European Union: Exemptions from Financial Reporting Aspects of the EU Transparency Directive

Last Updated: November 4 2010
Article by Catherine Moss and John Burnand

This Bulletin is of direct relevance to public companies having registered offices in Canada, listing or intending to list their securities on a UK regulated market.  These include the Main Market of the London Stock Exchange and the PLUS-Listed Market1 but do not include AIM or the PLUS-Quoted Market (except in relation to DTR 5).

The Starting Point

The EU Transparency Directive 2004 (Directive) imposes certain content and timing requirements for financial reports on issuers of securities on regulated markets within the European Economic Area (EEA) (whether or not such issuers are themselves located in the EEA) and the UK Financial Services Authority (FSA) has implemented the Directive for UK regulated markets by introducing the Disclosure and Transparency Rules (DTRs). 

Exemptions for Financial Reporting for Non-EEA Issuers

The FSA, however, has the power to exempt issuers whose registered offices are in states outside the EEA from the DTRs where it considers the laws of the relevant state to be equivalent to the requirements imposed by the DTRs.

On 4 October 2010, the FSA announced that it was satisfied that the periodic disclosure requirements in Canadian National Instruments NI 51-102, NI 52-107 and NI 52-109 and the rules governing financial reporting for issuers of securities in Canada made pursuant to such Instruments (Canadian Legislation) to be equivalent to the provisions of DTR 4.1 (Annual financial report), DTR 4.2 (Half-yearly financial reports) and DTR 4.3 (Interim management statements).  

DTR 4.1 - Annual financial report - requires issuers to publish an annual report within four months of the end of the financial year including audited financial statements, a management report and responsibility statements similar to the CEO and CFO responsibility statements required under the US Sarbanes Oxley Act 2002.

DTR 4.2 - Half-yearly financial reports - requires issuers to release a half yearly report within two months of the end of the first six month period of the financial year containing a condensed set of financial statements, an interim management report and responsibility statements similar to the CEO and CFO responsibility statements required under the US Sarbanes Oxley Act 2002 including  details of any important events in the relevant period, the principal risks and uncertainties for the remaining six months details of any related party transactions.  Issuers of convertible securities and depositary receipts are not required to comply with these rules.

DTR 4.3 - Interim management statement - requires issuers to release a interim management statements during the first six month period of any financial year and also during the second six month period describing the issuer's financial position and performance and explaining any material events and transactions..  Issuers of convertible securities and depositary receipts are not required to comply with these rules.

This follows recent changes to the Canadian Legislation arising from the imminent changeover to the International Financial Reporting Standards which for most publicly accountable Canadian companies will come into force on 1 January 2011.

Therefore, issuers of securities admitted to trading on a UK regulated market whose registered office is in Canada and who are subject to the Canadian Legislation will be exempt from DTRs 4.1, 4.2 and 4.3.

However, Canadian issuers which are exempt from the Canadian Legislation will not be considered to be subject to those provisions and so will not be exempt from the DTRs referred to in this Bulletin.  Also this exemption does not exempt the issuer from the provisions of DTR 4.1.7(4) which require it to ensure that its auditor is a statutory auditor recognised in accordance with UK law or an "EEA auditor" (approved by a competent authority in the EEA) or a "third country auditor" (non EEA auditors on an approved register held by the competent authority in the UK).

Major Shareholding Exemptions Under DTR 5

DTR 5 requires a person to notify a company whose shares are listed on a regulated market (such as the Main Market of the London Stock Exchange) or AIM and the PLUS-Quoted Market as soon as possible if, as a result either of an acquisition or a disposal of shares, the percentage of voting rights he holds or over which he has control reaches, exceeds or falls below certain thresholds (which for non UK issuers are 5%, 10%, 15%, 20%, 30%, 50% and 75%) and requires the company as soon as possible after receipt of this notification to disclose this information to the wider market.  At the moment, the only Canadian companies who are exempt from the major shareholder reporting requirements under DTR 5 are:



1.  They also include ICE Futures Europe, NYSE Euronext London, The London International Financial Futures and Options Exchange and the London Metal Exchange.

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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