THE EFFECTIVENESS OF THE FSA'S CURRENT APPROACH

Evaluate The Effectiveness of the FSA's Current Approach

Evaluate The Effectiveness of the FSA's Current Approach

Introduction

Information in modern society is the key to knowledge and power. This secret lies behind successful participation in the stock market. Some investors have used this adage to manipulate the market using information gained by virtue of their professional position. Insider dealing and market abuse have long been regarded as problematic, resulting in a reduction of investor confidence in the market. The EU has recently addressed this problem through the creation of the Market Abuse Directive (MAD).

The directive will be implemented across all member states, including the UK by October 2004, with an additional three-month buffer, bringing the enforcement date to January 2005. Such commitment from all member states highlights the distinctly political element to establishing a single European market.2 In the UK market abuse and insider dealing is currently dealt with under the Financial Services and Markets Act (FSMA) 2000. Whilst MAD was modeled to some extent on FSMA3 there are important changes that will significantly alter UK law, especially in relation to safe harbors and disclosure requirements. (Graham 2003)

MAD combine's insider dealing and market abuse offences into market manipulation,

Which is defined as 'transactions or orders to trade… by one or more persons…?

Which give or are likely to give false or misleading impressions about the about the supply, demand or price of financial instruments'. Its aim, as part of the Financial Services Action Plan (FSAP) is to aid the creation of a single European market by harmonizing the market abuse regime across the EU. (Hansen 2004)The rationale behind this is that eradicating market abuse creates a more efficient and stable market, thus maintaining investor confidence and strengthening the general market economy.

This paper assesses the legal, commercial, economic and regulatory implications that MAD has upon the UK regime. The general theme of harmonization is addressed throughout, analyzing the extent to which MAD achieves the FSAP's goals. The paper is split into five sections. (Ferrarini 2004)

THE EUROPEAN UNION

The foundations of the European Community were laid after the Second World War due to the belief that European peace and stability lay in integration and co-operation between states. The European Union was officially established by the Maastricht Treaty6 in 1992, and consolidated by the Treaty of Amsterdam in 1997 under the banner of cross border co-operation. It created a three-pillar structure, consisting of the European Community, a Common Foreign and Security Policy and Justice and Home affairs. The main focus is upon the European Community pillar because it plays the largest role in overseeing the implementation of EU economic and financial legislation.

EU INSTITUTIONS AND LAW

The EU contains five institutions, both political and non-political. Political institutions include the Commission, Council, and Parliament. Non-political include the Court of Justice, which ensures EU law is interpreted and enforced between member states and the Court of Auditors who examine Community accounts and general expenditure. (Farrar 2002)This paper focuses upon the political institutions of the Commission ...