past been put off by the need to satisfy all of the eligibility criteria. For example, there may be firms who are keen to become sponsors in order to service their global clients on certain transactions in the UK, but only have experience and expertise in certain types of transactions. Under the previous regime, such firms would not have been able to become sponsors without first acquiring additional skills in order to satisfy all of the criteria required by a sponsor. However, under the new regime, such firms would be able to be approved as sponsors for specific types of transactions, allowing them to make an initial entry into the UK market, and then possibly expand their operations at a later date. To become a sponsor it is necessary to meet several criteria which are set out in the Listing Rules. These criteria must not only be met upon application but continuously whilst a firm remains a sponsor. An applicant must show, to the satisfaction of the FCA, that it: • is either an authorised person or member of a designated professional body; • is competent to perform sponsor services; and • has appropriate systems and controls in place to ensure that it can carry out its role as a sponsor. There is a multi-step application process for becoming a sponsor in the UK. The process does not have a set timeline as the period taken will depend on the specific firm applying and the quality of its application. It is therefore best to begin the process as soon as possible and to contact the regulator at an early stage. The steps are: • first, write to the Sponsor Supervision team of the UKLA, providing details of the firm. The Sponsor Supervision department will then provide guidance on how the Listing Rules will apply to the firm; • second, submit an application form, together with the non-refundable application fee of £15,000; • and third, the UKLA Sponsor Supervision team will then conduct an onsite assessment of the firm, examining its systems and controls. A prospective sponsor will need to demonstrate that its systems and controls are sufficient. If a firm is considered competent it will be given approval to become a sponsor. The sponsor will be liable to pay the annual sponsor fee of £20,000. Expanding market manipulation offences The Act replaces the provisions of FSMA for misleading statements and misleading impressions, adopting some new standards and introducing a new offence for misleading statements and impressions relation to benchmarking activities. These changes are primarily in response to the final report of the Wheatley Review of LIBOR, which was issued
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“The FCA’s powers to regulate capital markets activities have been significantly expanded as compared to its predecessor to meet these strategic objectives.” in 2012 amidst increasing concerns about the accuracy and reliability of benchmarks, such as LIBOR. As a result of these changes, benchmarking activities are regulated activities under FSMA and intended to fall within the market abuse regime of FSMA. The FCA inherited the FSA’s responsibilities for the market abuse regime under FSMA, and retains the power to prosecute the following criminal offences: • “misleading statements”, or making a statement which is knowingly or recklessly materially false or misleading, or dishonestly concealing a material fact, to induce investment activity; • “misleading impressions”, or any intentional or reckless act to create a false or misleading impression of the market in or price or value of an investment to induce investment activity and/ or the making of an economic gain or the causing of an economic loss; and • “misleading statements and impressions relating to benchmarks”, or making a statement or impression which is knowingly or recklessly false or misleading in connection with setting a benchmark. The offence of “misleading statements” substantively restates the offence in effect prior to the Act, and the offence of “misleading impressions” broadens the offence in effect prior to the Act by including reckless as well as intentional acts. For example, a statement or impression which is likely to induce a shareholder to sell its shares could constitute a criminal offence if the person making the statement was reckless as to whether the statement was misleading, false or deceptive. The “misleading statements and impressions relating to benchmarks” offence is a new criminal offence which did not exist prior to the Act. All three criminal offences may be punishable by imprisonment of up to seven years or fines up to the statutory maximum. The Act’s Misleading Statements Order clarifies which investments, activities and benchmarks fall under the new criminal offences, and the FMSA’s Regulated Activities Amendment Order
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affirms that providing information in relation to a specified benchmark and administering a specified benchmark constitute regulated activities. In addition, the FCA issued the new handbook General Guidance on Benchmark Submission and Administration, which includes new rules for entities carrying on benchmark related regulated activities. Although the orders specify that currently the only regulated benchmark is LIBOR, the FCA has the authority to regulate other benchmarks as well. For example, the FCA could adopt similar provisions for benchmarks for the energy or commodity markets. Conclusion The new financial regulatory framework is intended to increase the reliability and stability of the UK financial markets, and the Act balances the need to protect a broadening definition of financial consumers, to increase effective competition, and to enhance the integrity of the financial markets. The FCA’s powers to regulate capital markets activities have been significantly expanded as compared to its predecessor to meet these strategic objectives, and the new regulatory authorities will need to continue to work with market participants to ensure that the new regime is practical and effective. i
ABOUT THE AUTHOR Edward Bibko is a partner in Baker & McKenzie’s International Capital Markets Group based in London. He joined Baker & McKenzie’s London office in February 2001. Prior to joining Baker & McKenzie, Edward practiced in New York and Chicago law firms and worked as a financial analyst for IBM. Edward is ranked as a leading capital markets practitioner in Chambers Global 2009 and currently serves as a member of the Firm’s International Capital Markets Group. Mr Bibko specialises in international equity and debt capital markets transactions. He received a doctorate from Syracuse University. ABOUT BAKER & McKENZIE Baker & McKenzie is the world’s leading law firm, with 3,750 lawyers who “speak” 75 languages in 71 offices worldwide. The company had $2.27 billion in revenue in 2011.