Market abuse changes - effective 1 January 2021

In response to the low level of take up of the SME growth market designation across the European Union, in late 2019, the EU Commission (Commission) sought to reinforce the attractiveness of SME growth markets by reducing further the compliance costs and administrative burdens faced by issuers on those markets.

The SME Growth Markets Regulation ((EU) 2019/2115) made various amendments to promote the use of SME growth markets, including changes to the Market Abuse Regulation (EU MAR) that apply from 1 January 2021.

As the amendments to EU MAR only take effect after the end of the transition period for the UK's withdrawal from the European Union, they will not automatically apply to issuers on the UK SME growth markets (such as AIM and AQSE growth market).  Significantly, the UK is only proposing to make some of the amendments - see below - and so there will be a divergence in practice between the UK and the EU.

EU MAR amendments

The amendments are:

• PDMR transactions: the time period for all issuers to make public the details of a transaction after receiving notification from a PDMR (or PCA) will be increased to two business days of receipt of the notification (instead of the current three days from the date of the transaction).

• SME delayed disclosure of inside information: an SME growth market issuer that decides to delay disclosure of inside information will still have to inform the competent authority that disclosure had been delayed but will only have to provide a written explanation of the grounds for the delay to the competent authority if requested.

  Currently an explanation must be provided when the information is made public (unless the member state has required it only on request, which the UK has). So long as the SME growth issuer can justify its decision to delay, it will not need to keep a record of that explanation.

• Market soundings: the disclosure of inside information to qualified investors in connection with private placements of bonds will be excluded from the scope of the market sounding regime. The issuer must ensure that the qualified investors receiving the information are aware of, and acknowledge in writing, the legal and regulatory duties entailed and are aware of the sanctions applicable to insider dealing and unlawful disclosure of inside information.

• SME insider lists: the existing requirement for SME growth issuers to monitor each person who qualifies as an insider in the context of an ongoing project so that an insider list can be produced on the request of a competent authority is to be replaced. The Commission concluded that in practice this required issuers to retain insider lists in much the same way as other issuers who are required to comply with MAR. And in practice most AIM companies have been maintaining insider lists for this reason.

  Instead, SME growth issuers will now prepare an insider list that includes persons who, due to the nature of their function or position within the issuer, have regular access to inside information. In effect, this means that SME growth market issuers will only need to produce a list of permanent insiders.

  The Commission has also acknowledged that, where member states think it is needed to ensure a higher level of market integrity, they can require a fuller insider list to be produced   but using a new template that will be developed by ESMA. On 29 October 2020, ESMA published its final report and the new template for these insider lists. It is in substantially the same form as the current template save that some of the personal information is not required.

• Persons required to prepare an insider list: the changes clarify that any person acting on behalf of, or for the account of, an issuer must produce and maintain their own insider lists - formalising what is already required under ESMA's Q&As on MAR.

There are also changes relating to liquidity contracts.

UK implementation

At the end of the transition period, EU MAR in force at that time will form part of retained EU law and will, therefore, continue to apply in the UK (with some changes to ensure that it operates effectively once the UK has left the EU). EU MAR as amended and forming part of retained EU law is referred to as UK MAR.

As noted above, the changes to EU MAR will not automatically apply in the UK. Instead The Financial Services Bill 2019-21, which was introduced into Parliament on 21 October 2020, proposes only to make the following changes to UK MAR:

• clarify that issuers as well as any person acting on their behalf or on their account are all required to maintain an insider list;

• increase the time period within which issuers must make public any PDMR transaction to two business days of receipt of the notification (instead of the current three days from the date of the transaction); and  

• increase the maximum sentence for criminal market abuse from seven to 10 years, bringing it into line with comparable economic crimes, such as fraud or bribery. 

If the Bill is adopted in its current form, this will mean that UK issuers (including those on AIM) will not be able to benefit from all the amendments that will apply to EU issuers. In particular, they will not be able to rely on the new market sounding safe harbour and AIM issuers will not benefit from the lighter touch insider list requirements. As the FCA does not require an explanation for the delay of inside information unless they explicitly request one, AIM issuers will, in this regard, be in the same position as their EU counterparts.