Sweden moves to regulate inside investor loophole in insurance contracts
Finansinspektionen (FI), the Swedish Financial Supervisory Authority, has moved to impose new rules on insurance contract-based investments that may facilitate insider dealing by regulated persons.
The issue involves capital insurance through depository-linked insurance. In this type of contract the insurance company rather than the insured owns any equity in the form of shares.
However, current rules mean that these assets, which regulated insiders oversee, are “hidden” from the market.
The loophole arises becuase current disclosure rules do not require those managing the assets as part of this type of contract to file their activities with the financial services regulator. In short, it could facilitate illegal insider dealing in shares.
The issue is considered so important that the government asked FI to look at what changes may be required in law.
“FI considers it important to increase the transparency of the stock market and improve the chances of discovering and combating market abuse,” the regulator said.
FI is proposing disclosure law be complemented with additional regulations that mean shares managed by insiders this way must be registered with the regulator.
It is estimated that in Sweden some 5,000 people are currently required to register their share dealings or related intererests with FI becasue of their insider status and access to market sensitive information about listed companies.
This is just the latest in a number of stock market related issues that FI has moved on, and which involve risks to equity fund investors.
In September, FI announced that it would investigate high frequency trading following complaints that it could facilitate market manipulation. The issue came to a head when local asset managers wrote an open letter to the government and regulator complaining that HFT strategies were being developed specifically to focus on fund investor flows with the objective of boosting volatility in the market.