In light of its findings during on-site audits of issuers' compliance organisations, the Austrian Financial Market Authority (FMA) has amended the 2007 Compliance Regulation for Issuers and published a circular providing practical guidelines for issuers on the implementation of efficient and legally compliant compliance organisations.
The regulation generally applies to issuers whose shares or share-like financial instruments are admitted to trading on a regulated market within the meaning of Section 1(2) of the Stock Exchange Act. It aims at creating a level playing field for all market participants and raising issuers' awareness of the potential problems arising from inside information.
?Amendment to regulation
The amendment, which entered into force on February 1 2012, introduces the concept of 'compliance-relevant information', which is defined as any inside information or other information that is confidential and price sensitive. 'Confidential and price-sensitive information' in turn includes any non-public information that, if known to a reasonable investor, would be relevant to its decision as to whether to invest in the relevant financial instrument. Confidential and price-sensitive information need not meet the requirements of 'inside information' set forth in Section 48a(1)(1) of the act (ie, material price sensitivity, sufficient probability and reasonable certainty of the information).
Information is not deemed confidential and price sensitive if a reasonable investor, after thorough consideration of all circumstances, would conclude that the information will not develop into inside information in future.
The FMA believes that capturing any non-public issuer activities with potential price relevance at an early stage in the issuer's compliance process will help to raise issuers' sensitivity to insider rules and prevent violations.
?Circular on compliance rules
The circular provides extensive information and practical guidelines of the FMA's interpretation on:
- the establishment of in-house compliance guidelines;
- internal compliance structures; and
- the rights and duties of compliance officers.
Detailed information is provided on when and how confidentiality areas should be set up, and on the approach to be adopted when disclosing compliance-relevant information. Finally, the circular provides guidelines on the circumstances in which blocking periods and trading bans are required and the conditions under which exceptions can be granted.
?Measures to be taken by issuers
By introducing the term 'compliance-relevant information', the FMA significantly broadens the scope of the regulation. The compliance regime which used to apply only in cases of 'inside information' (in terms of Section 48a(1)(1) of the act) now also applies in cases of 'confidential and price-sensitive information'. As a result, issuers will now have to establish permanent or project-related confidentiality areas where employees are likely to have access to confidential and price-sensitive information. Furthermore, the rules on the handling and dissemination of inside information will already apply to confidential and price-sensitive information.
Given its broad and rather vague definition, issuers may find it difficult to distinguish confidential and price-sensitive information from non-relevant information. The Standard Compliance Code of the Austrian banking industry may serve as a guideline, as this appears to be the regulation on which the definition of 'compliance-relevant information' is based.
Nevertheless, issuers would be well advised to establish confidentiality areas at an early stage of a transaction and properly to document handling and dissemination of all compliance-relevant information (eg, insider lists, acknowledgement of related obligations and penalties). Failure to comply with the regulation may result in administrative fines of up to €30,000, pursuant to Sections 48(1)(2) and (6) of the act, and other penalties, ultimately including revocation of admission to trading.
For further information on this topic please contact Ursula Rath or Katharina Oberhofer at Schoenherr by telephone (+43 1 53 43 70), fax (+43 1 53 43 76100) or email (firstname.lastname@example.org or email@example.com).