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The Financial Services and Markets Act 2000 (Market Abuse) Regulations 2016
On June 30, 2016 the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2016 were published. The Regulations contain a number of amendments to the Financial Services and Markets Act 2000 (FSMA) and to other primary legislation to ensure compatibility with the Market Abuse Regulation (MAR). Draft Regulations were published in December 2015 and some amendments based on feedback received have been incorporated into the final Regulations.
The significant changes made by the Regulations include:
Part 1 of the Regulations deals with miscellaneous matters in respect of MAR. The Financial Conduct Authority (FCA) is designated as the UK’s competent authority for the purposes of MAR. Part 1 also describes how applications or notifications to the FCA under MAR are to be made and when explanations for delaying public disclosure of inside information must be provided to the FCA for the purposes of MAR. Part 1 (in conjunction with the Schedule to the Regulations) also implements Implementing Directive (EU) 2015/2392 on reporting of infringements.
Parts 2 and 3
Parts 2 and 3 of the Regulations amend UK law to make it compatible with and implement MAR (in particular there are substantial amendments to the UK market abuse regime under Parts 6 and 8 of the Financial Services and Markets Act 2000 (FSMA)). In FSMA the meaning of “person closely associated” in MAR is defined and a provision has been included which sets out how Articles 8.4 and 12.5 of MAR, which deal with individual liability for decisions by legal persons to participate in market abuse, are to be interpreted in the UK. The FCA is given new powers to police MAR, including powers to monitor the financial markets and gather information, require the publication of corrective statements and other information, and to suspend the trading of financial instruments. The FCA is also given enforcement powers in respect of contraventions of MAR, to allow it to impose financial penalties and other administrative sanctions such as prohibitions on trading in financial instruments or working in investment firms. The investigative and disciplinary powers in Parts 11 and 14 of FSMA and the powers relating to injunctions and restitution orders in Part 25 of FSMA are also updated so they apply for the purposes of MAR.
Part 4 of the Regulations requires the Treasury to review these Regulations every five years.
The Regulations will enter into force on July 3, 2016.
FCA: Market Abuse Regulation Instrument (No 2) 2016
On June 24, 2016 the Financial Conduct Authority (FCA) published the Market Abuse Regulation Instrument (No 2) 2016, which amends several modules of the FCA Handbook to implement requirements of the Market Abuse Regulation (MAR), including the Glossary of definitions, the Market Conduct sourcebook, and the Listing Rules sourcebook.
The majority of changes required by MAR were covered by the Market Abuse Regulation Instrument 2016 and the FCA’s policy statement on the implementation of MAR, PS16/13. This Instrument makes further consequential amendments to the modules, including:
- the definition of behaviour that does not amount to market abuse in the Market Conduct sourcebook;
- the rules on stabilisation in the Market Conduct sourcebook; and
- confirming in Listing Rules 5.6 and 14.3 that a listed company’s obligations as regards the disclosure and control of inside information will be set out in MAR (not in the DTRs) as of July 3, 2016, when MAR comes into force.
The Instrument comes into force on July 3, 2016.
FCA: Primary Market Bulletin No. 16
On June 30, 2016 the Financial Conduct Authority (FCA) published Primary Market Bulletin No. 16 focussing on the FCA’s consultation paper CP15/35 on the implementation of the Market Abuse Regulation (MAR).
Since the publication of CP15/35, the FCA has been reviewing its Knowledge Base and procedures in order to identify guidance or procedures that might be affected by the implementation of MAR. As a result, the FCA is proposing to amend 11 Technical Notes and delete three Technical Notes to reflect the changes being introduced by MAR. These relate to issues that will be addressed by MAR and include transactions conducted by persons discharging managerial responsibilities, management of inside information and share buy-back programmes conducted during a closed period.
The FCA lists the Technical Notes being deleted and amended in the Primary Market Bulletin and on a website, which includes links to blacklines of the proposed changes to the notes.
Many of the changes are amendments to citations and cross references. However, some are more substantive. The FCA notes that it is proposing to delete one paragraph from UKLA/TN/520.2 (Delaying disclosure/dealing with leaks and rumours) in light of Articles 7 and 17 of MAR. The paragraph refers to guidance for an issuer to publish interim announcements in relation to inside information and will now directly address delays in the disclosure of inside information. Additionally, following the implementation of MAR, the European Securities and Markets Authority (ESMA) will be publishing guidelines and Regulatory Technical Standards on when disclosure of inside information can be delayed, as well as a non-exhaustive indicative list of legitimate interests. Given the impending guidance from ESMA, DTR references have been deleted in the Technical Note. Once ESMA has published these guidelines and Regulatory Technical Standards, the FCA may reconsider whether it is appropriate to consult on additional Technical Notes.
