Market Abuse Regulation – changes to UK MAR on PDMR dealings and insider lists

The deadline for disclosing dealings by persons discharging managerial responsibilities (PDMRs) and the requirements in relation to insider lists in the UK Market Abuse Regulation (UK MAR) will be amended by the Financial Services Act 2021.

The Financial Services Act amends certain aspects of the legislative and regulatory framework for financial services following Brexit (see our blog post here).

Under the Act:

  • PDMR dealings – The deadline in UK MAR for the disclosure of PDMR dealings will be extended, to bring it in line with an amendment made to EU MAR with effect from 1 January 2021. An issuer will have two working days to disclose the dealing to the market from the date of notification by the PDMR (rather than the current position where both the notification by the PDMR to the issuer and the disclosure by the issuer to the market have to be made within three days of the dealing). The notification to the Financial Conduct Authority (FCA) must still be made within three working days of the dealing;
  • Insider lists – UK MAR will be amended to clarify that both issuers and any person acting on their behalf or on their account are required to maintain an insider list when in possession of inside information; and
  • Insider dealing and market manipulation – The maximum sentence for the insider dealing and market manipulation offences in the Criminal Justice Act 1993 and Financial Services Act 2012 will be increased from seven to ten years.

The amendments to UK MAR will come into force on 29 June 2021. The increased sentences for insider dealing and market manipulation will only come into force when further regulations are made by the Treasury.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Ben Ward
Ben Ward
+44 20 7466 2093

Listing regime – latest FCA Primary Market Bulletin

The Financial Conduct Authority (FCA) has published the 33rd edition of its Primary Market Bulletin (PMB No.33). It contains an update on various issues, including the FCA’s review of delayed disclosure notifications.

Feedback on review of delayed disclosure notifications

In November 2020, the FCA published a review of notifications of delayed disclosure of inside information (see our blog post here).

Following publication of the review, the FCA says that it has received a number of queries. It clarifies that the review did not contain any new guidance and was not intended to drive wholesale changes to market practice. In particular the FCA reiterates that:

  • Periodic financial information – Issuers should begin with the assumption that information relating to financial results could constitute inside information and the FCA expects issuers to exercise judgement in assessing whether inside information exists.
  • Board changes – Following feedback on the challenges of complying with the obligation to announce inside information as soon as possible in the context of board changes, the FCA acknowledges that the question of whether information is “precise” requires judgement. The FCA also refers issuers to the guidance in its Technical Note on Assessing and handling inside information.

Major shareholding notifications and total voting rights announcements

In 2020, the FCA conducted a review of the way that UK issuers announced changes to total voting rights and the effect on major shareholding notifications.

DTR 5.6.1 requires an issuer to disclose the total number of voting rights, and the total number of voting rights attaching to treasury shares, at the end of each month if there has been a change in those numbers during the month. If there is a material increase or decrease during the month, an immediate total voting rights announcement may be required under DTR 5.6.1A.

DTR 5 also requires holders of shares and certain financial instruments to notify the FCA and the relevant issuer when certain thresholds are reached or crossed.

Recommendations made by the FCA following its review include:

  • issuers should report changes to total voting rights clearly and on time at the end of each calendar month during which an increase or decrease occurred, even if this information has previously been disclosed in accordance with DTR 5.6.1A; and
  • issuers should report total voting rights figures as a distinct announcement using “Total Voting Rights” as a headline and selecting as the classification for the regulated information “Total number of voting rights and capital”.

The new on-line portal for investors to submit TR-1 notifications of major shareholdings electronically (see our blog post here) is now live and TR-1 notifications must now be sent via the portal.

Payments to governments

In 2020 the FCA conducted a review of disclosures made by those issuers in the extractive sector required to report on their payments to governments in accordance with DTR 4.3A.

The FCA reminds issuers of the key requirements in relation to contents, publication and filing of these disclosures (in particular filing with the National Storage Mechanism in XML format).

