RegTech Intelligence

Connecting the dots: MAD/R interdependencies

JWG analysis.

At the 8th Customer Data Management Group (CDMG) meeting of 2015, on 18 August, over 20 members from 10 firms came together to discuss the new Market Abuse Regulation (MAR) and the potential challenges it holds.

With less than 11 months until particular sections of MAR will apply to the financial services industry, this article discusses the interdependencies that the new MAR holds with other regulations.


Overview of MAD/R

In April 2014, the latest MAR and the new Directive on criminal sanctions (MAD) were adopted and subsequently entered into force on 2 July 2014.  Although the provisions listed in Article 39(2) of MAR will apply from 3 July 2016, many MAR requirements will become applicable on the MiFID II deadline (3 January 2017), due to their affiliation with MiFID II.

The new MAR was established to ensure that regulation keeps pace with market developments, such as new technology, and aims to strengthen the fight against market abuse across commodity and related derivative markets.

Whilst MAD complements MAR, by requiring all Member States to provide harmonised criminal offences of insider dealing and market manipulation, the new Directive is not adopted in the UK. Even so, a number of regulations, including the Criminal Justice Act 1993, Fraud Act 2006, Financial Services Act 2012 and Companies Act 1980, protect the industry from market abuse offences.

The Fair and Effective Markets Review (FEMR)

In response to the FX and LIBOR scandals, the UK Government introduced the Fair and Effective Markets Review.  The review, conducted by the Bank of England, the Financial Conduct Authority (FCA) and HM Treasury, sets out 21 recommendations on how to repair the fixed income, currency and commodities (FICC) markets.

The extended requirements that come into force with MAR will require firms to report suspicious transactions and orders across a wider range of FICC markets regulated under MiFID II.  FEMR recommends that this new regime should be supported by an obligation for firms to keep records of orders and transactions and report suspicious cases to the regulator.  In addition, FEMR suggests that this practice should possibly be extended to other OTC FICC markets that fall outside the scope of MAR.

As previously mentioned, the UK chose to opt out of the Market Abuse Directive.  However, respondents to the FEMR consultation felt that the UK should further align its criminal sanctions with those being brought in by the EU under MAD.

Furthermore, to achieve consistency across all financial markets, it was proposed that HM Treasury may also wish to consider the extension of the current market abuse regime to include financial instruments and benchmarks that fall outside of the FICC markets but which are covered by the MAR.


With its deadline drawing closer, many are now well aware of the second Markets in Financial Instruments Directive.  In general, MiFID II focuses on the structure of trading venues on which financial instruments are traded, whilst the accompanying regulation (MiFIR) concentrates on regulating the operations that take place within those venues.  With the MiFID II rules containing part of the regulatory framework on which the new MAR is based, harmonisation of these rules and competent authorities’ powers is, therefore, a necessary step.

On High Frequency Algorithmic Trading (HFAT), MAR reinforces the efforts proposed under MiFID II by extending the market abuse regime to capture this type of trading.  MiFID II obliges individuals to seek authorisation to trade in this way, unless they fall under the conditions of a particular exemption.  Furthermore, investment firms will be required to store records of their algorithmic trading systems and trading algorithms for at least five years.  These records must contain sufficient detail, such as information on the person in charge of an algorithm, to enable monitoring by competent authorities.  These records must also be made available to the Member State competent authority on request.

The monitoring requirements under MAD/R and MiFID II imply that separate policies may be required to meet the new obligations.  MAD extends structural provisions to prevent and detect market abuse to all trading platforms (including OTFs).  However, MiFID II goes further by obliging firms to monitor all trading activity that takes place through their systems, including those of their clients, and firms will be required to produce consistent detailed transaction reports.  Monitoring obligations under MAR also include markets covered by ACER and, therefore, the regulation asks for cooperation between ACER, ESMA and national competent authorities.  Market participants have raised questions as to whether or not activity covered by a number of regulations would have to be reported to all supervisory authorities involved.

The Senior Managers Regime (SMR)

Earlier this year, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) published final rules endeavouring to embed personal accountability into the culture of the financial services industry.

The Senior Managers Regime, as discussed in a previous RegTech article, focuses on those who hold key roles and responsibilities in firms.  The FCA explains that “whilst individuals who fall under this regime will continue to be pre-approved by regulators, firms will also be legally required to ensure that they have procedures in place to assess their fitness and propriety before applying for approval and at least annually afterwards”.

Under these new rules, senior managers will be held responsible, not only for robust controls on banking and securities activities, but will also be accountable for supporting good conduct of business and market conduct outcomes, including market abuse, market manipulation and financial crime.  These tough sanctions have been put in place to act as a deterrent for any kind of market abuse.

Overall, considering the tsunami of regulations that has been released since the 2008 financial crash, the significant degree of overlap between the new rules is unsurprising.  However, with many financial institutions being governed by an increasing number of regulations, the need to understand particular overlaps and any deltas has risen.

Members of the CDMG will be discussing the new framework for funds, with particular reference to UCITS IV & V/EuVECA/EuSEF/AiFMD/MiFID II, at the next meeting on 22 September.  If you are interested in attending, please email for more information.

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