase in whistleblowing by employees based in the UK.

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