In Primary Market Bulletin 42 (Bulletin) published in December, the FCA looks at a number of points in relation to the UK Market Abuse Regulation (UK MAR) that issuers and directors should be aware of.
This briefing covers the FCA’s discussion of areas that repeatedly crop up in enquiries by the Primary Market Oversight department (PMO) and which it considers to present a particular risk of unlawful disclosure of inside information as well as its comments on shareholder engagement and on written policies and procedures for handling inside information.
Other areas covered in the Bulletin in relation to UK MAR include: (a) an overview of some of the key issues arising from the FCA’s final notice in relation to Sir Christopher Gent regarding the selective disclosure of inside information to shareholders ahead of an announcement (for further information on this topic, see our October briefing Key takeaways in relation to the FCA's decision concerning Sir Christopher Gent); and (b) a discussion of the interaction between an issuer’s obligation to disclose inside information and certain aspects of the UK’s National Security and Investment Act.
Themes from enquiries into unlawful disclosure
The Bulletin identifies four areas (see below) which PMO concludes present a particular risk of unlawful disclosure. Unsurprisingly, these include interactions with the media/analysts and the dissemination of information through social media.
It also discusses some themes regarding the inside information/social media policies and procedures that have been provided to PMO in connection with its enquiries and notes that these vary in quality. Whilst some are cursory, many include lengthy reproductions of rules and guidance (which the FCA considers would be difficult for relevant individuals to digest and put in context). The Bulletin notes that the FCA has not seen a policy or procedure that puts the legal obligations of the issuer (and its employees/executives) in the context of its day-to-day activities and identifies practical situations and behaviours that create risk. Nor has it seen any social media policy that explicitly recognises the risk of unlawful disclosure through improper use of social media.
In this context, issuers should consider whether their written policies and procedures for handling inside information (and their social media policies) are adequate to address the risks identified in the Bulletin, and provide sufficiently relevant practical guidance, and should update and socialise them as necessary.
Use of social media
The FCA notes that PMO has opened numerous enquiries in recent years relating to suspected disclosure of inside information via social media – either through an issuer’s social media offerings or in direct communications between its executives and investors through open or private social media channels.
When issuers are developing their communication and social media offerings, they should remember that inside information must be disclosed via RIS and cannot be disclosed by social media alone. The PMB also includes a reminder that inside information cannot be disclosed in a manner which combines it with marketing material.
Sharing information with mainstream media outlets
Another area identified in the PMB where numerous enquiries have been opened (and indeed referred to enforcement) is suspected leaking by issuers of significant, and possibly inside, information to mainstream media outlets.
Issuers should consider very carefully whether information to be disclosed to the media is inside information, and the FCA notes that in its view such disclosures will rarely (if ever) be made in the normal exercise of an employment, a profession or duties. It also makes the point that, where a press article containing inside information is subsequently published, the FCA does not consider it to be a significant mitigant that the article was published outside market hours.
Numerous enquiries have also been opened into potential leaks of inside information in the context of issuers’ fundraising activities (placings etc.) – often in respect of smaller issuers and reported on bulletin boards, smaller media outlets or blogspots. Although it is often not possible for PMO to determine the source of such leaks, it is noted that in most instances it seems unlikely to be the issuer (whose fundraising may be damaged by it).
The FCA notes that issuers can protect themselves from such behaviours by putting in place tight systems and controls around fundraisings, restricting access to the information as far as possible, creating proper MAR-compliant insider lists (and insisting their advisers do the same) and following the market sounding procedures in UK MAR.
Analyst and media briefings
While executives will often be briefed before these types of events, the FCA notes that PMO continues to open enquiries into suspected unlawful disclosures by senior executives in analyst briefings, earning calls and media events. Troublesome disclosures have typically arisen where executives are unsure about the detail of the results being presented, speak unscripted or are drawn “off script” in Q&A.
The FCA reminds issuers that analysts are not “the public” (for the purposes of the requirement for inside information to be disclosed to the public) and that executives must be thoroughly prepared for market and media events to avoid selective disclosure of inside information to those in attendance.
The FCA notes that, following the publication of its final notice in relation to Sir Christopher Gent (Final Notice) it received feedback from a number of stakeholders raising concerns over a broader spectrum of engagement with listed companies than is covered by the facts of the case. One particular concern was the extent to which any kind of collective engagement by shareholders might be seen as being inconsistent with UK MAR.
The FCA is keen that the publication of the Final Notice (and its highlighting of other risk areas in the Bulletin) do not inhibit or stifle high quality engagement with shareholders. The intention is to provide this clarity to aid issuers, directors and shareholders in understanding the FCA’s concerns and rationale.
While the extent to which engagement between a company and its shareholders might contravene UK MAR will ultimately depend on the circumstances (such as the selective disclosure in Gent), the FCA notes that any analysis is likely to focus primarily on the nature of the information shared, and the rationale for doing so, rather than the number of shareholders involved in the discussion.
Conclusion and key takeaways for issuers
The themes highlighted by the FCA are unsurprising, but they serve as important reminder of areas in which to exercise particular vigilance in relation to disclosures. Among other things, they highlight the importance for issuers of:
- Ensuring their inside information related policies and procedures are tailored to their particular circumstances, put individuals’ obligations in context and provide practical guidance on areas of heightened risk with examples which are relevant to the business.
- Providing training (including refresher training) to relevant individuals as necessary on internal policies and procedures and on UK MAR.
- Appropriately and thoroughly briefing/preparing those individuals who may be in possession of inside information and responsible for dealing with the media, analysts and other third parties and stressing the importance of sticking to the agreed script/talking points.
- Where material information is intended to be selectively disclosed, or disclosed other than via RIS, carefully considering whether it could constitute inside information and (if so) whether disclosure in the manner proposed could amount to unlawful disclosure (taking advice where necessary). In this context, some of the issues discussed in our separate briefing Key takeaways in relation to the FCA's decision concerning Sir Christopher Gent are particularly pertinent.
- Ensuring that, where disclosure of inside information is being delayed (whether in the context of a fundraising or otherwise), the criteria for delay are met, the position is monitored/kept under review, and appropriate steps are being taken to minimise the risk of a leak.
- Keeping appropriate contemporaneous records regarding decision making on disclosures with a view to facilitating responses to any enquiries from the regulator, including separating and marking as privileged any communications with legal advisers where appropriate.
How we can help
- Extensive experience of advising companies on their obligations under UK MAR and on internal policies and procedures in this area.
- We regularly provide training (including refresher training) on disclosure of inside information to boards and disclosure committees.
- We also advise companies in relation to FCA enquiries, investigations and disciplinary matters, including in relation to disclosure issues and so we are well placed to provide input as to the FCA’s approach and expectations.