Market Abuse Regulation Puts Sales Teams In Unfamiliar Territory by Peter C. Trauber, FactSet
In recent months the attention of European financial markets has turned to fulfilling the requirements of the Market Abuse Regulation (MAR), which comes into effect on July 3, 2016. MAR was overshadowed in 2015 by the discussion of MiFID II legislation but has since taken top-billing in the minds of compliance officers after the MiFID II delay was announced.
What is Market Abuse Regulation?
MAR will apply market monitoring and surveillance obligations to all organized trading, but today we focus on a section that is of particular concern to both equity and fixed income currencies and commodities sales teams across Europe. Articles 3(1)(24)(i) and (ii) of MAR expand the category of financial professionals required to take reasonable actions to present investment recommendations or strategies clearly and effectively in various forms of communication and to disclose interests or conflicts in regards to the subject of the communication.
The industry (and its advising law firms) is currently debating whom across investment banking the regulations will be expanded to include and what defines “investment strategies.” Discussions at FactSet with global and mid-market brokers on the topic have led to a general consensus that investment sales teams are the most likely to be targeted by regulators and will face increased burdens as of July.
Regardless of the outcome, market abuse regulation puts sales teams in unfamiliar territory. As opposed to firing off emails and ideas when inspiration strikes, sales teams must take note of client communications containing an investment strategy, including emails, instant messages, and telephone conversations. These communications must be tracked, recommendations recorded, and disclosures and disclaimers sent as necessary.
From our conversations, we’ve heard over and over of the challenges teams will face in preparing to tackle the administrative burden this regulation will impose. FactSet clients have told us that, at minimum, current projections and recommendation history must be clearly indicated within sales communications, and dynamic disclosures and disclaimers are a requirement across multiple distribution channels including email, chat, phone, and social media. This adds additional workload and causes significant disruption to the sales workflow.
The good news is that much of this burden can be alleviated with thorough research management tools. Using a research management system, FactSet RMS, our clients create investment recommendations and strategies across a variety of asset classes, recording their emails, chat conversations, and phone calls. The RMS then tags each recommendation and can append the relevant disclosures and disclaimers as necessary. These communications are then sent via email to individuals or distribution lists, meeting the requirements outlined by MAR.
Instant messaging creates another challenge. Messaging apps must integrate with a firm’s RMS to automate the disclosure process and ensure compliance. Symphony, a start-up open source messaging service, is answering this need by allowing sales teams to create, log, and disclose directly with clients over instant message, as Symphony CEO David Gurle recently explained. In 2015, FactSet became a Community Member of the Symphony Open Source Project, and this secure messaging service will soon be integrated within FactSet applications.
July 3 Looms Large for European Brokers
It will be interesting to see how European brokers react to market abuse regulation in the upcoming weeks. Discussions and conferences have picked up considerably since February, from advocacy groups like FIA, AFME, BBA, and ISDA discussing the potential implications of MAR to an ongoing Q&A process with the FCA . While it is currently unclear what the implications may be for non-compliance with all aspects of MAR, come July, intent to comply may not be enough to satisfy regulators.
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