UK MAR: Navigating disclosure obligations in uncertain markets

Introduction

In the current geopolitical climate, with the imposition of tariffs and associated macroeconomic uncertainty, publicly traded companies across sectors will need to consider the potential impact on their business in the context of their ongoing disclosure obligations. This briefing focuses on some of the key areas that companies with shares admitted to the Main Market or AIM¹ should keep in mind when assessing whether they may be in possession of inside information and in complying with their obligation to disclose such information to the market as soon as possible under the UK Market Abuse Regulation (MAR).

Assessing whether the company has inside information

Notwithstanding that there may be a large quantity of publicly available information around particular market-impacting events, with developments well covered in the press and elsewhere, directors will still need to turn their minds on a regular basis to whether they have knowledge regarding the particular impact of such events and developments on the company’s business and outlook which could, under MAR, amount to inside information.

In this context, it will be key to consider what information the company has which is not already in the market and whether, taking into account other information already publicly available, this is sufficiently material to meet the definition. There is likely to be particular focus on whether the information is of “precise” nature and whether the “reasonable investor” test is satisfied.² In some cases it may be that the company concludes that it does not currently have inside information as the rapidly evolving nature of the situation means it is not yet able to properly assess the impact on its business - although directors should keep in mind that the definition of inside information sets the bar at a relatively low level and that they need to consider current circumstances as well as the likelihood of future developments and whether any information about potential impact already meets the test notwithstanding that the outcome is uncertain.

Some other key areas for boards to consider when assessing whether the company may be in possession of inside information include:

• Whether there has been a material change in the financial position of the business or a material impact on its prospects which means the market needs to be updated (e.g. to correct forward-looking guidance that may have been released or consensus investor expectation - for example where it is anticipated this may result in missing forecast earnings, revenue or related KPIs).
• Any material change in strategy or business plans compared to information the company has previously indicated to the market/market expectations.
• Any temporary operational steps being taken to mitigate the impact on the business and whether these could, of themselves, amount to inside information requiring disclosure. In this context directors should bear in mind FCA guidance that justifying non-disclosure of information by offsetting positive and negative news is not acceptable³ and that internal optimism as to the ability of the company to get back on track may be insufficient to justify non-disclosure.
• Whether there is any other specific impact on the business that would be relevant to investors when making their investment decisions.

Directors will need to consider not only the direct impact of any imposition of tariffs on the company, but also the wider context and implications – for example, associated exchange rate changes, the potential impact on supply chains, any default under/termination of material contracts etc. Considering the fact specific and potentially complex nature of the definition of inside information, companies should be prepared to seek and record input from their external advisers in any cases of doubt. Given the fast-moving and unpredictable nature of current events, continued monitoring of the position in the context of ongoing developments will also be key.

Announcement and delay

If the company determines that it is in possession of inside information, this must generally be disclosed to the market as soon as possible. In this context, it is worth noting that “as soon as possible” does not necessarily require an immediate announcement. The FCA has previously indicated that, in its view, MAR permits a short period of time between inside information coming into existence and a public announcement having to be made, in order for preparations for the announcement to be made and to avoid disclosing information which would lead to the public making incorrect or incomplete assessments of the information disclosed.⁴ Companies are also under a general obligation to take reasonable care to ensure that information they do announce is not false or misleading and does not omit anything likely to affect its import.⁵ That said, boards should keep in mind that (in the context of any subsequent investigation or enquiries) the FCA will have the benefit of hindsight in assessing the situation and may take the view that a suitable announcement could have been made at an earlier stage.

Where inside information is not announced as soon as possible, this will constitute a breach of MAR unless the conditions for delayed disclosure are satisfied.⁶ Those conditions are fairly limited and it would generally seem unlikely that the disruption caused by the current macroeconomic environment in and of itself could be relied upon to justify delay. However, each case will of course need to be considered on a fact specific basis in light of the issuer and circumstances concerned (and, as mentioned, the level of uncertainty may also be relevant in the context of assessing whether inside information has in fact arisen).

Key areas directors should keep in mind in the context of any proposed delay in disclosure include:

• Guidance on when an issuer is likely to have a legitimate interest in delay – non-exhaustive examples are set out in the guidelines on delay in the disclosure of inside information and, in the context of periodic financial information, in FCA Technical Note 506.2.⁷
• Guidance on when delay would be likely to mislead the public – again, a non-exhaustive list is set out in the guidelines on delay. These include situations where a company has made previous statements/given signals that have created market expectations and it delays disclosure of information that is materially different from those statements/in contrast to those expectations.⁸
• The FCA does not expect issuers to delay public disclosure of the fact they are in financial difficulty or of their worsening financial condition, even where it may be legitimate to delay disclosure of negotiations to deal with such a situation.⁹

If it is determined that delayed disclosure is permitted, the situation should be monitored to ensure that an immediate announcement can be made if circumstances change (for example, because of further developments or in the event of an actual or likely breach of confidence). Other FCA guidance on delaying disclosure should also be kept in mind¹⁰ and appropriate draft holding announcements prepared.

