During the last quarter of the year, the, UK, US and European regulators have been active on the market abuse front. The FCA have been working on increasing criminal market abuse penalties and in the EU, we saw the publication of the review of all national competent authorities (NCAs) market abuse sanctions in 2020 by ESMA. This report highlighted that the number of administrative sanctions in 2020 increased to 541, almost double the number of sanctions in 2019. Administrative sanctions may include withdrawal of an investment firm’s authorisation, and a permanent ban of persons from holding managerial functions within investment firms amongst other measures.
The SEC started the month of December filing charges against four persons on the grounds of insider trading, dating back to 2016. The founder of a manufacturing company is being accused of tipping off his friends with confidential information concerning the company’s merger negotiations. The traders profited from dealing in shares and out-of-the-money call options in the name of the company being acquired, based on material non-public information. Following the public announcement of the merger, the price of the shares and options purchased by the traders increased, realising profits exceeding $325,000. In their detailed complaint, the SEC refers to the e-communications between the accused traders and their brokerage firm.
The SEC’s historic focus has been on filing complaints against market abuse perpetrators and ensuring that regulated firms retain their employees’ e-communications, but we have recently seen how there is scrutiny of inadequate supervision of digital communications by regulated firms. JP Morgan Chase & Co. is expected to settle a fine of $200 million with the SEC and CFTC by the end of 2021. The financial services firm has reportedly failed a regulatory investigation over the monitoring of its employees’ communications. The supervision of digital communications includes any work-related emails, telephone calls and messages, both from personal and company devices.
Earlier last month, a new regulation by the UK’s HM Treasury came into effect, increasing the maximum sentence for conviction on indictment for insider dealing and financial services offences. This regulation brings the maximum charge for market abuse violations in-line with the maximum charge for other economic crimes, including fraud or bribery. Thus, the maximum sentence for serious market abuse crime will increase from seven to ten years. The rationale behind this more severe measure is that the UK Government holds the gravity of market abuse offences as equivalent to other economic crimes. This policy also aims to reduce instances of market abuse by delivering a message to potential perpetrators that they will be held accountable for their wrongdoings.
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Source: SEC Charges Former Linear Technology Corporation Officer and Three Others with Insider Trading. https://www.sec.gov/litigation/litreleases/2021/lr25275.htm
SEC Complaint: United States Securities and Exchange Commission, Plaintiff, v. Robert C. Dobkin, Cynthia Braun, Michael Fiorillo and Jeffrey S. Gregersen, Defendants. https://www.sec.gov/litigation/complaints/2021/comp25275.pdf
The Financial Services Act 2021 (Commencement No. 3), Regulations 2021 https://www.legislation.gov.uk/uksi/2021/1173/pdfs/uksi_20211173_en.pdf
HM Treasury Financial Services Bill Impact Assessment https://publications.parliament.uk/pa/bills/cbill/58-01/0200/FS%20Bill%20Impact%20Assessment%20-%20October%202020%20-%20201020.pdf
ESMA publishes its 2020 Annual Report on the EU market abuse sanctions https://www.esma.europa.eu/press-news/esma-news/esma-publishes-its-2020-annual-report-eu-market-abuse-sanctions
ESMA Report: Administrative and criminal sanctions and other administrative measures imposed under the Market Abuse Regulation in 2020https://www.esma.europa.eu/sites/default/files/library/esma70-156-4673_annual_report_on_mar_administrative_and_criminal_sanctions_2021.pdf
JPMorgan set to pay $200 mln fine over staff communications lapse – Bloomberg News https://www.reuters.com/business/finance/jpmorgan-set-pay-200-mln-fine-over-staff-communications-lapse-bloomberg-news-2021-12-10/