Recognizing the Right to Silence and So Much More

For those not familiar with it, let’s start with some basics. The European Union’s (EU) market abuse regime consists of two pieces of legislation, the Market Abuse Regulation (MAR), directly applicable across Member States, and the Market Abuse Directive on criminal sanctions for market abuse (CSMAD). The CSMAD essentially provides for minimum rules for criminal sanctions for market abuse[1] and is outside the scope of this note. The MAR is supplemented by a number of ‘Level 2 and 3 measures’, being European Commission delegated and implementing acts and guidance from the European Securities and Markets Authority (ESMA).

The EU prohibitions on market abuse are based on equal access, information parity and fairness across all market participants. The often-cited example from the MAR is Recital 23 MAR which provides that:

“The essential characteristic of insider dealing consists in an unfair advantage being obtained from inside information to the detriment of third parties who are unaware of such information and, consequently, the undermining of the integrity of the financial markets and investor confidence. Consequently, the prohibition against insider dealing should apply where a person who is in possession of inside information takes unfair advantage of the benefit gained from that information by entering into market transactions in accordance with that information by acquiring or disposing of … financial instruments to which that information relates.”

This is unlike the US regime that requires an insider to be in breach of a fiduciary duty that they owe to their company, the issuer or shareholders or that they misappropriate confidential information in breach of a duty owed to the source of the information.

There are three key offences under the MAR being insider dealing, unlawful disclosure of inside information and market manipulation. The MAR provides for certain safe harbours which, provided that certain conditions are met, allow for certain acts to be exempt from the prohibitions against market abuse. The MAR also contains requirements relating to the disclosure of inside information, including circumstances where disclosure may be delayed, disclosures by persons discharging managerial responsibilities and insider lists. The disclosure obligations for issuers are designed to ensure that there is prompt and fair disclosure of relevant information to the market. The geographical scope of MAR is global in that Article 2(4) provides that the “prohibitions and requirements in [MAR] shall apply to actions and omissions, in the Union and in a third country, concerning [financial instruments within the scope of MAR]. ” These financial instruments are described below.

The MAR applies to transactions in financial instruments that are admitted to trading on a regulated market, on a multilateral trading facility (MTF), or any other type of organized trading facility (OTF). This includes a request for admission to trading.  Financial instruments traded solely over-the-counter are outside the MAR’s scope, unless their price depends on the price of a financial instrument traded on a regulated market, an MTF, or an OTF. In terms of what financial instruments are covered, the MAR refers to the Markets in Financial Instruments Directive (MiFID II) and the financial instruments listed in Annex I of Section C. Such instruments under Annex I include transferable securities, money-market instruments, units in collective investment undertakings and different types of derivatives.

As regards commodities, the MAR captures spot commodity contracts in so far as they relate to financial instruments. The definition in MAR provides that a ‘spot commodity contract’ means a contract for the supply of a commodity traded on a spot market which is promptly delivered when the transaction is settled, and a contract for the supply of a commodity that is not a financial instrument, including a physically settled forward contract.

Article 12 of the MAR sets out the market manipulation offences, which include any attempt to commit the following:

• entering into transactions or placing orders which would give or would be likely to give a false or misleading signal as to the supply of, demand for or price of a related spot commodity contract;
• any activity or behaviour which will likely affect the price of a related spot commodity contract and which employs a fictitious device or any other form of deception or contrivance; and/or
• dissemination of information that gives or is likely to give a false or misleading signal as to the supply of, demand for or price of a related spot commodity contract or that secures or is likely to secure the price of such related spot commodity contract at an abnormal or artificial level, including dissemination of rumours where the person making the dissemination knew or ought to have known that the information was false or misleading.

The market manipulation offence is also extended to cross-market manipulation, where transactions in derivatives markets are used to manipulate the price of the related spot markets, and vice versa. The LIBOR (London Interbank Offered Rate) scandal, which came to light in 2012, exposed how major financial actors manipulated this crucial benchmark rate. LIBOR is used to set interest rates for various financial products. In response, the MAR included benchmark within the scope of market manipulation.

