The Swedish Financial Supervisory Authority, Finansinspektionen (FI), has signaled a recurring problem in connection to “wall-crossing,” leading to several cases being reported to the Swedish Economic Crime Authority (Ekobrottsmyndigheten) for insider trading suspicions.
FI is now calling for financial sector players’ compliance functions to step up and provide clarity around the regulatory requirements and expectations in order to ensure that regulations can be implemented as intended and that potential market distortion can be avoided.
The issue at hand
“Wall-crossing” is tied to “market sounding,” a practice regulated under the EU’s Market Abuse Regulation (MAR), that involves communicating information before the announcement of a transaction in order to gauge interest by potential investors.
With “wall-crossing,” as stated by FI, a potential investor or market participant is asked to receive insider information prior to transactions such as capital raising, acquisitions, or block transactions.
Upon consent, the investor/market participant is considered “over the wall” and as such is subject to confidentiality and insider information rules, including a trading ban tied to the financial instrument in question.
The problem that FI is pointing to is that during several market sounding cases, the information shared with the recipient has been structured in such a way that it was possible for the issuer or transaction to be identified even before the recipient has consented to the inside information. This can be seen as violation of applicable rules.
MAR documentation expectations apply
FI has clarified that the information disclosed before wall-crossing consent needs to be limited to what the MAR implementing rulebook explicitly allows – namely, that market sounding is occurring, the nature of the information that may be shared, and that prior explicit consent is required to receive the information in question.
Additional details such as industry, market impact, or transaction size should therefore not be shared either directly or indirectly if they enable the recipient to identify the issuer or the transaction before consenting.
Furthermore, FI has reminded about the documentation requirements tied to market sounding, including that as part of the supervisory activities, FI may request to review relevant documentation (such as recordings, insider or sounding lists) from the financial players under its supervision.
Latest EU sanctions landscape
MAR remains the regulation under which the highest number of administrative sanctions (377) were imposed during 2024, according to the latest ESMA Annual Sanctions Report. The total value of the administrative fines reached €45,507,168 ($45.5m).
As stated in the report, among the EU Member States, Sweden is only second to Italy and Germany by the number of imposed administrative fines and criminal sanctions under MAR, respectively.