On 7 September 2020, the FCA published the latest issue of its market conduct newsletter, Market Watch (issue 65).
In this issue of Market Watch the FCA discusses how inappropriate handling of information requirements issued by the FCA can hinder, or even compromise, its preliminary reviews of, and investigations into, suspected market abuse. The FCA also reminds market participants that material that could be subject to legal professional privilege should not be included in suspicious transaction and order reports or market observations submitted to the FCA and, if it is, participants run the risk that any claimed legal privilege may be regarded as waived or lost. The FCA also shares some observations on transaction reporting, following previous Market Watch newsletters on this topic.
When discussing the confidentiality of FCA information requirements the regulator reminds firms that they should ensure that they follow the requirements set out in the FCA request. When, having gained FCA consent, compliance departments may contact staff in another department for help in responding to FCA requests. The compliance department should ensure that those staff are carefully selected, and then informed:
- That they are required to not contact other staff without informing compliance, who should then seek FCA approval.
- Having gained FCA consent, that the information is required to fulfil an FCA information requirement.
- Of the possible consequences of the confidentiality of the information requirement not being maintained.
The FCA also discusses in Market Watch the reporting obligation set out in Article 26(2) of MiFIR. This obligation to report transactions applies to:
- Financial instruments admitted to trading or traded on a trading venue or for which a request for admission to trading has been made.
- Financial instruments where the underlying is a financial instrument traded on a trading venue.
- Financial instruments where the underlying is an index or a basket composed of financial instruments traded on a trading venue.
This obligation applies irrespective of whether the transaction was executed on a trading venue.
The FCA reports that some firms have misinterpreted these requirements and failed to submit transaction reports for transactions executed in non-EEA listed indices or baskets composed of one or more financial instruments admitted to trading on an EEA trading venue. The FCA expects firms to have arrangements in place to determine when an instrument is in scope for transaction reporting.
The FCA also states that it has identified investment firms executing transactions in reportable financial instruments while not having the infrastructure in place to submit transaction reports no later than the close of the following working day. Such breaches should be notified to the FCA promptly using the errors and omissions notification form. In line with the FCA’s broader expectations for the use of this form, it does not expect firms to delay submission of the notification until the issue has been remediated and back reporting completed. Where a data reporting services provider has indicated that it will stop providing a data reporting service, affected firms should make necessary arrangements to continue meeting their transaction reporting obligations.