The FCA also reminds issuers that no determinations of equivalence have been made by the FCA in respect of DTR 4.3A and so all issuers within scope are required to comply, even if they report similar information in another jurisdiction.

 

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Caroline Rae
Caroline Rae
+44 20 7466 2916

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

 

The regulatory regime for companies following the UK’s withdrawal from the EU

The UK ceased to be a Member State of the European Union on 31 January 2020. A transition period then applied until 31 December 2020. During the transition period, EU law continued to apply in and to the UK, and the UK continued to trade as part of the Single Market.

The Brexit transition period ended on 31 December 2020, with the EU and UK having agreed to the terms of their future relationship through a Trade and Cooperation Agreement – you can read more about the implications of the agreement here.

Retained EU law

As of 1 January 2021, EU law no longer applies in the UK. By virtue of the European Union (Withdrawal) Act 2018, directly applicable EU law in force in the UK at the end of the transition period is retained as part of the UK statute book. Retained EU law has broadly the same status as any other UK enactment and is subject to the same rules/processes for amendment as any other UK primary or secondary legislation (or if made under devolved powers, the rules of the relevant legislature in Scotland, Wales or Northern Ireland).

EU Exit statutory instruments

The Government has made secondary legislation dealing with a range of corporate law matters to ensure that both Retained EU law and existing UK law and regulation (for example that referenced EU concepts or bodies) could operate effectively once the transition period ended. These regulations include:

FCA Rules

The FCA has made a number of changes to its Handbook that apply with effect from the end of the Brexit transition period, including changes to the Listing, Prospectus Regulation, Disclosure Guidance and Transparency Rules.

The impact of the rule changes for UK incorporated companies which have securities admitted only to a UK regulated market will be minimal. Issuers which have shares admitted to a regulated market in the UK and in an EEA state will have to adjust their systems and controls and, for example, make additional notifications to regulators for certain matters, including in relation to PDMR transactions.

Takeover Code

The Takeover Panel has similarly made a number of changes to the Takeover Code that were required as a result of Brexit. The changes will not have a significant impact on transactions.

 

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Barnaby Hinnigan
Barnaby Hinnigan
+44 20 7466 2816

Roddy Martin
Roddy Martin
+44 20 7466 2255

Special edition of the Primary Market Bulletin on Brexit

The Financial Conduct Authority (FCA) has published a special Primary Market Bulletin No.32 on Brexit to remind issuers and investors of the changes to the listing regime that will take effect at the end of the transition period on 31 December 2020. Issuers will need to ensure that their internal policies and procedures are updated to reflect these.

Areas covered include:

  • Inside information – Issuers will have to send a notification of any delayed disclosure of inside information to the FCA under Article 17(4) of the UK version of the Market Abuse Regulation (UK MAR). Issuers may also need to notify an EU competent authority if, for example, they have securities admitted to trading on an EU market. The content and format of the notifications remain the same.
  • PDMR transactions – UK MAR contains broadly the same requirements for transactions by persons discharging managerial responsibilities (PDMRs) and persons closely associated with them (PCAs), but again they will have to send their notifications to the FCA under Article 19 of UK MAR. This may be in addition to any notification to an EU competent authority. Under changes being introduced by the Financial Services Bill, to reflect changes to EU MAR, from 1 January 2021 issuers will have two working days to disclose a PDMR or PCA dealing from the date on which they are notified of it, rather than being required to make the disclosure within three working days of the dealing (see our earlier blog post).
  • Share buy-backs – UK MAR will retain the same exemptions for buy-back programmes and the FCA confirms that where the shares are traded on a UK trading venue, issuers should continue to report to the FCA each transaction relating to the buy-back programme (including those transactions which do not take place on a UK trading venue). Where the shares are also traded on an EU trading venue, issuers should continue to report to the EU competent authority.
  • Passporting prospectuses – It will not be possible to passport a prospectus into an EEA country after the end of the transition period. Issuers wishing to passport a prospectus before 31 December 2020 are advised to arrange their passporting request well in advance. Prospectuses passported into the UK before the end of the transition period will remain valid in the UK for 1 year from the date of the approval of the prospectus.
  • ESMA Guidelines and Q&A on Prospectus Regulation – The FCA confirms that the new Guidelines on disclosure requirements under the Prospectus Regulation published by the European Securities and Markets Authority (ESMA) will not have become effective before the end of the transition period, so issuers should have regard to the ESMA update of the CESR recommendations once the transition period ends. The FCA says that it will continue to have regard to the ESMA Q&A on the Prospectus Regulation where relevant.

