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ESMA Reaffirms The Importance Of Insider Lists

Per a recent ESMA Consultation Paper, insider lists aren’t going anywhere, but StarCompliance can ease the burden of maintaining and managing them

“The management of insider lists is very burdensome.” So offered one stakeholder in her assessment of a recent ESMA Consultation Paper—ESMA70-156-1459—published on 3 October of this year. It addresses, among other things, insider lists. Here’s what it says on the subject and how StarCompliance can help firms concerned with their related capabilities.

Article 38 of the Market Abuse Regulation, or MAR, directs the European Commission to present a report to the European Parliament and European Council “to assess various provisions of MAR.” The EC commissioned ESMA to do that on its behalf. The result of ESMA’s effort is Consultation Paper ESMA70-156-1459. It addresses, as concerns our purposes here, MAR Article 18, which deals with insider lists, and says issuers of financial instruments must:

  • Draw up a list of all persons who have access to inside information
  • Keep it properly updated, including the dates of any updates
  • Be able to provide it to the regulator “as soon as possible” upon its request

Further, this “insider list” must at least include:

  • The identity of any person having access to inside information
  • The reason for including that person on the insider list
  • The date and time that person gained access to inside information
  • The date on which the insider list was drawn up

ESMA70-156-1459 reassesses “the usefulness of insider lists” to regulators when it comes to investigating market abuse, asking specifically to what extent regulators rely on them for such investigations and how instrumental they are when it comes to completing them. Per ESMA:

  • Insider lists protect market integrity by allowing regulators to identify who has access to inside information
  • Insider lists protect market integrity by stating the specific date and time on which a piece of information became inside information
  • Insider lists protect market integrity by stating the specific date and time when the relevant persons gained access to that inside information
  • Insider lists are helpful for the issuers themselves, to manage the flows and confidentiality of inside information

ESMA’s conclusion is that insider lists are “critical” to regulators in conducting and completing investigations, and is therefore a key tool for preventing and dealing with market abuse.

So, insider lists aren’t going anywhere. Regulators clearly see a use for them in preventing and investigating market abuse, and that’s the official recommendation heading back from ESMA to the European Parliament and the European Council via this consultation paper. But ESMA does acknowledge that maintaining insider lists as now stipulated can be burdensome to issuers, so ESMA70-156-1459 does offer issuers some possible solutions for alleviating that burden.

One idea is, the issuer shouldn’t have to “keep the entire list of persons having access to inside information, but just one contact person for each external service provider having access to inside information.” Shifting some of the responsibility for maintaining these complex, crisscrossing lists to firms’ third-party vendors would certainly help in reducing the insider-list burden. There’s no guarantee, of course, this recommendation will be officially adopted, and it’s still just a partial solution. But one thing you can do sooner rather than later to reduce the burden of maintaining insider lists is to enlist technology and automation into your processes.

Insider lists have been around for decades, at least, managed by means manual, electronic, or a mix of both. This could mean tracking insiders on an Excel spreadsheet, with all the time and tedium keeping that up-to-date entails. Some firms still rely solely on bankers’ memories to help them keep track of who-knows-what and who’s-involved-in-what investment, issuance, or deal. In one sense, while there’s not necessarily manual labor involved in a “system” like this, it’s frighteningly unreliable on many levels. Bankers move around, or retire. The best memories fail. And when it comes time to produce your insider list “as soon as possible” upon request by the regulator, it will be a race against the clock to get something down into an acceptable format.

The costs for not having your insider list maintenance and management system in order are potentially high. Per MAR Article 30, which covers administrative sanctions and administrative measures, infringements of Article 18 could result in:

  • The disgorgement of profits gained or losses avoided due to the infringement
  • The withdrawal or suspension of the authorization of an investment firm
  • The temporary ban of a person discharging managerial responsibilities
  • Firm penalties of at least three times the amount of the profits gained or losses avoided due to the infringement
  • Individual penalties of EUR 500 000 or, in non-euro member states, the corresponding value in the national currency

StarCompliance offers a product that can simplify insider list management—in the process reducing compliance team workload and reducing firm risk. The product is called, appropriately enough, Insider List Management. Insider List Management automates your insider list processes and procedures, centralizing all your relevant, critical data onto a single platform. It gives firms one place to collect, organize, store, and analyze the totality of their insider data.

Insider List Management records any employee involved in any investment, issuance, or deal, including when they come onto the project, what information they’re privy to, and when they leave the project. It also handles all communications with the employees concerned. As such, it’s an invaluable tool for helping you maintain these extensive insider lists, keep them up-to-date, and produce them quickly and completely for whenever the regulator decides to ask.

Insider List Management ticks all the boxes as laid out in MAR Article 18. And when and if those boxes change the software will change along with it. Insider List Management does for this compliance function what Star products like Compliance Control Room and Personal Trading have done for their respective compliance functions—made the previously time-intensive, tedious,  and complex tasks associated with them simpler to perform and easier to accomplish.