Efficient market operation requires trust. Investors must trust the securities markets and their operators. From a reliability perspective, insider information management and its regulation are key elements.
Functional securities markets require reliable services
Kati Honkajuuri-Kokkonen, Chief Administration Officer, Euroclear Finland says:
"Reliability and trust are vital for fair and efficient securities markets. The purpose of the domestic and the EU level regulation is to ensure equal treatment of all investors – also in terms of published and unpublished information."
Honkajuuri-Kokkonen continues:
"Insider information use is regulated in Finland by both the EU Market Abuse Regulation (MAR) and national legislation. MAR is aimed at issuers and the purpose of the regulation is to create equal conditions for EU markets and investors, and to ensure trust in market operations. The abuse regulation has requirements for both securities issuers and persons employed by them, senior executives and their close associates. These persons are also subject to reporting obligations."
"National regulation aims to prevent insider trading and the misuse of insider information. The differences from EU-level regulation are in practice in the details of reporting and in the fact that domestic regulation has been extended to cover other parties than just securities issuers operating in the financial markets, such as investment service companies, fund companies, pension companies, marketplaces and also us as a central securities depository. The scope of reportable financial instruments includes all financial instruments found in the book-entry system that are subject to trading."
Insider Elements by Euroclear is an insider service designed to facilitate insider administration, automate data maintenance and ensure compliance with insider-related regulation. The service ensures that the company's insider information is up to date.
"From a regulatory perspective, Insider Elements by Euroclear significantly facilitates insider administration. The service has been developed in cooperation with customers to take into account the needs of different types of operators as comprehensively as possible. In addition, the service takes into account the requirements of domestic and EU level regulation for updating and storing information," lists Honkajuuri-Kokkonen.
"Our aim is to provide peace of mind for issuers subject to regulation and parties operating in the financial market, and that is what reliable compliance service creates. This is a welcome relief for many, as regulation is becoming more complex and its amount is increasing," Honkajuuri-Kokkonen adds.
Failure to comply with insider requirements results in reputational damage, fines and even imprisonment
The amounts of fines under the Market Abuse Regulation (MAR) depend on the severity of the breach. For legal persons, it is 10 percent of turnover, up to a maximum of 10 million euros, and for natural persons, 10 percent of taxable income, up to a maximum of 100,000 euros.
MAR also has other administrative consequences, such as an order to change practices, an obligation to surrender profits, a public warning and the revocation or suspension of a license, as well as a ban on acting in management positions.
In domestic regulation, criminal sanctions can be fines or imprisonment. For the disclosure and misuse of insider information, a maximum of two years' imprisonment may be imposed, and for aggravated misuse of insider information, a maximum of four years' imprisonment.
In addition to criminal sanctions, insider breaches are also costly for companies in terms of reputational damage. Abuses quickly become public and create a negative image of the company, its employees and operations.