Inside information comprises the following types of information:

• information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments;
• in relation to commodity derivatives, information of a precise nature, which has not been made public, relating, directly or indirectly to one or more such derivatives or relating directly to the related spot commodity contract, and which, if it were made public, would be likely to have a significant effect on the prices of such derivatives or related spot commodity contracts. The information must be of a type that is reasonably expected, or required, to be disclosed on the relevant commodity derivatives markets or spot markets in accordance with legal or regulatory provisions at EU or national level, market rules, contract, practice or custom. Recital 20 to the MAR gives as "notable examples" of such rules. ESMA has also issued guidelines providing indicative examples of information that would meet this requirement;
• in relation to emission allowances or auctioned products based on emission allowances, information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more such instruments, and which, if it were made public, would be likely to have a significant effect on the prices of such instruments or on the prices of related derivative financial instruments; and
• for persons charged with the execution of orders concerning financial instruments, information conveyed by a client and relating to the client's pending orders in financial instruments, which is of a precise nature, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments, the price of related spot commodity contracts, or on the price of related derivative financial instruments.

In terms of recent cases, a more notable one concerned a decision by the Court of Justice of the European Union (ECJ) in February 2021, which recognized the right to silence for individuals in the context of administrative market abuse proceedings. However, the ECJ also made it clear that this protection “cannot justify every failure to cooperate with the competent authorities, such as a refusal to appear at a hearing planned by those authorities or delaying tactics designed to postpone it.”

How this ruling impacts each Member State will need careful consideration. In France, the right to remain silent is not as commonly invoked as in the Fifth Amendment in the United States. The French Financial Markets Authority (AMF) is the primary regulatory authority overseeing France's financial markets, including the enforcement of regulations against insider trading under the MAR. The AMF is responsible for ensuring market integrity and protecting investors, and in this context it conducts investigations and imposes sanctions on individuals and entities engaging in insider trading and other forms of market abuse.

Historically, the AMF did not fully embody the right to remain silent in its administrative proceedings. For instance, in a 2009 decision[2], the AMF did not oppose drawing adverse inferences from a defendant's silence during investigations, meaning that individuals accused of insider trading could possibly be penalized for choosing not to speak.

However, following the above-mentioned ECJ ruling, the AMF amended its charter[3] to explicitly recognize this right during investigations and controls. This significant change ensured that individuals under investigation for insider trading are protected from being compelled to incriminate themselves, aligning the AMF's practices with the European Convention of Human Rights – on which the ECJ decision is based.

Further solidifying this evolution, the Constitutional Court issued decision n°2023-1074 QPC on 8 December 2023[4]. This decision reaffirmed the right to remain silent as a recognized fundamental principle. It extended this right beyond criminal proceedings to include any punitive sanctions, such as those imposed in administrative processes, which are likely to include the AMF. This progression demonstrates that the right to remain silent is now firmly established in French law.

In terms of recent developments, there are two of particular note. First, changes are being made to the MAR via the so-called Listing Act which is covered in the next article. Second, ESMA has recently issued a statement reminding issuers about the legislative framework that applies to ‘pre-close calls’ and encourages them to follow good practices including:

• Prior to a pre-close call, carrying out an assessment of the information intended to disclose, making sure that it is not inside information.
• Informing the public about the upcoming pre-close calls on the issuer’s website, highlighting the relevant details (date, place, topics and participants).
• Making the material and documents used simultaneously available on the issuer’s website.

Outside of the MAR and the CSMAD, there are two other pieces of EU legislation of note. Regulation (EU) 1227/2011 on wholesale energy market integrity and transparency (REMIT) defines a framework for identifying and penalising insider trading and market manipulation in wholesale energy markets across Europe. Following nearly a year of debate, the legislative review of the proposed amendments to REMIT is coming to an end. Further information can be found in this note. The Markets in Crypto-Assets Regulation (MiCAR) introduces a new regulatory framework for crypto-assets in the EU and entered into force on 29 June 2023. It became applicable for issuers of Asset-Reference Tokens and issuers of E-Money Tokens on 30 June 2024 and will become applicable for Crypto-Asset Service Providers and issuers of utility tokens on 30 December 2024. Crypto-assets that do not fall within the Market in Financial Instrument Directive II’s definition of financial instrument and therefore outside the scope of the MAR will instead fall within the market abuse regime set out by this Regulation. For further information please refer to our Financial Services Academy on MiCAR.

And finally, like Australia the EU has been keeping a close eye on “finfluencers”, issuing a statement in February warning about the risks of market manipulation when posting on social media.