ESG and the reasonable investor test under MAR.

By David Berman, Rob Moulton, and Nicola Higgs

Background

Historically, “profit maximisation” has been regarded as the sole (or predominant) objective for investors. Today, however, an ever-increasing proportion of investors have additional/alternative — sustainability (or ESG)-related — objectives[i]. These investors are not seeking profit at all costs — rather, “cleaner” profits that derive from the sustainable/green activities of investee companies. They are perhaps willing to forego some element of (near-term) profit in return for the environmental and societal benefit, brought about by the investee company, that (they hope) will accrue over time. Many such investors will believe that, in the long run, they may in fact end up maximising their returns — on the premise that sustainability-focused companies are more likely to survive (and thrive) in the future, while others will ultimately fail.

The FCA publicly censured the IT service provider for publishing false information about its net debt and holdings of cash and cash equivalents.

By Chris Horton, James Inness, David Berman and Katy Sanders

On 26 June 2020, the FCA issued a final notice to Redcentric PLC (Redcentric), publicly censuring Redcentric for committing market abuse, between 9 November 2015 and 7 November 2016, by publishing false information about its net debt and holdings of cash and cash equivalents in November 2015 (the November 2015 Statement) and June 2016 (the June 2016 Statement) (together, the Statements).

The FCA found that Redcentric knew, or could reasonably have been expected to know, that the information about its net debt and cash and cash equivalents published in the Statements was false and misleading and that it gave, or was likely to give, a false or misleading impression as to the value of its shares. This resulted in the market price for Redcentric shares being artificially inflated — which continued until Redcentric made an announcement and statement on 7 November 2016 (the November 2016 Announcement) — and in investors paying more for purchased shares than they would have had they known the true position. The estimated loss to affected shareholders was £43 million.

New guidance for issuers and market participants on capital raising events and alternative working arrangements, and additional time allowed for filing half-yearly financial reports.

By James Inness, Nicola Higgs, Connor Cahalane, and Anna Lewis-Martinez

On 27 May 2020, the FCA published its Primary Market Bulletin 28, which provides an update for issuers on temporary relief for the timing of the publication of half-yearly financial reports, going concern assessments, and shareholder engagement.

Additionally, the FCA has published its Market Watch 63 newsletter on market conduct and transaction reporting issues, setting out its expectations for issuers and market participants in relation to identifying, handling, and disclosing inside information in the context of increased capital raising events, alternative working arrangements, and the additional challenges created by the pandemic. The FCA has also provided guidance on short selling activities, managing conflicts, and market conduct in relation to credit default swaps.

A Call for Input reveals that the FCA is planning for a post-EU future and examining ethics with regard to MAR.

By Rob Moulton

On 9 March 2020, the Financial Conduct Authority (FCA) issued a Call for Input on the way that wholesale market participants access and use data in the UK. A Call for Input is an opportunity for the FCA to raise whatever questions it likes without having to commit to a view, in order to enable it (at a later stage) to make policy proposals without surprising market participants. This paper largely covers matters already subject to review at the European level, and therefore indicates that the FCA is preparing to make its own policies after the end of the current transitional period.

10 Key Regulatory Focus Areas for UK/European Wholesale Markets in 2019

By David BermanCarl Fernandes  Nicola HiggsRob Moulton, and Charlotte Collins

The fourth post in this 10-blog series considers the latest developments in relation to the Market Abuse regime. This is taken from our wider publication: 10 Key Regulatory Focus Areas for UK/European Wholesale Markets in 2019 – Progress Report. Read the full publication here.

FEMR progress report commends the efforts of firms to drive higher market standards

By Rob Moulton and Katy Sanders

HM Treasury (HMT), Bank of England (BoE), and the Financial Conduct Authority (FCA) have issued a progress report in relation to the Fair and Effective Markets Review (FEMR). The progress report follows almost three years after the final FEMR report and recommendations were published, in an attempt to restore trust in the Fixed Income, Currency, and Commodities (FICC) markets after the attempted manipulation of LIBOR.

Whilst the progress report does not identify any new initiatives, it nonetheless provides a good summary of the work firms and authorities have undertaken and development to date across the following four areas:

  • Strengthening individual accountability
  • Improving market standards
  • Embedding a forward-looking approach to FICC markets
  • Strengthening benchmarks