On April 28, 2016, the UK Financial Conduct Authority (FCA) published Policy Statement 16/13 (the Policy Statement) on implementation of the Market Abuse Regulation (MAR). This includes its feedback on Consultation Paper 15/35 (CP 15/35), which set out proposals related to the implementation of MAR, and Consultation Paper 15/38 (CP 15/38), which proposed certain minor changes to the rules regarding delaying disclosure of inside information.
This briefing summarises some of the key aspects of PS 16/13 relevant to UK listed issuers – in particular in relation to the abolition of the Model Code, PDMR dealings, insider lists and disclosure of inside information to the market.
Abolition of the Model Code
In the Policy Statement, the FCA has confirmed that it intends to proceed with the abolition of the Model Code. However, following feedback received in relation to CP 15/35, it no longer intends to introduce a new requirement for premium listed companies to have effective systems and controls in place regarding the process for persons discharging managerial responsibilities (PDMRs) obtaining clearance to deal or to introduce the associated guidance previously proposed. In this context the FCA notes that it has come to the conclusion that introducing the provisions proposed in CP 15/35 would be unnecessarily onerous on issuers and PDMRs and would not provide the legal certainty needed by stakeholders.
The removal of additional restrictions on PDMR dealings (over and above those contained in MAR) from the Listing Rules has the benefit of clarity and simplicity. We agree that there was a risk (as noted by some of the respondents to the consultation) that the proposals in this area set out in CP 15/35 could have resulted in the introduction of a two-tier dealing code that could give rise to additional complexity for issuers without providing sufficient guidance as to what restrictions should apply to dealings outside of MAR closed periods. However, issuers will still need to consider whether and to what extent it is appropriate for them to restrict dealings outside of MAR closed periods - for example, during times when the issuer is in possession of unpublished inside information. We would anticipate that most companies will consider certain additional restrictions to be appropriate, which will inevitably result in two-tiered dealing codes to some degree. Although the revised proposals set out in the Policy Statement give individual issuers the flexibility to adopt different approaches depending on their specific circumstances, we would also expect a consensus to develop over time on what would represent best practice in this context. We note that the FCA has indicated that it would support the development of industry-led codes or best practice in this area, and it will be interesting to see whether this is taken forward by any industry bodies over the coming months.
Other provisions in relation to PDMR dealings
The FCA has confirmed that, as proposed in CP 15/35, it intends to adopt the default threshold of €5,000 per calendar year as the de minimis threshold below which PDMRs will not be required to disclose their transactions pursuant to Article 17 of MAR. It notes that this approach was supported by most respondents and that it has not received evidence of market conditions that would be sufficient justification for setting the threshold at the higher level of €20,000 (as permitted under MAR). The FCA also notes that issuers are able, on a voluntary basis, to continue to disclose all transactions (regardless of the €5,000 threshold) if they wish.
There are a number of areas relating to PDMR dealings where further clarification was requested by respondents to CP 15/35 – these included (amongst other things):
- how the MAR closed period requirements should be interpreted in relation to preliminary results announcements, voluntary quarterly reports and compulsory quarterly reports;
- the difference in scope of transactions that are notifiable under MAR and the scope of restrictions on transactions during MAR closed periods;
- whether clearance to deal is required under MAR for unilateral acts such as gifts and inheritances where the PDMR has no control;
- the exchange rate to be used to determine whether the €5,000 threshold has been reached;
- whether saving schemes/dividend reinvestment plans fall within the category of employee or savings schemes under MAR; and
- whether dealings that have taken place, but not been announced, prior to MAR coming into effect should be disclosed in accordance with the current regime or the new regime.
In the Policy Statement, the FCA notes that these (together with various other issues raised in the responses to CP 15/35) were not part of the original proposals in the consultation. It has not therefore provided a response on these points in the Policy Statement, although it notes that it is considering the appropriate approach and that where it considers it would be appropriate to address any of these matters with further guidance it will endeavour to bring this forward via either European level or domestic guidance.
