Trade ideas, MAR and compliance professionals18th November 2016
How did Market Abuse Regulation affect trade ideas?
On 3 July, the FCA’s Market Abuse Regulation came into force removing a small but important carve out: sales people are now deemed experts in a similar way to research analysts. Sales people’s ideas have been redefined as investment recommendations and as a consequence are more tightly regulated.
Investment recommendations from the most formal trade ideas to informal sales notes are now under scrutiny, and in turn, suddenly TIM was in the middle of a regulated area.
We had been aware of the issue well in advance of implementation, with the TIM community actively starting to talk to us from the end of 2015. As we talked to more customers, it became apparent that very few were even aware of the change in legislation. None had an effective response to it. We read the draft legislation carefully, and it was then that I began to have increasing empathy for compliance professionals.
What does this mean for compliance professionals?
Our community’s questions highlighted that the legislation was not clear. ‘What, exactly, is an investment recommendation?’, ‘When does it become “public?’, ‘How much research does it need to contain to need to be recorded?’, ‘If you recommend a derivative, how should you record it?’
Compliance professionals need to make decisions about all of these questions, consulting with lawyers and their own management.
What is TIM Group doing to help?
TIM Group joined a working group at AFME, and consulted the FCA. We formed our own working group consisting of broker-dealers that had thought more about this problem than most. Our new compliance friends taught us about risk-based approaches to compliance issues, and aggressive legal interpretations. They taught us about enforcement requirements such as readily available downloads of information.
We now have 25 broker-dealers using our MAR investment recommendation service. Many have taken a cautious approach to the regulation, recording everything and notifying clients actively. Even then, there can be challenges. If sales people are reluctant to record their recommendations, how strongly do you push them? How much effort do you put into monitoring their efforts? How does complying with MAR investment recommendations stack up against enforcing the many other requirements of MAR, and the looming MiFID II?
Compliance professionals, I empathise with you. There is a huge amount of legislation to deal with, much of which requires interpretation and judgement. We understand some of the challenges of your role, and some of the pressures you face – and will do what we can to help.