Issuers can look at the version of the FCA Handbook that will apply from 1 January 2021 by using the “timeline” function on the FCA Handbook website.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Recent FCA publications

The Financial Conduct Authority (FCA) has published Primary Market Bulletin 31 (PMB 31), and through it publicised two recent reviews it has undertaken into delayed disclosure of inside information and corporate governance disclosures by listed issuers.

Delayed disclosure of inside information

The FCA has reviewed the delayed disclosure of inside information notifications (DDIINs) it has received. Under Article 17(4) of Market Abuse Regulation (MAR), where a UK issuer delays disclosure of inside information, once it announces that information it must notify the FCA that it has been delaying its disclosure.

The FCA notes that only one quarter of issuers have submitted a DDIIN at all, leaving it concerned that issuers may not be aware of the requirement to submit them. It also identifies a number of areas where it will increase its oversight, including:

  • Unscheduled financial information – The FCA was surprised that the delays associated with disclosing unscheduled financial information were longer than those relating to periodic financial information, as it is more challenging to establish circumstances in which it is legitimate to delay unscheduled financial information. It also notes that it has only received a low number of DDIINs in this area, when compared with the number of unscheduled trading statements issued.
  • Director/board changes – The FCA was also surprised at the number of DDINs it received in relation to director/board changes, given that it is not specified in the (non-exhaustive) situations in the European Securities and Markets Authority (ESMA) guidelines on legitimate interests for delay where an issuer may have a legitimate interest in delaying disclosure.

Corporate governance disclosures

Following a review of a sample of annual reports from 2016-2018, the FCA makes a number of observations and suggestions in relation to compliance with the FCA rules relating to corporate governance, including:

  • Compliance with the Principles of the Governance Code – The FCA encourages premium listed issuers to consider carefully, when stating how they have applied the Principles of the Governance Code as required under Listing Rule 9, whether they have done so in a way that enables shareholders to evaluate how the Principles have been applied (rather than merely stating they have been). To avoid boilerplate disclosures, more examples and cross-references to other parts of the annual report could be included.
  • Board diversity reporting – Overall the FCA felt the quality of board diversity reporting could have been better, particularly in relation to Governance Code Provision 23 (work of the nomination committee), and Principles J (board appointment processes) and L (annual board evaluation).
  • Standard listed companies – A number of standard listed companies provided little or no information on their internal control and risk management systems, and management bodies and committees (as required by DTRs 7.2.5 and 7.2.7). The FCA also noted that a number of standard listed issuers state that they have applied the Provisions of the Governance Code “as far as relevant” without providing any further detail (which does not meet the requirements of DTR 7.2.3).

Extension of relaxations to deadlines for financial reporting

In response to the difficulties being faced by listed companies as a result of the Covid-19 pandemic, earlier this year the FCA published statements which, in effect, give listed companies an additional two months to publish their annual report and accounts (to within six months of their year-end) and an additional one month to publish their half-yearly reports (to within four months after the end of the half-year). In PMB 31 the FCA confirms that this temporary relief will, at a minimum, continue to be available to listed companies with financial periods ending before April 2021.

 

Mike Flockhart
Mike Flockhart
+44 20 7466 2507

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Changes to PDMR dealing notification regime

The Financial Services Bill has been introduced to Parliament. It amends certain aspects of the legislative and regulatory framework for financial services following the end of the Brexit transition period, currently scheduled to be 31 December 2020.

