Under the UK's current market abuse regime, an issuer must disclose inside information to the market as soon as possible. However, this obligation can be delayed in certain circumstances and provided certain conditions are met.
Broadly, an issuer may delay disclosure if that disclosure may prejudice a legitimate interest of the issuer. The FCA's Disclosure Rules and Transparency Rules (DTR) currently contain guidance on the application of the relevant rule. The FCA is consulting on a proposed change to this guidance.
In CP15/38, the FCA notes that feedback from issuers and stakeholders suggests that changes to the legal and regulatory landscape can result in more instances of inside information arising and being disclosed. The FCA cites, for example, the recent changes in the EU Transparency Directive which removed the requirement for issuers to provide quarterly trading updates. The FCA understands that, in some cases, this has led to less structured discussions taking place between issuers and investors where both parties can have differing views as to whether inside information is being shared.
Additionally, feedback also suggests that the definition of inside information is being applied increasingly widely during investigations and as evidenced, in particular, by a recent Tribunal Decision.
As such, issuers may feel that there are increasing circumstances where they may be in possession of inside information and that a delay in disclosing it would be legitimate. However, the current drafting of the FCA's guidance may be hindering issuers in determining when a delay is justified.
The current rule on delaying disclosure is contained in rule 2.5.1 of the DTR. It is amplified by examples at rule 2.5.3R. The examples are copied from the EU market abuse directive (from which our current market abuse regime is derived) and are specified not be exhaustive. However, accompanying guidance in note 2.5.5G states that "the FCA considers that, other than in relation to impending developments or matters described in DTR 2.5.3R, there are unlikely to be other circumstances where delay would be justified".
The consultation notes that there is a sense that, as drafted, the DTR may put constraints on an issuer's ability to delay disclosure which goes further than the EU's requirements. It also states that there is a view that this could lead issuers to disclose information at too early a stage.
The FCA is therefore proposing to delete the words quoted above at the end of DTR guidance note 2.5.5G.
The consultation notes that whilst the FCA is not proposing to define a list of what may constitute a legitimate interest to delay disclosure, the new EU Market Abuse Regulation (MAR), which comes into force on 3 July 2016, and which will replace our current regime, requires the European Securities and Markets Authority (ESMA) to issue guidance to create such a list. The FCA states that it will look closely at this, and encourages other interested parties to do the same.
Inter-relation with MAR
CP15/38 is based on the current market abuse regime. This will be replaced with effect from 3 July 2016, by a new regime implemented by MAR. As a Regulation, this will have direct applicability in the UK and does not require us to pass any laws or regulations. However, it will mean that existing laws and regulations will need to be reviewed and possibly repealed or revised to ensure they do not conflict with MAR. This will include the FCA's handbook which includes the DTR.
The FCA is consulting separately on changes to its handbook to take account of MAR (CP15/35) and we report separately on that in this newsletter. That consultation also includes proposed changes in respect of the disclosure of inside information. The FCA notes that it will assess feedback from both consultations to ensure a consistent approach.
Specifically, the FCA notes, in CP15/38, that the UK's current definition of inside information, which is contained in section 118 of the Financial Services and Markets Act 2000 (FSMA), will be repealed and replaced by MAR. The FCA points out, however, that the MAR definition is materially unchanged from the definition in s118 of FSMA. MAR's provisions relating to the disclosure of inside information, and when such disclosure may be delayed, are also similar to our current regime.