Financial services offences
FCA Chief Executive writes to Treasury Committee on private polling data and market integrity
On 5 September 2019, the House of Commons Treasury Committee published a letter (dated 18 July 2019) from Andrew Bailey, FCA Chief Executive, to Nicky Morgan, former Committee Chair.
Mr Bailey is responding to a letter (dated 24 October 2018) from Ms Morgan, in which she raised five specific questions relating to the potential risks of private polling data to the integrity of the UK financial markets.
Annex A to the letter sets out the FCA’s response to Ms Morgan’s specific questions. However, Mr Bailey considers the underlying question is whether more should be done to prevent private polling being used to give a trading advantage in advance of election results. Neither financial services law nor electoral law prohibit polling of members of the public. However, there is a public policy interest in restricting the public availability of polling information while polls are open. The law in this area is set out in the Representation of the Peoples Act 1983, rather than financial services legislation. The Market Abuse Regulation (596/2014) (MAR) may be engaged where information is not publicly available, is precise and is likely to have a significant impact on the price of a regulated financial instrument. However, MAR does not impose a general restriction on individuals and firms collecting or receiving polling information that is relevant to financial market prices but is not inside information, even while polls are open.
In addition, currencies, and the exchange rates between them, are not regulated financial instruments.
It would therefore not be effective to rely on MAR to restrict the sharing of polling information that is not inside information while polls are open. Nor, outside particular circumstances, which financial firms would need to asses on a case-by-case basis, can MAR be relied on to prevent trading using this information.
The FCA appreciates that this raises “important issues of fairness”. Given the public interest in how voting data is used goes beyond financial regulation, the FCA believes it is a matter for Parliament and government to consider the appropriateness of tighter restrictions on the generation, distribution and publication of this data during the window when polls are open. The FCA would be happy to offer its views on how any tighter restrictions would interact with the market abuse regime.
The FCA recently published a new webpage on electoral polling and MAR (see Legal update, New FCA webpage on polling and MAR).
New FCA webpage on polling and MAR
On 3 September 2019, the FCA published a new webpage on polling and the Market Abuse Regulation (596/2014) (MAR).
In response to questions regarding how MAR might apply to information obtained via electoral polling, the webpage sets out how the FCA expects firms and individuals to handle any information with the potential to be inside information, including information obtained as a result of polling. Whether such information is inside information must be judged on a case-by-case basis.
As an example, the FCA describes an established polling firm due to publish polling results that, on publication, are likely to affect the price of government bonds traded on regulated trading venues and meet the other MAR inside information definition criteria. In these circumstances, it could be an offence under MAR to share that information prior to publication other than where necessary “in the normal exercise of employment, a profession or duties”.
It could also be an offence under MAR for anyone in possession of the information to trade in the relevant government bonds in advance of publication of the polling results if they are trading on the basis of the anticipated bond price movement resulting from publication.
Where the inside information definition is not met, MAR does not impose a restriction on individuals and firms collecting or receiving polling information relevant to financial market prices, even while polls are open.
In addition, the FCA reminds firms that trading in spot foreign exchange (that is, forex or FX) is not covered by MAR’s insider dealing provisions. However, other FCA requirements, such as the Principles for Businesses, and other legislation may apply. Firms must be aware of, and comply with, all relevant legislation. Trading in spot FX may also be covered by the MAR provisions on market manipulation, where the trading has an impact on relevant financial instruments, such as certain spot FX options.
The FCA notes it will be for other authorities to enforce legislation that falls outside the scope of its remit and enforcement powers.
In October 2018, the House of Commons Treasury Committee released correspondence with the FCA in which Andrew Bailey, FCA Chief Executive, confirmed a meeting with the British Polling Council (BPC) and Market Research Society (MRS) to discuss the committee’s concerns regarding the market integrity risks posed by the use of private polling data.
For an overview of MAR, see Practice note, Market Abuse Regulation (MAR): overview.