In the Primary Market Bulletin the FCA reiterates its position on closed periods and preliminary results, noting that, pending clarification from the European Commission and ESMA, it will continue to take the view that where an issuer announces preliminary results the ‘closed period’, where dealing is prohibited, is immediately before the preliminary results are announced.
Additionally, following the amendment made to the definition of ‘issuer’ by the Transparency Directive Amending Directive, the FCA received feedback suggesting this changed the scope of the vote holder notification regime, and this regime will now apply to all global depository receipt (GDR) issuers. The FCA had proposed to amend Technical Note 541.2 on the scope and application of vote holder and issuer notification rules, but is still clarifying whether DTR 5 can be expected to apply to GDR issuers. However, given the feedback received, discussions are now taking place at a European level and the FCA will therefore postpone amendment of this Technical Note until it receives clarification on this issue.
European Commission: Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending MAR published in the Official Journal
On June 29, 2016 the European Commission published the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending, among other things, the Market Abuse Regulation (MAR) in the Official Journal.
Article 56 of the Benchmarks Regulation amends MAR as follows:
Article 19 (Managers’ transactions)
The Benchmarks Regulation adds a provision which creates exceptions to the Article 19 requirement for persons discharging managerial responsibilities (PDMRs) to notify the issuer of transactions in financial instruments linked to shares or to debt instruments. The exceptions include where the linked financial instrument is a unit or share in a collective investment undertaking in which the exposure to the issuer's shares or debt instruments does not exceed 20% of the assets held by the collective investment undertaking (CIU), where the linked financial instrument is a unit or share in a collective investment undertaking in which the exposure to the issuer's shares or debt instruments does not exceed 20% of the assets held by the CIU, and in relation to a linked financial instrument which is a unit or share in a CIU or which provides exposure to a portfolio of assets, where the person subject to the Article 19(1) obligation did not and could not know the investment composition or exposure of that CIU or portfolio of assets in relation to the issuer's shares or debt instruments, and furthermore there is no reason for that person to have believed that the issuer's shares or debt instruments exceeded the 20% threshold.
If information regarding the investment composition of the CIU or exposure to the portfolio of assets is available, then, under the amended Article 19, PDMRs must make all reasonable efforts to avail themselves of that information.
Article 19(7)(b) of MAR is amended so as to render it unnecessary to notify transactions in such a case where the manager of the CIU operates with full discretion. This means that the manager must receive no instructions or suggestions on portfolio composition directly or indirectly from investors.
Article 38 (Report)
Article 38 is amended to impose an obligation on the European Commission to submit a report to the European Parliament and the Council on the level of the 20% threshold referred to in the amended Article 19, with a view to assessing whether that level is appropriate or should be adjusted, by July 3, 2019.
Consequential amendments have also been made to Article 35 of MAR.
The Benchmarks Regulation came into force on June 30, 2016 and Article 56 amending MAR will apply from July 3, 2016 (with the rest of the Regulations applying from January 1, 2018).
(European Commission, Official Journal: Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014, 29.06.16)
European Commission: Delegated Regulation with regard to regulatory technical standards for the conditions applicable to buy-back programmes and stabilisation measures published in the Official Journal
On June 30, 2016 the European Commission published the Delegated Regulation supplementing the Market Abuse Regulation (MAR) with regard to regulatory technical standards for the conditions applicable to buy-back programmes and stabilisation measures in the Official Journal.
The Delegated Regulation is in substantially the same form as the draft published by the European Securities and Markets Authority (ESMA) in its Final Report on Draft Technical Standards under MAR. Regarding buy-back schemes, the Delegated Regulation covers disclosure and reporting obligations, conditions for trading, and trading restrictions. Regarding stabilisation measures, the Delegated Regulation covers conditions regarding the stabilisation period, disclosure and reporting obligations, price conditions, and conditions for ancillary stabilisation.
The Delegated Regulation came into force on July 1, 2016 and will apply from July 3, 2016.
