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Compound Growth

15th February 2017

Lessons from 2016 & Your Compliance Agenda for 2017

Now that we are halfway through the first quarter of 2017, you will no doubt have your compliance and regulatory agenda plans for the coming year in place. As a reminder, your firm’s regulatory agenda should be key to any compliance planning and decision making that you undertake this year to ensure that both adequate effort and resources are targeted.

Looking back to last year, one of the biggest areas of regulatory change which widely impacted firms was that related to financial crime. With the Fourth Money Laundering Directive (4MLD) to be implemented in June 2017 it seems that financial crime regulatory change is set to continue and increase over the course of 2017 also.

Lessons from 2016

In 2016, the Market Abuse Regulation (MAR) that was implemented on 3rd July 2016 was one of the major change last year and is a wide-spread piece of regulatory change legislation. Over the course of the year ahead, we have the Fourth Money Laundering Directive (4MLD) which much be adopted in the UK by 26 June 2017.

Recap on MAR expectations from 2016

As a recap on the changes that MAR brought in last year, it repealed and replaced the previous Market Abuse Directive (MAD) bringing a broader scope to the Market Abuse regime within Europe, including new offences.

MAR: What was required of you?

With the changes that MAR brought in in 2016, your firm should have conducted a gap analysis of compliance with MAR requirements as well as having ensured that all your MAR Compliance documents were up to date and that training relating to MAR requirements was provided to staff.

MAR brought changes to the both the Financial & Services Markets Act (FSMA) and the FCA’s MAR sourcebook. It should also be noted that some elements of MAR are dependent upon MiFID II (the revised Markets in Financial Instruments Directive) that will be implemented on 3rd January 2018.

In essence, under MAR there are three levels of responsibility. Individuals are responsible for their behaviour; Issuers & Exchanges along with MTF/OTF operators are responsible for disclosures and notifications and all regulated firms trading both on and off-exchange are responsible for the prevention of Market Abuse.

In summary, the broad effects of MAR were to:

Extend the definition of financial instruments;
Extend to OTC trades;
Implement new rules on market abuse through electronic trading and high frequency trading platforms;
Affect emission allowances and commodity derivatives;
Create more extensive requirement relating to systems and controls;
Create co-operation between financial and commodity regulators;
Extend market abuse offences to include the manipulation of benchmarks and ‘attempted’ behaviour.
Extend the application of the Market Abuse regime so that MAR applies extraterritorially – meaning that a market abuse offence relevant to financial instruments traded in the EEA (even if committed outside the EEA or by a non-EEA entity) is captured.

Since the FCA expects accurate disclosures, notifications and reporting and Firms must be able to demonstrate that they have adopted effective measures to prevent Market Abuse all firms will have no doubt reviewed and looked into a number of regulatory areas for compliance with the changes that MAR brought to the Financial Services Industry last year. To double check, take a look at the following FCA key requirements:

Requirements Checklist:

Market Abuse prevention, policies and controls
Suspicious transaction and order reports (STORs)
Transaction Reporting
Telephone Recording
Managers Transactions (PDMR Notification)
PA dealing
Insiders lists and Chinese Walls
Monitoring of Investment recommendations
Buy-back programmes and stabilisation measures
Accepted market practices
Training for Staff
Whistleblowing

Other Financial Crime Changes in 2016:

In addition from 31 December the Regulator introduced a new Financial Crime return for all firms (RP CRIM). This Financial Crime Return now requires all firms to report annually upon:

 Number of suspicious activity reports filed with authorities

 Resources allocated to tackling financial crime

 Location of customers

 Jurisdiction the firm has business in that it considers are high risk

 Sanctions and Asset freezes

 What their general views are in relation to the most prevalent types of fraud