FCA issues Policy Statement on Market Abuse Regulation
The Financial Conduct Authority (FCA) has issued a Policy Statement containing feedback on consultation paper CP15/35, which dealt with the headline implementation of the EU Market Abuse Regulation (2014/596/EU) (MAR), and on CP15/38, which dealt with provisions in the FCA Handbook relating to the delay of disclosure of inside information to the market. The Policy Statement is accompanied by an Instrument which contains final rules.
By way of background, MAR comes into force on 3 July 2016 and will have a significant impact on both listed and AIM-quoted issuers. This briefing highlights the FCA's approach and responses dealing with those issues of significance to them.
In general terms, many of the key questions or concerns that respondents had raised in relation to the implementation of MAR in the UK, as noted in the consultation paper or in responses to it, have either remained unanswered or have not been resolved. This appears to be for the reason that, notwithstanding its status as the "competent authority" for MAR in the UK, the FCA does not believe it has the authority to comment on such matters, either at all or at least until the European Securities and Markets Authority (EMSA) has provided further commentary itself. Whether that guidance or commentary is forthcoming prior to the implementation of MAR remains to be seen.
Feedback on "general issues" raised by respondents
Copying out MAR and related guidance into the FCA Handbook
The FCA continues to believe that the risk of misinterpretation outweighs the convenience of "copying out" provisions of MAR, implementing technical standards and delegated measures (Level 2 texts) or ESMA guidance. Therefore, the FCA Handbook will not become the single reference point for the regime that many had asked for.
Signposting where the "new" rules are to be found
The FCA will "signpost" where a provision in the current Handbook is replaced by a provision in MAR and proposes to do so in relation to Level 2 texts but only when they have been issued in final form; the FCA will not do so in relation to draft Level 2 texts which means that further changes to the Handbook will be required in due course. Embedding hyperlinks in signposts is not currently possible for technological reasons but the FCA will continue to investigate the technology that may become available to allow for this.
Issues in relation to which the FCA had discretion on implementation
Written explanations of delayed disclosure
In circumstances where an issuer can legitimately delay the disclosure of inside information, a full written explanation of the delay need only be provided should the FCA request it. Issuers will still need to inform the FCA in all circumstances if an announcement is made which contains inside information the disclosure of which has been delayed, indicating, among other matters, the identity of the person(s) responsible for the decision to delay and the precise time and date when that decision was made. The FCA will indicate on its website in due course the electronic means to submit this information.
Notification thresholds for PDMR / PCA transactions
The threshold above which transactions by persons discharging managerial responsibilities (PDMRs) and those persons closely associated (PCA) with them must be disclosed will be set at €5,000 and not €20,000. ESMA is currently considering the issue of currency conversions. The FCA also states that issuers may, on a voluntary basis, disclose all transactions regardless of the threshold.
Feedback on other areas of change to the FCA Handbook
Legitimate interests to delay disclosure of inside information and CP15/38.
Pending finalisation of the ESMA Guidelines on this area (which Guidelines the FCA believes will be likely to require further amendment to DTR 2), the FCA will not amend DTR 2.5.5G as proposed in CP15/38 for the time being. Issuers therefore, must wait for the revised guidance on when the disclosure of inside information can be delayed legitimately.
The FCA still proposes to delete DTR 2.8.8G which currently states that an issuer need not maintain a list of all individuals working for a third party on its behalf where it records the name of the principal contact at the third party and has put in place effective (usually contractual) arrangements for the third party to maintain its own list and provide it to the issuer as soon as possible on request. Whether it will publish guidance indicating that such practice remains acceptable remains to be seen. The FCA accepts that in due course further guidance from ESMA or the FCA might be required as to the responsibility for maintaining insider lists for the advisers (e.g. lawyers) of advisers to an issuer (e.g. financial advisers).
Disclosure of PDMR / PCA dealings using the prescribed form
When disclosing transactions, PDMRs / PCA must use the template contained in the EC Regulations (EU 2016/523). While the FCA does not consider it appropriate to provide guidance on these disclosures, it does allude to the possibility of UK versions of the template being produced and published on the FCA's website at some point. However, it has not, at this stage, given guidance on the form in which an issuer should notify transactions of PDMRs / PCA which take place in the week before 3 July but are only notified to the issuer after that date.
