FCA: Primary Market Bulletin No. 23 – Guidance on periodic financial information and inside information finalised
On April 16, 2019, the Financial Conduct Authority (FCA) published its latest Primary Market Bulletin. This is accompanied by a finalised, updated version of the FCA technical note on periodic financial information and inside information (FCA/TN/506.2) which forms part of the UKLA Knowledge Base. This follows a consultation launched in June 2018 (in Primary Market Bulletin 19) on proposed updates to the relevant technical note.
The only material change made to the draft version of the technical note consulted on in June 2018 is to make it clear that to delay disclosing inside information in line with Article 17 of the Market Abuse Regulation, an issuer must be able to ensure the confidentiality of the information in question.
As part of the consultation, the FCA received suggestions for amendments to the technical note but these have not been incorporated as they could soften or contradict the key messages the FCA wants to communicate to the market.
In the Primary Market Bulletin the FCA makes the following points
- The FCA believes that the assessment of the nature of information held by an issuer (and, when the delay provision is used, the extent to which the conditions permitting delay continue to be fulfilled) should be undertaken on an ongoing basis. As a situation evolves, the facts of that situation change so issuers should assess and reassess as the situation requires. However, the FCA does not mandate who should conduct this assessment and a board or disclosure committee will not necessarily be the best or only body which can take these decisions. The FCA will expect individuals at other levels, including in the first line, to be well-trained enough to recognise when information may become inside information, and to be able to act accordingly.
- The FCA is clear that financial results could (rather than should) constitute inside information, but equally they could not. It is for issuers to assess whether this is the case, on an ongoing and case-by-case basis.
- The technical note states that it is not appropriate for issuers to take a blanket approach to the status of the information they hold and that issuers should not consider that information to be included in periodic financial reports will “always” or “never” constitute inside information. One respondent to the consultation suggested that the word “never” be deleted but the FCA has not done this because it is in line with its thoughts that information to be included in a periodic financial report “could” constitute inside information, and it avoids any suggestion that the FCA might accept an issuer concluding that such information could “never” constitute inside information.
- The technical note includes an example of when immediate disclosure of inside information might be likely to prejudice the legitimate interests of an issuer. This is where the issuer is in the process of preparing a periodic financial report and immediate public disclosure of information to be included in that report would impact on the orderly production and release of the report and could result in the incorrect assessment of the information by the public. Some respondents to the consultation suggested that the word “would” should be softened and replaced with “could” or “would be likely to”, as they said it would be difficult for issuers to determine with sufficient certainty that disclosure of inside information “would” have an impact on the orderly production and release of a report. The FCA is not making this change as they believe it would set the bar for use of the legitimate interest at too low a level. Delaying disclosure of inside information should be the exception rather than the rule.
- The technical note states that “In many cases, an issuer will be able to carefully and appropriately draft an announcement that will enable the correct assessment of the inside information by the public”. One respondent disagreed with this so the FCA reconsidered the message it was conveying. While the FCA accepts that there will be circumstances where, practically, it would be very difficult for an issuer to formulate an announcement that does not risk misleading the market, so the issuer would be justified in delaying disclosure of the information, such a situation should not be regarding as the default, or even a common situation. Delay in disclosure should be the exception rather than the rule. The FCA believes that, in most cases, if an announcement is skilfully drafted with appropriate care and attention, it is unlikely to result in the incorrect assessment of the information by the public.
In the Primary Market Bulletin, the FCA also (amongst other things) provides an update on implementation of the EU Prospectus Regulation which is due to come into full effect on July 21, 2019. From the end of April 2019 onwards, the FCA will be able to receive prospectuses and other Prospectus Regulation documents intended for approval on or after July 21, 2019 for review. These reviews will be conducted under the new Prospectus Regulation but the FCA will continue to review documents under the existing regime where approval is scheduled for before July 21, 2019.
(FCA, Primary Market Bulletin No. 23, 16.04.2019)
(Periodic financial information and inside information, FCA/TN/506.2, 04.04.2019)
Lungowe v Vedanta – UK Supreme Court clarifies issues on parent company liability
A landmark judgment from the UK Supreme Court means that the claim brought by 1,826 Zambian villagers against UK-based Vedanta and its Zambian subsidiary, KCM, can proceed to a trial of the substantive issues in the English courts. One of the issues that now falls to be examined is the controversial question of whether a parent company can be liable for the operations of its subsidiary in the English courts. This briefing explains the background to the case, a summary of the Supreme Court’s reasoning and an explanation of what this decision means for UK companies with international operations.
HM Treasury: Consultation on transposition of the Fifth Money Laundering Directive
On April 15, 2019 HM Treasury published a consultation document inviting views and evidence on the steps that the Government proposes to take to meet the UK’s obligation to transpose the Fifth Money Laundering Directive ((EU) 2018/843) (5MLD) into national law. Implementation is needed by January 10, 2020. 5MLD amends the Fourth Money Laundering Directive (4MLD) to further strengthen transparency and counter-terrorist provisions.
Proposals in the consultation paper include the following
- Chapter 5 looks at new obligations imposed on regulated businesses (obliged entities) to verify the identities of their customers and beneficial owners before establishing a business relationship or carrying out a transaction. 5MLD requires that whenever an obliged entity enters into a new business relationship with a company or trust that is subject to beneficial ownership registration requirements, they must collect either proof of registration on this register or an excerpt of the register. The Government proposes to put the onus on the trust or company to provide proof of registration to an obliged entity and it notes that for companies, the Companies House register is public, so the obliged entity can obtain the information direct if it wishes rather than through the company.
- Chapter 8 considers mechanisms to report discrepancies in beneficial ownership information. Article 30 of 4MLD requires member states to ensure that corporate and other legal entities incorporated within their territory obtain and hold information on their beneficial owners and that information is required to be adequate, accurate and current. This requirement is met in the UK through the publicly accessible Register of People with Significant Control (PSC) held at Companies House. Most of the amendments made to Article 30 of 4MLD by 5MLD are already met by the UK regime but the principal amendment with which the UK does not currently comply is the requirement that “mechanisms” are put in place to ensure that the information held on the central register is adequate, accurate and current. Mechanisms are not specified, but must include a requirement that obliged entities and, where appropriate, competent authorities (such as relevant law enforcement agencies) report any discrepancies they find between the beneficial ownership information available to them and the beneficial ownership information available in the central register. The Government proposes that obliged entities and competent authorities should be required to inform Companies House of any discrepancies between the beneficial ownership information they hold, and information held on the public register at Companies House. Companies House would then investigate the reported discrepancy, usually by contacting the company to bring the issue to their attention and asking the company to amend the date on the register or reconfirm that it is accurate.
Responses to the consultation are requested by June 10, 2019.
(HM Treasury, Consultation on transposition of the Fifth Money Laundering Directive, 15.04.2019)