Archive for the ‘Compliance Tips’ Category

The UKA FSA has published the September 2010 edition (Issue No. 37) of its Market Watch newsletter. The newsletter deals with leaks of inside information.

During the past two years, the FSA conducted various intensive enquiries into disclosures of inside information to the media prior to certain announcements.

The aim of these enquiries was to identify suspicious contact between insiders to a corporate transaction and the media and included discussions with regulated firms as to their policies governing such contacts. In addition, the FSA continued its thematic work assessing regulated firms’ systems and controls on handling leaks.

The newsletter introduces the background and sets out the main findings on both work streams. It also contains a list of best practice recommendations in connection with contact with the media where the FSA believes improvement is necessary.

The FSA will continue to monitor for leaks of inside information. If no improvement is noticed in the level of leakage within the markets, the FSA is prepared to consider rule changes. However, it will also take action where it considers that unacceptable practices have occurred or existing systems and controls requirements applying to regulated firms and issuers have been breached.

Market Watch is available:

http://www.fsa.gov.uk/pubs/newsletters/mw_newsletter37.pdf

1. Introduction 

The EU Market Abuse legislation (directives, regulations and Level 3 guidelines), with the market integrity and investor confidence as its primary objectives, represents a major achievement towards integrated financial markets in EU.

As a matter of domestic legislation and other applicable rules deriving from the Market Abuse legislation, issuers are expected to have adequate preventive measures, systems, procedures and controls in place to ensure discharge of their regulatory obligations and make it as difficult as possible to commit market abuse. The higher the quality of systems and controls implemented by the issuers, the lower the likelihood that their financial instruments become subject to insider dealing or other forms of market abuse.

Given the importance of issuers’ compliance efforts under the Market Abuse regime, it is vital that substantially similar standards and compliance arrangements will evolve to protect investor confidence and market integrity within the EU. A pre-condition for such evolution is an objective understanding about issuers’ anti-market abuse systems, controls and compliance practices as applied on a daily basis.

A survey conducted between February and March 2008 among leading multinational companies listed on the Nordic Market (1)  in cooperation with the City of London, represents an effort to capture such understanding on a regional level.

The survey was conducted by means of confidential questionnaire addressed to general counsels and compliance officers of companies listed on the Nordic Market. The questionnaire focused on selected elements of preventive anti-market abuse systems and controls dealing with:

• identification of inside information within the issuer and its group
• ensuring fair trading by members of the management bodies and employees
• proper handling of inside information and prevention of leaks
• ensuring the quality and reliability of compliance procedures, techniques and record-keeping regarding the above
• internal allocation of responsibilities and tasks regarding the above.

This article summarizes the key-findings of the survey and aims to provide useful comparative information for those in charge of legal and compliance with respect to Market Abuse rules.

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Estonian Financial Inspectorate (FI) fined executives from Harju Elekter, Kalev, Olympic Entertainment Group and Silvano Fashion Group for failure in reporting their personal securities transactions to the survellance authority. All of these companies are listed on Tallinn Stock Exchange.

Based on the Securities Market Act the company executives have to inform the authority about their personal securities transactions regarding the companies they are managing. FI said that it’s crucial to inform investors about the trades committed by the company executives in order to be transparrent and share information equally among all market participants.

• Read the full press release (in Estonian) from FI website…

Chris Sullivan writes an article in SC Magazine about various types of insider fraud as a threat to companies.

High-profile data breaches and compliance incidents – such as the recent rogue trading scandal at Societe Generale in France – have given a second meaning to ROI: “Risk of Insiders.” Is this happening to you? It almost certainly is.

Although most insider fraud either is not discovered or it’s not reported, a recent Ernst & Young security survey indicates that U.S.-based organizations lose about six percent of their annual revenues to insider fraud. For the smallest of last year’s Fortune 1,000 companies, that’s $100,000,000. No wonder SANS Institute listed insider threats near the top of its annual list of cyber menaces facing the enterprise in 2008.

Our studies and experience shows similar issues in Nordic countries. Several companies have not established a functional access control systems and procedures, this includes access to various shared files, information systems, sensitive information etc.

As daily business is evolving, every business unit is working for its own goals, there is no central position in the company having control over various business units, projects, shared files, software applications. So if an employee (insider) leaves a company, there is hardly anyone aware of the “full” access and information this person had.

Start from mapping current systems, information flows and access patterns. If you have an understanding of what is going on, then it’s time to start developing controls and improving processes.

The Financial Supervision Authority (FIN-FSA/RATA) has inspected declarations of insider holdings for the first time since the entry into force of transitional provisions to the Securities Markets Act on 1 January 2006.

– The aim was to pay attention to the maintenance of registers and bring information on all parties required to maintain insider registers up to date, says Jarmo Parkkonen, Deputy Director General of FIN-FSA. Insider registers are important for the preservation of public confidence.

The inspection revealed shortcomings on the part of some persons required to declare insider holdings. These related to delayed filing of basic declarations, declarations of holdings and declarations of changes in holdings. 15 persons subject to the declaration requirement were sanctioned with an administrative fine.

Administrative fine imposed for most serious shortcomings

After a hearing procedure, FIN-FSA imposed an administrative fine on 15 persons subject to the declaration requirement whose basic declaration, declaration of holdings or declaration of changes in holdings to be filed with an insider register had been delayed by over 30 days and who had not voluntarily taken remedial measures immediately after discovery of non-compliance. The administrative fine for a natural person is EUR 250–750.

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