Brexit—government publishes approach papers relating to changes to market abuse regime and the Prospectus and Transparency Directives

22 Nov 2018 | 6 min read

The government has published two approach papers relating to the proposed amendments to be made to retained EU law relating to market abuse and the Prospectus, Transparency and Consolidated Admissions and Reporting Directives to ensure that they continue to operate effectively after the UK leaves the EU. Draft statutory instruments (SIs) have not yet been published but the approach papers set out the policy background and purpose of the proposed SIs.

Draft Market Abuse (Amendment) (EU Exit) Regulations 2018—explanatory information

This SI will address deficiencies in retained EU law relating to the market abuse regime. The proposals include:

• maintaining the scope of the Market Abuse Regulation—the UK market abuse regime will cover conduct related to instruments admitted to trading or traded on both UK and EU venues. It is intended that in a no-deal scenario, the FCA will maintain the ability to prohibit, investigate and pursue cases of market abuse which affect UK markets and their reputation

• transaction reporting—the transaction reporting regime in the Markets in Financial Instruments Directive (MiFID II) provides for the collection of data used to identify possible instances of market abuse and the Market Abuse Regulation provides for its investigation and enforcement. The government intends that the existing scope of the FCA’s monitoring of markets will be maintained (also dealt with in the draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018)

• notification requirements will be retained—the UK market abuse regime will keep the Market Abuse Regulation’s notification requirement for issuers to report certain information to the relevant national competent authorities. This includes obligations to report transactions by persons discharging managerial responsibilities, any delay in disclosing inside information and to provide, on request, insider lists

• transfer of ESMA’s functions—the powers and functions of the European Securities and Markets Authority will be transferred to the FCA to enable it to take enforcement action under the Market Abuse Regulation

• supervisory cooperation—it will not be appropriate for UK supervisors to be obliged to share information or cooperate unilaterally with EU authorities without reciprocity. References in legislation to cooperation and information sharing will be removed. However, UK supervisors will still be able to share information with EU authorities where necessary as existing UK legislation allows for cooperation and information sharing with countries outside the UK on a discretionary basis

 Draft Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019—explanatory information

 This SI will address deficiencies in the Prospectus Directive and the Transparency Directive that arise from the UK leaving the EU. The FCA Handbook will be amended to reflect the changes and the FCA will consult on the changes.

Some of the changes proposed in the SI include:

• approval of prospectuses—under the Prospectus Directive, a prospectus approved by one EEA national competent authority can be ‘passported’ into another EEA state for an offer to the public and for an application for admission to trading on a regulated market without the need for the other EEA state to approve the prospectus. In a no-deal scenario, the UK will treat EEA states and EEA issuers in the same way as other third countries and their issuers, including with regard to approving prospectuses. Issuers with a prospectus already approved by another EEA national competent authority will need to have their prospectus approved by the FCA if they wish to make an offer to the public in the UK or gain admission to a UK regulated market

• prospectuses approved pre-Exit—prospectuses ‘passported’ into the UK before Exit day will be grandfathered for use in the UK until their validity expires—however, those prospectuses that have expired already will not be eligible for use in the UK

• exemptions from the obligation to produce a prospectus and make disclosures under the Transparency Directive for public bodies—under the current regimes certain public bodies (including EEA states and EEA central banks) are exempt from the requirement to produce a prospectus and from making ongoing disclosures under the Transparency Directive, at present, the exemptions only apply to issuers from EEA member states but the government intends to extend this to certain third country public sector bodies

• equivalence determinations—the European Commission can make equivalence determinations on the basis of a third country’s regulatory or supervisory regime with respect to the Prospectus Directive and the Transparency Directive. In order to ensure that the UK can still make equivalence determinations when it leaves the EU, the functions of the European Commission in this respect will be transferred to UK authorities

• International Financial Reporting Standards (IFRS)—at present, issuers with securities admitted to trading on a regulated market in the EU are required to use IFRS for their consolidated accounts. This is unless their home jurisdiction’s standards are deemed equivalent by the European Commission and the FCA has assessed the standards and granted an exemption for that jurisdiction. The Commission can determine such equivalence for third country issuers of securities. In a no-deal scenario, in order to provide continuity the Treasury intends to issue an equivalence decision determining that EU-adopted IFRS can continue to be used to prepare financial statements for Transparency Directive requirements and for the purposes of preparing a prospectus under the Prospectus Directive. This will allow issuers registered in EEA states with securities admitted to trading on a regulated market in the UK or making an offer of securities in the UK to continue to use EU-adopted IFRS when preparing consolidated accounts

• supervisory cooperation—as with the proposed draft Market Abuse SI (see above), provisions relating to cooperation and information sharing will be removed as it will not be appropriate for UK supervisors to be obliged to share information or cooperate unilaterally with EU authorities without reciprocity.

 Prospectus Regulation

 The explanatory information notes that the government intends to domesticate the remaining provisions of the Prospectus Regulation (which are due to apply in July 2019).

The government notes that the drafting approach and other technical aspects of the proposals may change before the statutory instruments are laid before Parliament.

Source: Guidance: Draft Market Abuse (Amendment) (EU Exit) Regulations 2018

Source: Guidance: Draft Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019

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