As previously highlighted, in April 2022 the Central Bank of Ireland (Central Bank) lodged proceedings with the High Court (Court) seeking confirmation of an assessment that an individual engaged in insider dealing, contrary to the Market Abuse Regulations 2005 (the 2005 Regulations)1 (Adverse Assessment). The Court subsequently confirmed the Central Bank's decision to sanction an individual for insider dealing, and the Central Bank has now published a Publication Notice and Director's Commentary in respect of the Adverse Assessment.
This is the first Central Bank Adverse Assessment under the market abuse regime and confirms the Central Bank's continued focus on market conduct and individual accountability. Below we set out key takeaways for market participants arising from this assessment, together with the Central Bank's expectations. We also consider its impact on future Central Bank assessments under the Market Abuse Regulations 2016 (the 2016 Regulations)2 specifically, and its potential impact on other assessment regimes generally.
Adverse Assessment
The assessors (Mr Justice Ronan Keane and Mr Justice Joseph Finnegan) decided on 22 December 2021 that the relevant individual engaged in insider dealing in October 2008, contrary to the 2005 Regulations. In particular, the individual, whilst possessing inside information relating to a listed company, made use of that information when acquiring 200,000 shares in that company.
Sanction
The assessors imposed the following sanctions (Specified Sanctions), which were subsequently confirmed by the Court:
- a public caution
- a monetary penalty of €75,000
- disqualification of the relevant individual for a period of 5 years from being concerned in the management of, or having a qualified holding in, any regulated financial service provider
- a direction to pay to the Central Bank part of the costs it had incurred in holding the assessment in the amount of €37,500
Appeal / Court confirmation
The relevant individual did not appeal the Adverse Assessment. In circumstances where the Specified Sanctions would not take effect until confirmed by the Court, the Central Bank sought, and obtained, Court confirmation of the Adverse Assessment, including the Specified Sanctions.
Key takeaways for market participants
Standard of proof
Both the 2005 and 2016 Regulations are silent as to the standard of proof required in an assessment thereunder. The assessors determined that the standard of proof required in this assessment was the criminal standard, i.e. beyond reasonable doubt.
Rebuttable presumption
The assessors, in line with the European Court of Justice's approach, determined that, upon the Central Bank proving that the relevant individual acquired shares at the listed company when he was in possession of 'inside information', a rebuttable presumption would arise that the individual had used that 'inside information' when acquiring the shares.
Jurisdiction of the High Court to confirm an adverse assessment
Neither the 2005 nor 2016 Regulations give any guidance as to the role or jurisdiction of the Court on hearing a confirmation application. The Court determined that it has an obligation at such a confirmation hearing to satisfy itself that there was adherence to the prescribed procedures, and also adherence to the requirements of natural and constitutional justice in the manner in which the respondent was found to have committed the suspected contraventions, and in the manner in which the sanction had been decided upon. The Court further held that only non-compliance with these procedures would allow a court to set aside an assessment, or remit the matter back to be decided again by the Central Bank.
Sanctioning principles
Sanctioning factors
The 2005 Regulations did not set out sanctioning factors. Further to its review of the assessors' approach to sanctioning in this case, the Court agreed that the sanctions should be such as to dissuade the relevant individual and all other market actors from engaging in the infringing conduct, and should be proportionate to the gravity of the infringement and to the gains made or losses avoided. In this regard, the 2016 Regulations now prescriptively set out circumstances that an assessor shall take into account when determining the appropriate sanction(s).
Jurisdiction of the Court to confirm specified sanctions
The Court held that it has an obligation at such a confirmation hearing to satisfy itself that the sanction was one which might reasonably be considered proportionate, in light of the contraventions that led to the imposition of that sanction. However, the Court highlighted that its jurisdiction is limited in this regard, and that the Court should confirm the sanction unless it considers that no other reasonable decision maker could have imposed the sanction concerned.
Costs
The Court confirmed all of the Specified Sanctions, including a direction to pay to the Central Bank part of the costs it had incurred in holding the assessment in the amount of €37,500. The Court reportedly made no order as to costs of the confirmation hearing, with both sides bearing their own costs. Future assessments under the 2016 Regulations may also result in a direction to pay all or part of the Central Bank's costs in investigating and/or holding the assessment, which may be substantial and may include costs of Court confirmation.
Central Bank's expectations
In its Director's Commentary, the Central Bank outlines its expectation that all market participants, including issuers, advisors, firms, and natural persons trading in financial instruments, who come into possession of inside information must comply fully with all regulations and requirements. In particular, the Central Bank expects individuals in roles of responsibility in public companies to pay particular attention to their personal share dealings, and to refrain from trading in the shares of those public companies whilst in possession of inside information.
The Director's Commentary further outlines that the Central Bank has strengthened its market abuse surveillance and detection capabilities and will continue to take proactive steps to protect the financial markets from potentially abusive practices.
The Central Bank has purported to issue a robust market message that it will work to ensure that the Irish financial market is a "hostile environment for those who seek to engage in any form of market abuse". Enforcement action will clearly be taken to hold accountable individuals and firms who are found to have engaged in market abuse.
Next steps
ALG has been tracking the Central Bank's increased focus on market conduct for some time and has formed a cross-departmental team to assist clients, and is ready to advise clients/market participants on the practical impacts of this first Central Bank Adverse Assessment for market abuse.
For further information in relation to this topic, please contact Dario Dagostino, Partner, Mark Devane, Partner, Paul White, Partner, Patrick Brandt, Partner, Sian Langley, Knowledge Lawyer, or any member of ALG's Regulatory Investigations.
1 Market Abuse (Directive 2003/6/EC) Regulations 2005 [SI No 342 of 2005] – revoked by the 2016 Regulations.
2 European Union (Market Abuse) Regulations 2016 [SI No 349 of 2016].
