FCA – Updated statement on MAR closed periods and preliminary results

In CQC Update – Issue 99 (27 May 2016) we reported on the Financial Conduct Authority's supervisory approach to the interpretation of closed periods in Article 19(11) of the EU Market Abuse Regulation No.596/2014 (MAR) in light of a preliminary announcement made pursuant to LR 9.7.A.1R.

At that time, the FCA announced that, pending clarification from the European Commission and the European Securities and Markets Authority (ESMA), it would continue to take the view that where an issuer announced preliminary results and the results announcement contained all inside information expected to be included in the subsequent year-end report, the closed period would exist immediately before the preliminary results were announced.

ESMA has published an updated version of its Q&A on MAR which now clarifies this issue. In relation to the year-end report, ESMA clarifies that:

  • there should only be one closed period prior to the announcement of the year-end report;
  • the term "announcement" of a year-end report is the public statement whereby the issuer announces, in advance of the publication of the final year-end report, the preliminary financial results agreed by the management body of the issuer and that will be included in that report, provided that the preliminary financial results contain all the key information relating to the financial figures expected to be included in the year-end report; and
  • such an announcement will bring the closed period to an end.

ESMA notes that in the event that the information announced as described above changes after its publication, this will not trigger another closed period but should be addressed in accordance with Article 17 of MAR (the rules relating to the public disclosure of inside information). In any case, PDMR will be subject at all times to the core prohibitions in MAR as regards insider dealing, unlawful disclosure and market manipulation.

Given that ESMA's clarification of this issue is aligned with the FCA's view, the FCA has now updated its supervisory approach to refer to ESMA's Q&As.

FRC – Publication of report on corporate culture

Last year, the Financial Reporting Council announced its plans to launch an initiative to gather practical insight into corporate culture and the role of the board in shaping and embedding a healthy culture throughout organisations. The FRC has now published the results of its study, exploring the relationship between corporate culture and long-term business success.  

"Corporate Culture and the Role of Board" (July 2016) sets out the FRC's observations of the key elements that boards should consider to help create a culture that can deliver long-term sustainable growth. The FRC's key findings include:

  • Recognising the value of culture: Boards should not wait for a crisis before focusing on their culture. They should acknowledge the value of a healthy culture early on, determine the purpose of their company and ensure that its values, strategy and business model are aligned to that purpose;
  • Demonstrating leadership: Creating a healthy culture starts at the top. Leaders, and particularly the CEO, should embody the desired culture, embedding it at all level and in every aspect of the business;
  • Being open and accountable: Good governance means a focus on transparency, openness and accountability and how this manifests itself throughout the entire organisation;
  • Embedding values: Behaviours should be driven by the company's values. Key functions throughout the organisation should be empowered and resourced to embed values and assess culture effectively;
  • Evaluating culture: Boards should devote sufficient resource to evaluating culture and consider how they report on it. Indicators and measures used should be aligned to desired outcomes and be material to the business;
  • Aligning values and reward: The performance management and reward system should support and encourage behaviours consistent with the company’s purpose, values, strategy and business model. The board is responsible for explaining this alignment clearly to shareholders, employees and other stakeholders; and
  • Exercising stewardship: Effective stewardship should include engagement about culture and encourage better reporting. Investors should challenge themselves about the behaviours they are encouraging in companies and to reflect on their own culture.

The FRC notes that it will monitor company and investor reporting on culture over the next year. It also intends to reflect on the information gathered from, and any feedback to, its report to inform the review of its "Guidance on Board Effectiveness".