Practical considerations

Given the rapidly evolving nature of current circumstances, in many cases assessing whether disclosure is required is likely to involve finely balanced judgments and the position may not always be clear cut. As a result, it is important for companies to ensure that the board is properly briefed on the requirements of MAR and engages with external advisers where appropriate. Keeping appropriate internal records of information available/considered and decisions taken is also critical. In the event of any regulatory investigation or enquiry, one of the first things that the FCA is likely to request is a detailed timeline or chronology of discussions, actions and decisions. Boards will find it easier to reconstruct and explain their approach, and show that a proper process was followed, where contemporaneous records have been kept. Where a decision is ultimately taken that disclosure is not required or can be delayed, arrangements should be put in place to monitor the situation - this is particularly relevant currently given the fast-moving nature of events.

Bear in mind that internal and external communications may be scrutinised after the event (including those on informal channels such as WhatsApp or Signal which may be best avoided in relation to sensitive corporate matters which should be the subject of more institutional, durable and accessible record-keeping). Any records of legally privileged communications, such as those concerning legal advice received, should be marked as such, kept confidential and protected from inadvertent circulation or disclosure. Legal advice should be sought before any such material is circulated internally or provided to a regulator or any other party.

It is important to note that disclosure of inside information should not be choreographed to coincide with a scheduled announcement.¹¹However, where a company has an upcoming announcement of this nature (for example annual or interim results or a regular trading update) the board will more generally need to take the current situation into account when formulating any statements around outlook, potential risks etc. and any new guidance proposed to be given to the market (for example in relation to financial performance or intended strategy). It should also be kept in mind that such forward-looking statements may impact the analysis around whether further announcement is needed to update the market if things change in the future.

Key takeaways

Some of the key practical points that should be kept in mind by companies and their boards include:

• Inside information: Careful consideration should be given on a rolling basis to whether inside information has arisen and (if so) whether delayed disclosure is permitted. In assessing whether inside information has arisen, consider what a reasonable investor would be likely to use as part of the basis of their investment decisions in the context of the current market environment and given information that is already publicly available. Remember that justifying non-disclosure of information by offsetting positive and negative news is not acceptable and internal optimism may not be sufficient justification for non-disclosure. Where an issue is under discussion, directors should think about whether (pending a conclusion being reached) it would be prudent to handle it as if it were inside information. Regular meetings to consider the position and related record-keeping may assist in demonstrating that a proper process was followed and in justifying decisions made.
• Delayed disclosure: When considering whether delayed disclosure is permitted, be mindful that this may be misleading where information is materially different from previous forecasts, guidance etc. announced to the market. Ensure that draft holding announcements are prepared and be particularly vigilant about potential leaks and rumours.
• Monitoring: Where a finely balanced decision is taken that inside information has not arisen, or where it is determined that disclosure can be delayed, ensure the situation is monitored and kept under review in light of any further developments.
• Communications and record keeping: Ensure that appropriate contemporaneous records are kept of consideration given to, and decisions taken around, disclosure and delayed disclosure and that any records of legally privileged communications are appropriately marked and segregated.  Remember all non-privileged communications (including those on informal channels such as WhatsApp) may be disclosable and that more formal records of key discussions and decisions should be retained centrally.
• Appropriate briefing of key individuals: Ensure the board is appropriately and thoroughly briefed on the requirements of MAR and their potential application in the current environment. Likewise ensure appropriate briefing of other individuals responsible for dealing with shareholders, the media, analysts or other third parties as well as those responsible for escalating financial and other relevant information to the board/disclosure committee.
• Internal dissemination of information: Ensure that access to any inside information is restricted to those who need it for the proper fulfilment of their role and consider (where appropriate) reaffirming that those who have access to inside information understand the duties and obligations that apply as a result. Where applicable, ensure there is a clear distinction (including in terms of list titles) between any confidential/restricted lists that do not relate to inside information and any insider lists under MAR.
• Selective disclosure: Where material information is intended to be selectively disclosed, or disclosed other than via RIS, carefully consider 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 including keeping in mind that confidentiality is not sufficient of itself to justify selective disclosure - there needs to be a proper reason for the disclosure and the disclosure needs to be proportionate in light of that reason.

Conclusion

The FCA will expect issuers to comply with their ongoing disclosure obligations notwithstanding uncertain market conditions and, in practical terms, will of course have the benefit of hindsight when deciding whether to take any enforcement action for perceived breaches. As such, companies and their boards need to ensure that the impact of current developments on the business is kept under review, relevant individuals are kept up-to-date in their understanding of the requirements of MAR, robust arrangements are in place for timely escalation, consideration and release of information to the market and the keeping of appropriate contemporaneous records, and external advice is sought in the case of any doubt.

How we can help

• Extensive experience of advising companies on complex disclosure issues under MAR and of advising on internal policies and procedures in this area.
• We regularly provide training (including refresher training) on this topic 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.