Austria: Financial Market Authority Tightens Insider Rules In New Compliance Regulation

On 31 January 2012, the Financial Market Authority (FMA) amended the compliance regulation (Amendment to the Emittenten-Compliance-Verordnung 2007, ECV 2007) introducing the concept of compliance-relevant information". The new concept not only includes inside information but also captures any information which may be "confidential and price-sensitive". By extending the scope of the EVC 2007, the FMA aims at ensuring that the compliance regime under the ECV 2007 kicks in at the earliest stage possible.

The ECV 2007 is a regulation issued by the FMA in its authority pursuant to Sec 82(6) and 48d(11) Austrian Stock Exchange Act ("BörseG") to define the basic principles of compliance-organization and monitor issuers' compliance with the insider rules under the BörseG. The ECV 2007 generally applies to issuers whose shares or share-like financial instruments are admitted to trading on a regulated market in the meaning of Sec 1(2) BörseG. Its objective is to foster the Austrian capital market by creating a level playing field for all market participants and raising awareness for insider problems at the corporate level.

In light of recent developments and its findings during on-site audits of issuers' compliance-organizations, the FMA has amended the ECV 2007 and published a "Circular on compliance rules pursuant to the Börsegesetz and the Emittenten-Compliance-Verordnung 2007" providing guidelines on the implementation of efficient and legally compliant compliance-organizations.

Amendment to the ECV 2007

The amendment to the ECV 2007 (BGBl. II Nr. 30/2012), which entered into force on 1 February 2012, introduces the concept of "compliance-relevant information". "Compliance-relevant information" is defined as any inside information or other information which is confidential and price-sensitive (vertraulich und kursrelevant). "Confidential and price-sensitive information" includes any non-public information which – if known to a reasonable investor – would be relevant for its decision whether to invest in the relevant financial instrument. "Confidential and price-sensitive information" does not need to meet the requirements of "inside information" set forth in Sec 48a(1)(1) BörseG, i.e. material price-sensitivity (erhebliche Kursrelevanz), sufficient probability (hinreichende Wahrscheinlichkeit) and reasonable certainty (Bestimmtheit) of the information.

According to the Circular, information is not confidential and price-sensitive if a reasonable investor – after thorough consideration of all circumstances – concludes that the respective information will not develop into inside information in the future.

By introducing the term "compliance-relevant information", the FMA significantly broadens the scope of the ECV 2007: The compliance-regime (e.g. the establishment of confidentiality areas, the rules on the handling of inside information and the dissemination thereof) which used to apply only in cases of "inside information" in the meaning of Sec 48a(1)(1) BörseG now already applies in cases of "confidential and price-sensitive information".

The FMA believes that capturing in the issuer's compliance process, at an early stage, any internal, non-public issuer activities with potential price relevance, will help raise issuers' sensitivity to insider rules under the BörseG and prevent violations thereof.

Circular on Compliance Rules

The Circular provides extensive information and practical guidelines of the FMA's interpretation on how to set up in-house compliance guidelines, how to structure compliance internally, and on the rights and duties of the compliance officer. Detailed information is provided on when and how confidentiality areas should be set up, and on the approach to be adopted when disclosing compliance-relevant information. Furthermore, the Circular provides guidelines under which circumstances blocking periods and trading bans are required and under which conditions exceptions can be granted. Finally, the FMA advises on the types of compliance training for employees to be carried out by issuers.

Measures To be Taken By Issuers

As a result of the amendment, issuers will now have to establish (permanent or project-related) confidentiality areas where employees are likely to have access not only to inside information but already in case they have access to any "confidential and price-sensitive information". Furthermore, also the rules on the handling of inside information (Sec 5 ECV 2007) and the dissemination thereof (Sec 6, 7 ECV 2007) will apply already to confidential and price-sensitive information.

Given its broad and rather vague term, issuers may find it difficult to distinguish confidential and price-sensitive information from non-relevant information. The Standard Compliance Code of the Austrian banking industry may, serve as a guideline, since the definition of "compliance-relevant information" appears to be based thereupon.

Nevertheless, issuers are well advised to establish confidentiality areas rather at an early stage of a transaction. An issuer's failure to comply with the ECV 2007 may result in administrative fines of up to EUR 30,000 pursuant to Sec 48(1)(2) and (6) BörseG and other sanctions such as, ultimately, revocation from admission to trading.

Going forward, advisors, in particular legal and financial advisors to M&A transactions, must pay special attention to the new compliance rules and advise clients on the establishment of confidentiality areas, sensitive handling of information and proper documentation (insider lists, acknowledgement of related obligations and sanctions etc) in case a contemplated transaction process could be considered confidential and price sensitive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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