It is also noted that the FCA will provide details on its website in due course of the forms to be used for disclosure of PDMR dealings.
It is unhelpful that uncertainty remains on the interpretation of a number of aspects of the new regime for PDMR dealings so close to the date on which MAR will come into effect. In particular, the impact of preliminary results announcements needs to be clarified as (depending on the position ultimately taken) this could have an impact on the approach issuers take to the production of prelims as well as on the timing of grants and awards under existing employee share incentive schemes. We would hope that clarification of the scope of PDMR transactions that are subject to notification requirements and closed period restrictions under MAR and, in particular, the treatment of transactions that take place during a closed period but over which a PDMR has no control, will also be addressed as a matter of priority as issuers will need clarity on these areas in order to be able to properly comply with MAR when it comes into effect.
Update: See also the subsequent statement by the FCA made in May 2016 setting out its approach to closed periods and preliminary results under MAR.
As with PDMR dealings, the Policy Statement notes that there are a number of areas in relation to the revised rules on insider lists where further clarification was requested by respondents to CP 15/35 – these include (amongst other things):
- the information to include for UK nationals in the "national identification number" column of insider lists;
- whether the acknowledgements required to be obtained from persons included on insider lists can be obtained in paper format and electronic means (including via click through acceptance of an email);
- what happens if a person refuses to communicate personal information;
- the issuer’s responsibility when another person acting on its behalf or account assumes the task of drawing up and updating the insider list; and
- confirmation that people with general access to inside information may be considered permanent insiders even if they do not have specific access to each piece of inside information.
As discussed above, the FCA has not provided a response on these points in the Policy Statement and is considering the appropriate approach.
The Policy Statement also notes that the FCA will provide information on its website in due course as to the electronic means for submission of insider lists.
Again, the fact that the various questions raised in this area in response to CP 15/35 remain outstanding at this stage is problematic for issuers and their advisers. Clarification of these details will be needed in order to determine certain of the practical implications of the new regime and for issuers to be able to ensure that their systems and controls are compliant.
Disclosure of inside information
In the Policy Statement, the FCA notes that the majority of respondents agreed with the proposal that, where disclosure of inside information to the market has been delayed, the issuer need only provide a written explanation of how the conditions for delay were met if this is requested by the FCA1. The FCA and HM Treasury are therefore proposing to proceed on this basis, and the FCA will indicate on its website in due course the electronic means for submitting information in respect of delayed disclosure.
With regard to the other changes to DTR 2, the FCA is also proceeding broadly as proposed in CP 15/35. In relation to the rules around delaying disclosure of inside information, the FCA notes that the ESMA Guidelines in this area have not yet been finalised and that it will reassess the status and continuance of DTR 2.5 in due course once there is more certainty on the content of the ESMA guidance2.
Further clarification was also requested by respondents to CP 15/35 on the approach to complying with certain requirements regarding the form in which issuers must notify inside information to the market – in particular, the approach to compliance with the requirement to identify that the information communicated is inside information. As discussed above, the FCA has not provided a response on these points in the Policy Statement and is considering the appropriate approach.
Although a lack of clarity around the circumstances in which disclosure of inside information can be delayed is inevitable given that ESMA are still in the process of finalising their guidance in this area (and have indicated in their consultation that they only expect the final guidance to be published around the same time as MAR comes into effect), it is unhelpful for issuers that the relevant DTR provisions may be subject to further revision in due course.
Feedback on general issues raised in responses to CP 15/35
In the Policy Statement, the FCA sets out certain general issues that were raised in relation to its approach, including:
- Requests for the Handbook to copy out the relevant sections of MAR/associated legislation rather than simply providing signposts to these: In this context, the FCA has indicated that it does not intend to adopt a copy out approach as it believes it is more accurate and efficient to direct readers to the primary source. Signposts to Level 2 legislation are not included in the revised Handbook text appended to the Policy Statement as the FCA notes that these have not yet been published in the Official Journal. These will be added in due course, but the FCA does not intend to provide signposts to the relevant annexes of ESMA’s Final Report (ESMA/2015/1455) as an interim measure as these do not constitute the finalised technical standards.