The Bill proposes changes to the EU Market Abuse Regulation (EU MAR) regime as it will apply in the UK following the end of the Brexit transition period by virtue of The Market Abuse (Amendment) (EU Exit) Regulations 2018.

EU MAR was amended in December 2019 such that when a person discharging managerial responsibilities (PDMR) notifies a dealing in shares to an issuer, the issuer will have two business days to disclose the dealing to the market from the date of notification (rather than the notification by the PDMR to the issuer and the disclosure by the issuer to the market having to be made within the same three days of the dealing). This amendment to EU MAR is effective from 1 January 2021. As this is after the Brexit transition period is scheduled to end, this change would not be automatically incorporated into UK law. The Bill ensures that this change will apply in the UK from 1 January 2021.

The Bill also clarifies that issuers and any person acting on their behalf or on their account are all required to maintain an insider list when in possession of inside information.

Other key reforms in the Bill include:

  • Criminal sanctions for market abuse – The Bill proposes to increase the criminal sentences for insider dealing and market manipulation from seven to ten years in the UK; and
  • LIBOR transition – The Bill proposes changes to the UK’s benchmark regime to address the LIBOR transition. It gives powers to the Financial Conduct Authority to manage the wind-down period prior to the discontinuation of LIBOR from the end of 2020.

The Bill is due to have its second reading in the House of Commons on 9 November 2020.

 

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Michael Jacobs
Michael Jacobs
+44 20 7466 2463

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

LPDT rules post-Brexit

The Financial Conduct Authority (FCA) has published a Handbook Notice on the changes to the Listing Rules, the Disclosure Guidance and Transparency Rules, and the Prospectus Regulation Rules (and other parts of the FCA Handbook) that will take effect when the transition period for the UK’s exit from the EU ends on 31 December 2020.

The Notice sets out the instruments that will amend the Handbook and the Binding Technical Standards (that is the detailed EU rules that will be incorporated into UK law and for which the FCA will have responsibility after Brexit, such as on the format of insider lists). The changes are to a large extent the same as those detailed in Policy Statement PS19/5 which would have applied in the event of a no-deal Brexit, with some minor changes to reflect the fact that there has been a transition period.

The FCA has also published a version of the Handbook that will apply at the end of the transition period. This can be accessed by clicking on the “Show timeline” link on the left of the FCA Handbook page.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Michael Jacobs
Michael Jacobs
+44 20 7466 2463

FCA enforcement action

The Financial Conduct Authority (FCA) has censured Redcentric PLC for market abuse. Redcentric has agreed to pay compensation to affected investors.

The FCA found that Redcentric, which is admitted to trading on AIM, issued unaudited interim results in November 2015 and audited final year results in June 2016 which materially misstated its net debt position and overstated its true asset position in circumstances where it knew, or ought to have known, that the information was false and misleading. Redcentric had therefore engaged in market abuse contrary to section 118(7) of the Financial Services and Markets Act 2000 (now Articles 12 and 15 of the Market Abuse Regulation (MAR)).

Redcentric has put in place a scheme to provide compensation to affected purchasers of Redcentric shares. It is estimated the value of the scheme to potential claimants is £11.4 million. The FCA says that this is the first time that an AIM company has offered to implement its own scheme to pay compensation to those affected by the harm it caused as a result of market abuse.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

FCA guidance for industry regulators on handling inside information

The Financial Conduct Authority (FCA) has published a Primary Market Bulletin (PMB No. 29), in which it sets out the results of its consultation (in PMB No. 25) on best practice for government departments, industry regulators and public bodies on identifying, controlling and disclosing inside information. It has also published its finalised best practice note.

The note includes guidance on the timing of announcements to the market and disclosures made in response to requests under the Freedom of Information Act 2000.

Mike Flockhart
Mike Flockhart
+44 20 7466 2507

Alex Kay
Alex Kay
+44 20 7466 2447

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700