Companies’ preparations for imminent introduction of EU Market Abuse Regulation hampered by lack of clarity

Less than 5% of listed companies feel completely ready for the EU Market Abuse Regulation (MAR) despite the legislation coming into effect in less than two weeks’ time, according to new research from global law firm Linklaters*. Moreover, 21% feel they do not stand a chance of being able to comply in full by the date of introduction. This is partly because there are a number of issues regarding how the rules should work in practice which remain unresolved and partly because not all of the final rules and guidance have been published.    

MAR comes into effect on 3 July 2016 and brings in a new set of rules affecting listed companies in the EU, including the UK, relating to disclosure of inside information, insider lists, senior managers’ dealings and market abuse.  The new rules are similar to those existing for Main Market companies, but with some notable differences. In particular there are a number of new and prescriptive procedural requirements which will require significant forward-planning. For companies quoted on AIM, the impact will be even greater as some of the rules are completely new for them.

One key change for UK listed companies is that there is no longer any requirement for them to have a dealing clearance procedure, as the UK’s Model Code is going. However, most companies like the familiarity and structure that a clearance procedure provides. It acts as an extra safeguard against people inadvertently dealing when they shouldn’t and gives the company an opportunity to remind senior managers of their obligations to notify any transactions. This is clearly illustrated by the fact that 96% of companies are opting to retain some sort of clearance procedure for staff dealing in the company’s securities.

Another change that, on the surface, looks like it might reduce the burden on companies is the new €5000 threshold whereby directors and senior managers are not required to notify dealings below this amount within each calendar year. The reality is that monitoring dealings to be sure when that threshold is met would be onerous for companies as well as creating additional risk. Therefore, the majority (74%) are deciding to ignore this threshold and will announce all dealings regardless.

In a similar survey carried out by Linklaters at the beginning of the year, it was found that dealing with the new rules once they come into force was expected to take up significant board time, with 45% of companies expecting their boards to spend a ‘great deal’ or ‘quite a lot’ of time focusing on the new requirements.

Simon Branigan, Linklaters Corporate Partner, said:

“What we have seen is that companies do not feel as ready as they would like to be for the introduction of the new regime, which comes as no surprise given that with only two weeks to go we still don’t have a complete set of rules and guidance. The reality is that market practice is likely to develop over a number of months following the introduction of MAR.”

James Wootton, Linklaters Corporate Partner, added:

“Making the judgement call as to whether something is inside information is as difficult as ever, but the most important thing for companies to do is make sure that they get the process right. When there is a material development, if they get the right people together, are asking the right questions and at the right time they stand a much better chance of standing up to scrutiny, even if the regulator decides with the benefit of hindsight that they actually made the wrong decision.”

For more information please contact Peter Otero on +44 20 7456 3219.

*The survey was based on a poll of more than 290 company secretaries and other compliance advisers, at two seminars hosted by Linklaters in June 2016, looking at what companies need to do to prepare for the new regulation.