- Requests to include interactive hyperlinks to relevant articles of the European legislation rather than text signposts: The FCA notes that this is not currently possible due to technological constraints but that it is considering developments to enable this functionality.
- Queries regarding the redrafting of some of the language in certain provisions of the Handbook that are being retained by the FCA: The FCA notes that this has been done to ensure that the relevant provisions are compatible with EU law. However, where respondents have proposed alternative drafting, consistent with these legal constraints, it has considered how these can be incorporated.
- Queries as to why the recitals to MAR have not been referenced/signposted: The FCA notes that, although the recitals provide context and allow clearer interpretation, they are not legally binding – it does not intend to provide signposts to the recitals as including them may create uncertainty and confusion about the legal requirements.
Although the FCA’s approach on copy out is understandable, it does make it more difficult for readers to track through the various requirements as these are (or will be) contained in a number of different pieces of legislation and guidance. Given that a copy out approach is not being taken, the introduction of hyperlinks in the relevant signposts would go a significant way to addressing this issue and it is helpful that the FCA is considering ways that it can introduce this functionality.
The revised rules will apply from July 3, 2016 (the same time as MAR comes into effect). The FCA has indicated that it anticipates including further signposts to provisions of implementing measures made under MAR at a later stage as these cannot be included currently given they have not yet been published in the Official Journal. It is also noted that certain provisions of the Handbook may need to be reassessed depending on the final Guidelines to be published by ESMA in relation to certain aspects of MAR.
As referred to above, the FCA has also indicated that it will consider the appropriate approach to take in relation to those areas where respondents to CP 15/35 indicated that new guidance would be helpful.
Conclusion and implications for UK listed issuers
It is unhelpful that so many areas where questions were raised in response to CP 15/35 remain to be clarified and that the extent to which further guidance will be provided/the timeline for doing so remains unclear. To the extent that relevant guidance is not forthcoming on these issues in advance of MAR coming into effect, companies will need to discuss with their advisers what approach they will take in relation to interpretation of the relevant provisions.
In relation to share dealing codes, companies will need to consider whether they wish to retain any additional provisions or restrictions that apply outside of MAR closed periods. We would anticipate that most issuers will maintain the requirement for directors and other PDMRs to obtain prior clearance before dealing (in a similar way as is currently the case under the Model Code) and expect that there will also be circumstances where issuers consider dealing should not be permitted albeit they are not in a MAR closed period (in particular, we would expect most issuers to retain a prohibition on dealing during periods when unpublished inside information exists). Whether issuers will choose to restrict dealings for longer periods prior to publication of results than is required under MAR is less clear, and it will be interesting to see how market practice develops in this area.
For a list of more general practical steps/considerations for listed issuers in respect of systems and controls for complying with MAR, please also see our earlier briefing The Market Abuse Regulation: Key considerations for UK listed issuers.
This briefing (and our previous briefing referred to above) are only intended to provide an overview of some of the key changes relevant to listed issuers - to the extent you have any further questions or detailed queries about how MAR and the associated FCA rules will impact on your systems and controls, please let us know.
For the avoidance of doubt, however, it should be noted that in all cases where disclosure has been delayed the issuer will need to notify the FCA of the fact that disclosure was delayed at the time the inside information is ultimately disclosed to the market.
The Policy Statement also notes that, in light of requests for further guidance from respondents to CP 15/38 and the probability that this provision will need to be amended once the ESMA guidance in relation to delaying disclosure is finalised, it does not intend to make the changes to DTR 2.5.5 proposed in CP 15/38 - these involved the deletion of the final sentence of DTR 2.5.5 (which states that, other than in relation to impending developments or matters described in DTR 2.5.3 or DTR 2.5.5A, there are unlikely to be other circumstances where delay would be justified).