FCA Warns Pandemic Could Increase Market Abuse Risks

By Richard Crump
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Law360, London (May 27, 2020, 5:28 PM BST) -- Britain's financial services watchdog warned Wednesday that increased capital-raising activity and alternative working arrangements prompted by the COVID-19 outbreak could increase the risk of market abuse, telling companies to be vigilant about potential leaks and rumors.

More businesses are heading to the market to recapitalize or raise other funds, and there is far more inside information circulating than is usual, the Financial Conduct Authority said. That means companies must have controls in place for market abuse, conduct and managing conflicts of interest.

Companies should focus on ensuring that inside information is handled appropriately to prevent it from being misused for insider dealing or for commercial advantage, the FCA said.

"Such controls need to continue to effectively protect against the unlawful disclosure of inside information in working-from-home arrangements in the same manner as in an office environment," the FCA said in a newsletter highlighting growing concerns about the heightened risk of market abuse..

Companies and financial advisers should review controls for restricting access to inside information on secure IT systems, the regulator said. The way in which employees gain access to inside information can be remotely supervised.

Issuers should ensure that all staff who have access to inside information are included on insider lists to meet their obligations under the U.K.'s Market Abuse Regulation.

A lawyer specializing in regulatory matters said the risk of abuse has become more acute.

"Although the FCA has given forbearance in many areas, market abuse is not one of those," Nick Bayley, U.K. head of regulatory consulting at Duff & Phelps, said. "In fact, the FCA has spelt out a number of ways in which the risk of market abuse has actually become more acute."

The FCA also told companies listed on the London Stock Exchange not to unreasonably delay making updates to the market on their performance so that investors are not misled. The watchdog added that the pandemic could have altered the information that is material to a business' prospects.

Information that could have a significant impact on the price of a share might include access to finance and funding through the government-backed coronavirus lending schemes and force majeure or termination rights in material contracts or financial arrangements hit by COVID-19.

"If the issuer has made previous statements or given signals that have created market expectations it would be likely to mislead the public if the disclosure the issuer intends to delay is materially different from those statements, or in contrast to such expectations," the FCA said.

--Editing by Alyssa Miller.

For a reprint of this article, please contact reprints@law360.com.

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