Key takeaways
FCA highlights slow disclosure practices
Many issuers notify the FCA far later than required.
Strict conditions for delaying announcements
Issuers may delay only where strict criteria are satisfied.
Review your inside information controls
Issuers must strengthen processes to ensure UK MAR compliance.
The UK Market Abuse Regulations (“UK MAR”) requires issuers to inform the public as soon as possible of inside information that directly concerns that issuer but it also provides for limited circumstances when the disclosure of such information can be delayed. In its recent Primary Market Bulletin 59 (Bulletin 59), the Financial Conduct Authority (“FCA”) has provided a summary of its review of the use of delayed disclosure of inside information by issuers.
What is delayed disclosure of inside information?
UK MAR’s requirement to disclose to the public inside information that directly concerns them applies to companies whose shares are admitted to trading on the UK’s markets (including Main Market, AIM and Aquis). Such disclosure must be made as soon as possible, however, in certain circumstances, an issuer may decide to delay disclosure.
If a company decides to delay disclosure of inside information (“DDII”) then it must:
keep a record of the decision and the reasons for delay;
ensure confidentiality throughout the delay period; and
notify the FCA immediately after the information is finally disclosed using the DDII notification form on the FCA website.
The FCA’s review found that many issuers took seven or more days after the release of inside information to notify the FCA of the delay of the release of that inside information. This is far outside the “immediately” requirement.
When can a delayed disclosure be made?
Issuers that wish to delay disclosure of their inside information to the public must meet strict requirements. Delayed disclosure of inside information can only be made if the following three statutory conditions are satisfied:
an immediate disclosure is likely to prejudice the legitimate interests of the issuer;
such delay is unlikely to mislead the public; and
the issuer is able to ensure the information is kept confidential.
Examples where immediate disclosure of the inside information is likely to prejudice the legitimate interests of the issuer include: (i) conduct of negotiations, where disclosure of such negotiation would be jeopardised by immediate public disclosure, for example in relation to a merger, spin-off, restructuring, etc; (ii) the financial viability of the issuer is in imminent and grave danger, but not amounting to insolvency; or (iii) issuer has developed a product or an invention and the immediate disclosure of it to the public would jeopardise its intellectual property rights.
Examples of when immediate disclosure of the inside information could mislead the public include delay of inside information that is materially different from the previous public announcement of the issuer, including in relation to not meeting financial objectives.
What did the FCA’s review find?
As issuers must notify the FCA when they have used DDII, the FCA can monitor trends and potential risks relating to the handling of inside information. Key findings from Bulletin 59 include:
Overall decrease in notifications: The FCA has compared its recent findings against its review of DDII undertaken back in 2020. The FCA was surprised to find a 39% decrease in notifications of DDII submitted per day on average. This may reflect market conditions and less inside information being identified by issuers but also issuers not being aware they need to submit the notification to the FCA. In addition, as the criteria for using DDII are quite strict, issuers may choose not to delay the release of inside information.
Category of notifications: The most frequent DDII notifications were in connection with mergers and acquisitions, business updates and placings, followed by periodic financial information. The least frequent DDII notifications were made in relation to the DDIIs that were included in PDMR notifications. The FCA has taken the opportunity to remind issuers and PDMRs that PDMR notifications must be made promptly and no later than three working days after the date of the transaction.
Issuers’ instruments: The DDII notifications were more frequently made by equity issuers as compared to debt issuers, with the ratio of notifications made significantly higher than the ratio of equity issuers to debt issuers. The FCA reminded debt issuers that the disclosure obligations under UK MAR also apply to them but acknowledged that debt issuers may encounter fewer inside information events.
Trading venue (equity only): The review found that issuers whose shares are listed on the Main Market have made the most use of the DDII framework, followed by issuers whose shares are admitted to trading on AIM. Those whose shares are admitted to trading on Aquis saw the lowest use of the DDII notification.
Delay periods: The average period between the issuer’s decision to delay disclosure to actual disclosure of that inside information to the public was 35.2 days, which is a significant increase from the average of 7 days found under the last review. The FCA acknowledged that issuers may have reasons for such delays but also reminded issuers that the longer the delay, the less likely the issuer is able to comply with UK MAR, especially the requirement to ensure confidentiality of inside information. In addition, the greatest delays were in respect of mergers and acquisitions, disposals and speculations.
What does the FCA expect of issuers?
The FCA uses Bulletin 59 to remind issuers that are subject to UK MAR that they need to be familiar with and comply with relevant regulatory requirements of UK MAR, specifically Article 17 concerning public disclosure of inside information, Article 18 on insider lists and Article 19 concerning managers’ transactions. In addition, those issuers also need to know and comply with DTR 2.2 concerning disclosure of inside information and DTR 2.5 on delaying disclosure of inside information. Listing Principle 1 is also relevant as it concerns the adequate procedures, systems and controls of issuers. Finally, issuers subject to UK MAR need to be familiar with Technical Note 506.3 relating to periodic financial information and inside information.
Issuers should regularly review their processes for identifying, escalating and assessing potential inside information.
How we can help
We advise issuers on identifying and assessing inside information, applying the DDII test, preparing insider lists, drafting announcements and general UK MAR compliance.