(European Commission, Official Journal: Commission Delegated Regulation (EU) 2016/1052 of 8 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the conditions applicable to buy-back programmes and stabilisation measures (Text with EEA relevance), 30.06.16)
European Commission: Implementing Regulation with regard to public disclosure of inside information and for delaying the public disclosure of inside information published in the Official Journal
On June 30, 2016 the European Commission published the Implementing Regulation supplementing the Market Abuse Regulation (MAR) with regard to the technical means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information in the Official Journal.
The Implementing Regulation is in substantially the same form as the draft published by the European Securities and Markets Authority (ESMA) in its Final Report on Draft Technical Standards under MAR. The Implementing Regulation covers the means for public disclosure of inside information, posting of inside information on a website, the notification of delayed disclosure of inside information and a written explanation of the delay, and the notification of intention to delay the disclosure of inside information.
The Delegated Regulation came into force on July 1, 2016 and will apply from July 3, 2016.
(European Commission, Official Journal: Commission Implementing Regulation (EU) 2016/1055 of 29 June 2016 laying down implementing technical standards with regard to the technical means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information in accordance with Regulation (EU) No 596/2014 of the European Parliament and of the Council, 30.06.16)
FRC: Update to the discussion paper on improving the quality of reporting by smaller listed and AIM quoted companies
On June 30, 2016 the Financial Reporting Council (FRC) published an update to its June 2015 discussion paper on improving the quality of reporting by smaller listed and AIM quoted companies, which set out the FRC’s view of the underlying reasons for poorer quality reporting by some smaller listed and AIM quoted companies and put forward a range of proposals designed to help improve the quality of their reporting. This update provides an overview of the feedback to the discussion paper and an update on decisions and progress against the proposals in three key areas: reporting requirements and practices, audit practices and company governance and resources.
The FRC notes that the discussion paper was overall well received, with respondents being generally supportive of the findings and proposed actions.
Key points in the update include:
- Respondents urged the FRC against imposing additional compliance burdens on smaller quoted companies.
- There was broad support for the FRC to issue annual reminder letters targeted at smaller quoted companies as a way to encourage engagement and to highlight the areas of importance to investors. The FRC issued its first annual reminder letter in November 2015.
- Almost all respondents supported a single accounting framework for all quoted companies and agreed that IFRS was the right framework.
- There was considerable appetite for practical guidance for audit committees and for more focussed and practical support for preparers through training and continuing professional development regimes.
The FRC has made the following commitments for 2016/17:
- The FRC will continue to work with professional bodies to provide more focussed and practical training to finance staff.
- The FRC will engage further with the London Stock Exchange and the UK Listing Authority to identify opportunities for encouraging improvements in the quality of reporting.
- The FRC will develop practical guidance for audit committees on evaluating the adequacy of the finance function and process.
Financial Reporting Lab: Components of digital reporting
On June 28, 2016 the Financial Reporting Lab published an update on its project “Digital Future”. The Financial Reporting Lab notes that in its previous project, “Digital Present - Corporate Reporting in a Digital World”, investors considered that PDF worked well as a way of using technology in corporate reporting and provided the best mix of the digital and non-digital characteristics they desired.
The Financial Reporting Lab concluded that the use of PDFs provided the following characteristics:
- Clear level of assurance – Investors value the assurance that companies and auditors provide for the annual report. As such, investors want either the same degree of assurance over digital versions of the same content or clarity as to the extent and nature of assurance provided on the digital report.
- Defined period – Digital corporate reporting needs to communicate clearly the period which it covers and provide precise version control.
- Portable and accessible – Digital corporate reporting should be portable (downloadable), be freely available, and accessible across devices and operating systems.
- Timely – Digital corporate reporting needs to support rapid and wide dissemination on a timely basis.
- Bounded – Digital corporate reporting should allow the digital boundary to be clearly communicated, putting the information in an established context and enabling users to have a full understanding of scope and content.
- Searchable – Digital corporate reporting should facilitate the user's ability to locate the information that they desire quickly and easily.
The Financial Reporting Lab notes that its Digital Future project will build and expand upon these attributes to cover those desired by preparers of financial information, and consider information reported outside the annual report. It will also consider innovations in corporate reporting which will impact the future.
How will latest changes to Volcker Rule affect non-US banks?
Kathleen A. Scott discusses the final Volcker Rule, focusing on some of the issues raised by non-US banks in their comments.