A critical analysis of the supervision of insider dealing under the market abuse regulation in Europe

Abstract

Whilst market abuse and the various forms it takes in financial markets have been widely researched in the past years, the role of regulators – being the institutions which are mainly responsible for supervising and detecting the presence of market abuse – has not been an area which intrigued academics as yet. Accordingly, this study examines the history of the EU market abuse regulation and its development over time and analyses the various ways and techniques that EU financial service regulators use in their day-to-day supervisory duties to detect cases of market abuse, especially those concerning insider dealing. Moreover, this study aims to find ways how EU regulators, can improve their performance in their efforts to protect the interests of investors and those of the capital markets they supervise.

Primary data for this study is mainly collected through a qualitative approach and the use of a structured questionnaire addressed to all financial services regulators across the 28 EU Member States. This study confirms that EU regulators do possess the relevant skills and resources to conduct their day-to-day capital market supervision in the most efficient and effective way possible. Most participants also agree that on-the-job and external training are the most common training which regulators receive to help them in detecting insider dealing cases. The research findings also reveal that tools and techniques such as automated software and complex mathematical algorithms, suspicious transaction reports and the monitoring of changes in security prices are amongst the most important tools used by regulators in their day-to-day supervisory roles, whilst the majority of respondents believe that the tracking of telephone calls is the least important tool for the detection of insider dealing activity. As regards the developments to the market abuse regime, the study reveals the regulators’ opinion that market participants will mostly struggle to abide with the market sounding procedures, the compiling and storing of insider lists and manager's transactions. On the other hand, regulators will also face their own challenges in implementing the new regulations, such as the implementation of the minimum maximum penalties required by MAR and the lack of room for interpretation on a member state level.

Finally, the research determines that following the implementation of MAR and CSMAD, the desired level of harmonisation in the supervision and enforcement of market abuse is present amongst EU Member States, however there will always be more room for increased harmonisation.