New FCA guidelines leave only two months to finalize changes to procedures and policies
The EU Market Abuse Regulation – which takes effect on July 3, 2016 – brings in a new set of rules affecting listed companies in the EU relating to disclosure of inside information, insider lists, senior managers’ dealings and market abuse. The new rules are similar to the existing ones for main market companies, but with some notable differences. In particular there are several new and prescriptive procedural requirements that will necessitate significant forward-planning. For companies quoted on the Alternative Investment Market, the impact will be even greater as some of the rules are completely new for them.
When must a listed company make an announcement?
- As before, inside information has to be disclosed to the market as soon as possible. A delay is allowed if it is to protect legitimate interests, such as ongoing negotiations, as long as the information can be kept confidential and the market isn’t misled.
- There is a low bar for determining whether something is inside information. The line can be crossed as a situation evolves or at a preliminary step of a protracted process.
- Don’t think in terms of price-sensitivity; think whether a reasonable investor would use this information when making investment decisions.
- Making the right call as to whether something is inside information is more important than ever because you need to record exactly when the potential inside information arose. If disclosure has been delayed, once it is finally announced the company has to tell the Financial Conduct Authority (FCA) the time and date of the decision to delay disclosure and who made that decision.
Who can you talk to?
- Insider dealing and disclosing inside information other than in the proper performance of your job will continue to be offenses. You should avoid sharing inside information except on a need-to-know basis with people who are subject to confidentiality restrictions.
- Sounding out investors before a deal may entail disclosure of inside information. Detailed notes should be kept and other procedures followed to ensure protection from the unlawful disclosure offense for market soundings.
Will we still have insider lists?
- Companies will have to keep an insider list with different sections for different events. Extensive data has to be recorded for each insider. If anyone has access to all inside information about the company, he or she may be put on a permanent insider section.
When can you deal in your company’s securities and who do you have to tell?
- Persons discharging managerial responsibilities (PDMRs), including the directors and any senior managers who have regular access to inside information and the power to take managerial decisions, can’t deal in a ‘closed period’, which is the 30-day period before financial results are announced.
- The Model Code disappears but companies may choose to have an internal process to require PDMRs to seek clearance before dealing. Companies are likely to adopt their own dealing codes.
- Clearance to deal won’t normally be given in a closed period or if the PDMR has inside information.
- Some companies may amend award timetables under share incentive plans to avoid closed periods.
- PDMRs and their closely associated people ‒ certain family members and entities controlled by PDMRs ‒ have to disclose any transactions in the company’s securities. This is broad and includes some dealings they had no say in (such as an inheritance or dealings by the trustee of a family trust). PDMRs have to give the company a list of their closely associated people and advise those people in writing of their disclosure obligations.
- The disclosure will need to be made to the FCA as well as to the company. The company will notify the market. All this must be done within three business days of the dealing.
The problem companies have been facing is that it has not been clear to date how a lot of these new rules will actually work in practice, so they have not been able to finalize changes to their procedures and policies. The FCA has now published the changes to its rules, giving companies just two months to update their compliance systems and train their staff.
‘Boards that think it will be business as usual when the new regime kicks in do so at their peril,’ comments James Wootton, a partner at Linklaters in London. ‘A top-down approach to implementing refreshed compliance procedures will be the key to avoiding sanctions from the regulator.’
This article was initially published by Linklaters