Share dealing codes for PDMRs, PCAs or other persons
The FCA's proposals in CP15/35 (set out in our April briefing) were met with considerable negative feedback largely focused on the complexity of the regime it would create; as a consequence, they have been dropped. As the FCA continues to believe the Model Code (as annexed to the Listing Rules and currently applicable to companies listed on the LSE's main market) is incompatible with MAR, it will be deleted together with all associated current rules and guidance. Thus, it will be for issuers listed on the main market to decide whether to put in place a code of share dealing and, if so, subject to compliance with MAR (as a minimum), what that code should say. We think it very unlikely, however, that many (if any) main market listed companies will cease to adopt a code of dealings after MAR becomes effective. As set out below, the LSE is proposing to require AIM companies to adopt a code of share dealing in any event.
Perhaps given the compelling reasons for such a code, the FCA notes the suggestion of an "industry-led" development of "codes or best practice" in this area and states that it would support such an initiative.
Issues considered to be outside of the scope of the consultations
The FCA notes that it received a considerable feedback on areas which it felt were outside of the scope of its consultations. Whilst the FCA states that it is considering the appropriate approach for each of them, it is not certain if, nor when, it will provide any guidance. This means that, in addition to those mentioned above, those significant issues which remain outstanding include:
- Whether issuing a preliminary announcement of annual results ends a closed period; and
- Whether buyback programmes which operate outside of the MAR safe harbour will be considered to be abusive.
The full list of outstanding issues it set out in section 4 of the Policy Statement.
Revised Handbook provisions will come into force on 3 July 2016 at the same time as MAR will apply. However, as previously mentioned, certain Level 2 texts and ESMA Guidelines are yet to be finalised, therefore the FCA may make further amendments to its Handbook at that time.
London Stock Exchange publishes further guidance on MAR implementation
The LSE has also published a further edition of its "Inside AIM" magazine which focuses on preparation for the implementation of MAR. This builds on the consultation it launched last month in AIM Notice 44 - you can find our summary here.
AIM Rule 11
The LSE highlights the need for an AIM company to consider its market disclosure obligations under AIM Rule 11 and Article 17 of MAR separately on the basis that "inside information" under MAR has a technical definition whereas consideration of AIM Rule 11 by an AIM company (with the guidance of its Nomad) is principles based. Thus, separate disclosure tests must be complied with.
The LSE reiterates its statement in AIM Notice 44 that compliance with one set of rules does not necessarily equate to compliance with both. It also states that it does not expect a different approach by AIM companies and Nomads to compliance with AIM Rule 11 post MAR implementation.
Failure by an AIM company to comply with Rule 11 or to seek the advice and guidance of its Nomad (and take that guidance into account) pursuant to AIM Rule 31, will be regarded by the LSE as a serious breach of the AIM Rules
Further detail on how the LSE will work with the FCA is also given. Effective real time monitoring and management of the market will continue to be undertaken by the LSE, which means that where there is doubt as to whether an AIM company should make a disclosure, the LSE will liaise with the company's Nomad regarding its AIM Rules obligations and provide information to the FCA if relevant to a company's MAR compliance. It is, of course, open to the FCA to consider an AIM company's compliance with MAR at any time.
As set out in the consultation accompanying AIM Notice 44, the LSE intends to delete from the AIM Rules the duplicative notification requirements for PDMR transactions. The LSE also proposes to amend AIM Rule 21 to require all AIM companies to have a dealing policy and require Nomads to consider this obligation as part of their responsibilities.
While the LSE does not intend to prescribe the content of the dealing policy, proposed AIM Rule 21 lays down minimum provisions the LSE would expect to be included. The LSE again underlines the fact that compliance with the AIM Rules on this issue will be separate to an AIM company's MAR compliance.
The implementation of MAR will mean that all AIM companies will be required to create and maintain insider lists of all those persons working for them or on their account that have access to inside information. More detail on this, and all other issues mentioned above, can be found in the overview of MAR we published in April.
MAR includes a dispensation for issuers on "SME Growth Markets" to draw up insider lists only on request by the FCA. As the SME Growth Market regime will not apply until MiFID II is implemented in January 2018, the LSE confirms that AIM does not qualify for this dispensation and therefore AIM companies will need to comply in full with the requirements of MAR on this issue.
Addleshaw Goddard LLP Company Secretaries' Forums focusing on MAR
We will, of course, provide further updates, if and when appropriate. In the meantime, we will be holding Company Secretaries' Forums focused on MAR in each of our UK offices as follows:
- London on 10 May 2016, with a 9.00am start
- Manchester on 26 May 2016, with a 9.00am start Leeds on 26 May 2016, with a 5.00pm start
If you would like to join us, please email Sophie Jennings, indicating which Forum you wish to attend.