Introduction
The Financial Conduct Authority (FCA) plays a crucial role in maintaining the integrity and stability of the UK’s financial markets.
Among its various responsibilities, the enforcement of dealing regulations for Persons Discharging Managerial Responsibilities (PDMRs) is a critical aspect. PDMRs occupy positions within organisations that afford them access to significant inside information. Consequently, the FCA’s stringent oversight is designed to prevent insider trading and ensure fair market practices.
As the guardian of corporate governance, the company secretary plays a pivotal role in ensuring compliance with regulatory requirements, including those related to PDMRs. Given their access to sensitive information, stringent oversight is imperative to avoid insider trading and maintain market integrity.
This article outlines practical steps a company secretary can take to ensure adherence to PDMR rules under the Market Abuse Regulation (MAR).
The first step in ensuring compliance is to develop comprehensive internal policies that align with MAR. These policies should cover:
The definition of PDMR
Set out a clear identification of who falls under the PDMR category within the organisation. PDMRs typically include directors and senior executives of companies whose shares are traded on regulated markets. Their unique positions enable them to access unpublished, price-sensitive information. The MAR establishes a framework within which PDMRs must operate to prevent market abuse, including insider dealing.
Transaction Reporting
Detailed procedures for how and when PDMRs must report their transactions. PDMRs must notify the FCA and their respective organisations of any personal transactions involving the organisation’s securities within three business days. This transparency is vital for maintaining market integrity.
Closed Periods
Clear guidelines on trading restrictions during closed periods. PDMRs are restricted from trading during designated ‘closed periods’—usually 30 days prior to the announcement of interim or annual financial results. This measure is aimed at minimising the risk of insider trading.
Enforcing closed periods is key to preventing insider trading. The company secretary should:
Calendar Management: Maintain a well-updated calendar of closed periods and remind PDMRs of these periods in advance.
Strict Enforcement: Ensure no trades are approved during these periods unless under exceptional circumstances with full disclosure.
Approval Processes
Step-by-step processes for seeking and granting clearance to deal. Before any transaction, PDMRs often must seek approval from their organisation’s compliance, legal or company secretarial department. This additional oversight layer helps prevent potential conflicts of interest or regulatory breaches.
Pre-transaction clearances add an extra layer of oversight. The company secretary should:
Review Requests: Carefully review all clearance requests to ensure they comply with both regulatory and internal policy.
Document Decisions: Keep detailed records of all decisions regarding transaction approvals or rejections.
Implement a Reliable Notification System
A robust notification system ensures timely and accurate reporting of PDMR transactions. This system should be able to track, monitor, and report PDMR transactions and include:
Automated Alerts: Set up automated reminders for PDMRs to report transactions within the three business day window.
Centralised Reporting Portal: Create a centralised digital platform where PDMRs can easily submit their transaction details.
Facilitate Communication with the FCA
Effective communication with the FCA is vital for transparency and compliance. The company secretary should:
Timely Reporting: Ensure that all PDMR transactions are reported to the FCA within the stipulated three business days.
Open Lines of Communication: Maintain an open dialogue with the FCA to seek guidance and clarify doubts regarding compliance issues.
FCA Enforcement Actions
The FCA employs a range of measures to enforce compliance with MAR, reflecting their commitment to uphold market integrity:
Monitoring and Surveillance: The FCA uses sophisticated surveillance tools to detect unusual trading patterns that might indicate insider dealing. They cross-reference transactions with known timings of inside information disclosures to identify suspicious activities.
Investigations: When potential breaches are identified, the FCA conducts thorough investigations. This can include scrutinising trading records, communications, and interviewing involved parties.
Sanctions: The FCA can impose significant sanctions on PDMRs and firms found in violation of MAR. These may include substantial fines, public censure, or, in severe cases, criminal prosecution. Publicising enforcement actions serves as a deterrent to potential violators.
Recent Enforcement Cases
Highlighted below are examples of recent FCA actions to emphasise their regulatory stance:
- Case A: In November 2024 the FCA has fined the former chief supply chain officer at Wizz Air Holdings plc (Wizz Air), £123,500 for trading company shares when he was not permitted to (during a closed period) and failing to disclose his trades. The FCA’s action underlined the necessity of adhering to established closed periods and disclosure requirements
- Case B: In 2019, a senior executive was fined £45,000 for breaches of MAR provisions.
- Case C: In another notable instance, the FCA fined a major corporation £2 million for systemic failures in its PDMR transaction approval process. The organisation neglected to implement sufficient controls, leading to multiple instances of unauthorised dealing.
Conclusion
The FCA’s rigorous enforcement of PDMR dealing regulations is pivotal in safeguarding the fairness and transparency of the UK’s financial markets. By compelling adherence to MAR, imposing stringent penalties for non-compliance, and promoting best practices, the FCA ensures that those in positions of power cannot exploit their access to privileged information for personal gain. For market participants, the message is clear: compliance is not optional, and the FCA will act decisively to maintain the integrity of the financial markets.
JTC’s governance team offers company secretarial support to clients regarding MAR requirements through a custom software solution, JTC Insider. By using the strategies discussed above, we can greatly reduce the risk of non-compliance with PDMR rules, thus safeguarding the organisation and its PDMRs from legal and reputational risks. Compliance is crucial not only for meeting regulations but also for maintaining the overall integrity and trustworthiness of financial markets.
To learn more about our listed governance services please contact: Susan Fadil
