UK: Tidying The Loose Ends

Last Updated: 13 July 2017
Article by Lorraine Young

One year on, it is important to ensure ongoing compliance with the Market Abuse Regulation

It is one year since the Market Abuse Regulation (MAR) came into force (3 July 2016). It all felt rather a rush, as much of the detail and final versions of the updated Disclosure Guidance and Transparency Rules and the AIM Rules came out close to the implementation date. Some of the guidance did not appear until the autumn.

Inside information

Although the definition of inside information is little changed under MAR, the fact that companies must record the time and date when inside information first exists means they are more likely to take advice on whether something is inside information.

In the pre-MAR world, it was clear when you did not have inside information and then there would come another point when it was clear you did, but it often felt that this change occurred over a transitional period rather than at a specific moment. As the rules settle and people become used to the new regime, the level of advice being sought may return to pre-MAR levels. However, if companies are more concerned about the regulatory environment, they may continue to want the reassurance of external advice.

One of the MAR requirements is for regulatory announcements containing inside information to state that they do. This will not apply to all announcements, for example, for persons discharging managerial responsibilities (PDMRs), not all PDMR dealing or large shareholder notifications will contain inside information. No doubt there could be a temptation to err on the side of caution and put the wording on all announcements, but, of course, if an announcement contains inside information, then the record-keeping requirements about keeping a note of the time and date the inside information first existed must be followed.

Delaying disclosure

The general rule is that inside information must be disclosed as soon as possible. If disclosure is delayed three conditions must be met:

  • Immediate disclosure is likely to prejudice the legitimate interests of the issuer
  • Delayed disclosure is unlikely to mislead the public
  • The issuer is able to ensure the confidentiality of the information.

In addition, certain information must be recorded, which the Financial Conduct Authority may ask to see:

  • When the decision was made to delay disclosure
  • The person responsible for the decision to delay
  • Evidence as to how the three conditions for delaying disclosure were met.

ESMA guidelines

The European Securities and Markets Authority (ESMA) guidelines on the delay in disclosure of inside information were published in October last year, taking effect from 20 December 2016. The guidance gives examples of reasons to delay disclosure, which include:

  • The issuer is conducting negotiations that could be jeopardised by immediate public disclosure. Examples include M&A transactions, purchases or disposals of major assets, restructurings and reorganisations.
  • When the financial viability of the issuer is in grave and imminent danger, although not within the scope of the applicable insolvency law, and where immediate public disclosure of the inside information would jeopardise the conclusion of negotiations to ensure financial recovery.
  • The inside information relates to matters decided by the management body which must be approved by another body of the issuer.
  • Intellectual property rights of a new product or invention could be threatened by immediate public disclosure.
  • The issuer is planning to buy or sell a major holding in another entity and the disclosure of the information would likely jeopardise the implementation of that plan.

Examples of when delay of disclosure is likely to mislead the public are where the inside information:

  • Is materially different from any previous announcement by the issuer about the matter
  • Concerns the fact that the issuer's financial objectives, which have previously been announced, are unlikely to be met
  • Is in contrast with market expectations, where such expectations are based on signals that the issuer has previously sent to the market, such as interviews or roadshows.

Even if an issuer considers that the inside information falls within one of the examples where delayed disclosure is permitted, advice should be sought.

This is all still a new area and although the rules and guidance are now in place, there are few examples to date of the regulator's view on their practical interpretation.

If there is a delay, there are two possible outcomes: the information will be announced or the situation will change and the inside information will cease to exist. If the information is announced, the FCA must simultaneously be notified privately that there was a delay in announcing the inside information. The fact of the delay does not need to be stated in the public announcement.

If the inside information ceases to exist because circumstances change, for example, if discussions on a deal fall through, there is no need for an announcement and no need to advise the FCA of a delay.

Those on the insider list should be advised that there is no longer inside information about the matter. However, it may be appropriate for them to be reminded that the matter should still be treated as confidential.

Insider lists

Insider lists have turned out as expected – in other words, the cause of more bureaucracy. There appear to be mixed views on 'permanent insiders', with some companies considering there are none, and preferring to set up project lists as necessary. In other cases, a small number of permanent insiders are identified.

PDMR dealings

The definitions of PDMRs and persons closely associated (PCAs) remained much the same as under the Disclosure and Transparency Rules – however, their use for AIM companies was new and in addition to the applicable employees and connected persons definitions.

ICSA and the GC100 issued a guidance note on MAR with a sample share dealing, which many companies adopted. This was particularly helpful as, although the Model Code was abolished, most main-market companies would probably prefer to retain a dealing code. AIM Rule 21 requires AIM companies to have a share dealing policy and sets out certain things which must be included.

There is a standard template document to announce PDMR dealings to the market and companies may often precede the table in this with a short paragraph setting out the key details to save readers having to plough through the MAR form. However, this form is useful as it contains all the information required to submit the notification to the FCA.

At the time of writing, the online submission form is unavailable, although there is a link on the FCA website to an alternative form which can be downloaded, completed and submitted by email. The website also gives details of the internet browsers required from July in order to submit the forms online.

Companies should now have in place a list of their PDMRs and PCAs. These should all have been sent the share dealing policy. PDMRs are supposed to advise their PCAs of the rules.

Since PCAs include children, this has resulted in questions about whether notification needs to be sent to those under a particular age. There is no minimum age specified, so however ridiculous it seems, in theory even the youngest infant should be told, which can be quite a communication challenge!

Closed periods

Under the AIM rules before MAR, the closed period in the run-up to the publication of a company's final results normally ended not when the results were released, as for the main market, but when the annual report was published.

For a short while it was uncertain what the position would be under MAR. However, this has now been clarified and the closed period ends when the results are released, provided that 'the preliminary financial results contain all the key information relating to the financial figures expected to be included in the year-end report'. This is a welcome and logical clarification.

Having done all the hard work of setting up procedures for MAR implementation, it is important to ensure ongoing compliance and good practice, and the board and any other relevant employees should be given a reminder of the rules and their obligations.

One year on would be a good time to do this as some of the loose ends have now been tidied up. Regular reminders allow the company to evidence it is taking compliance with the rules seriously if there are ever any enquiries by the regulator.

Lorraine Young is Company Secretarial Director at Shakespeare Martineau

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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