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Status: You are viewing the version of the handbook as on 2005-06-30.

ENF 14.4 Factors relevant to determining whether to take action in market abuse cases

ENF 14.4.1G

Not all cases involving market abuse or requiring or encouraging will warrant enforcement action. The FSA will consider all the relevant circumstances of the case when deciding whether to seek to impose a financial penalty or, where it is entitled to impose a financial penalty, whether a public statement would be more appropriate.

ENF 14.4.2G

When it decides whether to take action for behaviour appearing to the FSA to amount to market abuse or requiring or encouraging, the FSA may take into account a number of factors. The following list is not exhaustive: not all of these factors may be relevant in a particular case, and there may be other factors that are relevant.

  1. (1)

    The nature and seriousness of the suspected behaviour, including:

    1. (a)

      the nature and seriousness of any breach of the Code of Market Conduct;

    2. (b)

      whether the behaviour was deliberate or reckless;

    3. (c)

      the duration and frequency of the behaviour;

    4. (d)

      the impact of the behaviour on prescribed markets, including whether public confidence in those markets has been damaged; and

    5. (e)

      the amount of any benefit gained or loss avoided as a result of the behaviour; and

    6. (f)

      the loss or risk of loss caused to consumers or other market users.

  2. (2)

    The conduct of the person concerned after the behaviour was identified, including the following.

    1. (a)

      How quickly, effectively and completely the person brought the behaviour to the attention of the FSA or another relevant regulatory authority.

    2. (b)

      The degree of cooperation the person showed during the FSA's investigation of the behaviour of concern or during those of any other regulatory authority (for example, the Takeover Panel or an RIE) which is allowed to share information obtained during an investigation with the FSA. In this context, persons are reminded that they may have a duty to co-operate with other regulatory authorities. For example, MAR 4.3.4 G requires firms to whom that rule applies to assist the Takeover Panel in certain circumstances. However, a person will not necessarily avoid action for market abuse or requiring or encouraging merely by fulfilling a duty to co-operate.

    3. (c)

      Any remedial steps that the person has taken to address the behaviour, whether on his own initiative or in meeting the requirement of another regulatory authority, and how promptly that person has taken those steps. This might include identifying those who have suffered loss and compensating them, taking disciplinary action against staff (where appropriate), and taking action designed to ensure that similar problems do not arise in the future. It might also include (for example, in the context of a takeover bid) any steps taken to correct a misleading statement or misleading impression or distortion of the market. However, a person will not necessarily avoid a penalty merely by fulfilling a duty to take remedial action.

    4. (d)

      Whether the person concerned has complied with any requirements or rulings of another regulatory authority relating to his behaviour (for example, where relevant, those of the Takeover Panel or an RIE).

    5. (e)

      The nature and extent of any false or inaccurate information given by the person and whether the information appears to have been given in an attempt knowingly to mislead the FSA.

  3. (3)

    The degree of sophistication of the users of the market in question, the size and liquidity of the market, and the susceptibility of the market to market abuse. For example, where the users of a market are generally not market professionals, and they have suffered loss as a result of the behaviour and that loss has not been promptly or adequately compensated for by the person concerned, this may be a factor in favour of the imposition of a penalty (this does not, however, mean that the FSA will not take action to impose financial penalties on persons whose behaviour falls within the market abuse provisions where only market professionals have suffered).

  4. (4)

    Action taken by other regulatory authorities. Where other regulatory authorities propose to take action in respect of the behaviour which is under consideration by the FSA, the FSA will consider whether their action would be adequate to address the FSA's concerns, or whether it would be appropriate for the FSA to take its own action. For example, the FSA has powers to impose unlimited financial penalties, whereas an RIE's powers may be more limited in a particular case. Where the behaviour of the person concerned is also, in the opinion of the Takeover Panel, a breach of that person's responsibilities under the Takeover Code, the FSA would not expect to use its powers under the market abuse regime against that person, except in the circumstances described in ENF 14.9.6 G. If the FSA considers that using its powers may be appropriate in those circumstances, it will not take action during the bid except in the circumstances described in ENF 14.9.7 G.

  5. (5)

    Action taken by the FSA in previous similar cases. The FSA will take account of action it has taken previously in market abuse cases where the behaviour has been the same or similar.

  6. (6)

    The impact, having regard to the nature of the behaviour, that any financial penalty or public statement may have on the financial markets or on the interests of consumers:

    1. (a)

      a penalty may show that high standards of market conduct are being enforced in the financial markets, and may bolster market confidence;

    2. (b)

      a penalty may protect the interests of consumers by deterring future market abuse and improving standards of conduct in a market;

    3. (c)

      in the context of a takeover bid, the FSA may consider that the impact of the use of its powers is likely to have an adverse effect on the timing or outcome of that bid, and therefore it would not be in the interests of financial markets or consumers to take action for market abuse during the takeover bid. If the FSA considers that the proposed use of its powers may have that effect, it will consult the Takeover Panel and give due weight to its views.

  7. (7)

    The likelihood that the same type of behaviour (whether on the part of the person concerned or others) will happen again if no action is taken.

  8. (8)

    The disciplinary record and general compliance history of the person, including:

    1. (a)

      whether the FSA has taken any previous action against the person for market abuse or requiring or encouraging which resulted in adverse findings;

    2. (b)

      whether the conduct of the person in relation to the markets has caused concern to another regulatory authority or been the subject of a warning or other action by a regulatory authority;

    3. (c)

      whether the person has previously given any undertakings to the FSA not to engage in particular behaviour; and

    4. (d)

      the general compliance history of the person, such as previous private warnings (see ENF 11.3).