On 3 July 2016, the Market Abuse Regulation (MAR) will become law. MAR is an EU Regulation which has direct effect across all EU member states. UK legislation is therefore not required to implement MAR. However, we will have to ensure that our existing laws and regulations are compatible with MAR.
The FCA Handbook contains various provisions, including many implementing the current UK market abuse regime, which will be replaced by, or may conflict with, the provisions of MAR. The FCA therefore needs to revise the Handbook to ensure it is compatible with the new regime. The FCA consulted on proposed changes in CP 15/35 (see our December newsletter article for more detail), and has recently published a policy statement (PS16/13) containing feedback on the responses it received. The policy statement also contains feedback on proposed changes to the Disclosure Rules which were consulted on in CP 15/38. That consultation specifically looked at guidance relating to a delay in the disclosure of inside information (see our December newsletter article for more detail).
The policy statement sets out the revised text of the Handbook, taking into account the responses to the consultations. The changes take effect from 3 July 2016, when MAR becomes law.
Below, we summarise the key points to note from PS16/13.
Format of the Handbook
CP 15/35 proposed changes to the FCA Handbook to ensure that, from 3 July 2016, it will not contain rules or guidance which are covered by MAR or its associated secondary legislation and guidance (the new MAR regime), and that any remaining provisions are consistent with the new MAR regime.
The key principle of the proposed changes was that the Handbook would not "copy out" provisions from the new MAR regime but would include a "signpost" to the relevant provision. A lot of the feedback related to this proposal and the difficulties it could pose for users of the Handbook. In particular, respondents requested that relevant sections were copied over to the Handbook or that, where a signpost is used, it includes a hyperlink to the relevant new MAR regime provision.
In its policy statement, the FCA has confirmed that it will not adopt a "copy out" approach and will proceed with signposts as proposed. It believes that, as the new MAR regime will contain the principal legal requirements, it is more accurate and efficient to direct Handbook users to the primary source.
As regards hyperlinks, the FCA has stated that for technology reasons it is not currently able to provide direct hyperlinks to the precise provision of the new MAR regime but that it is considering developments to enable this in the future.
Timing of issuer's explanation for a delay in the disclosure of inside information
MAR enables competent authorities to adopt differing approaches concerning the explanation that an issuer must give following a notification that it intends to delay a disclosure of inside information. The explanation must be given either at the same time as the disclosure is made or only when requested by the competent authority. The FCA proposed that, in the UK, explanation would only be required when requested and it has confirmed that this is still the approach that it favours. The change, however, needs to be included in the Statutory Instrument (SI) that will make changes to the Financial Services and Markets Act 2000 to ensure that it is consistent with the new MAR regime.
The FCA notes that the Treasury, which is responsible for the SI, is also of the view that this is the approach which should be taken and that they both, therefore, anticipate that the SI will include this provision.
Guidance on when delaying disclosures of inside information
The current rule on delaying disclosure is contained in rule 2.5.1 of the Disclosure and Transparency Rules (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 noted 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 therefore proposed to delete the words quoted above at the end of DTR guidance note 2.5.5G.
Under the new MAR regime, the European Securities and Markets Authority (ESMA) is tasked with producing guidance on when it may be legitimate to delay disclosures of inside information. Whilst ESMA has produced draft guidelines (see our January newsletter article for detail) they are not yet finalised.
In its policy statement the FCA states that as it is likely that, once the ESMA guidance is finalised, DTR 2.5.5G will need to be revised in the light of that guidance, it will leave DTR 2.5.5G as it currently stands for the time being.
Threshold for notification of dealings by PDMRs
MAR requires PDMRs (and persons closely associated with them) to notify certain transactions in certain financial instruments to the issuer and the relevant competent authority once a threshold has been passed within a calendar year. The threshold is €5,000, although MAR enables competent authorities to increase this to €20,000.
The FCA proposed to adopt the €5,000 level and has confirmed that it will do so. The FCA points out, however, that issuers may disclose all transactions on a voluntary basis regardless of the threshold, as some respondents had commented that they would prefer there to be no threshold.
The Model Code
In its consultation, the FCA proposed to delete the provisions of the Model Code (Annex 1 of LR 9) and replace it with rules and guidance on systems and procedures for companies to have clearance procedures regarding PDMR dealing.
However, it has concluded that going ahead with this proposal would be unnecessarily onerous on issuers and PDMRs and would not provide the legal certainty needed by stakeholders. As a consequence, the FCA has decided that the Model Code will be deleted as proposed but the proposed new rules (LR 6.1.29R and LR 9.2.8R), and the associated guidance will not be introduced.
Nonetheless, the FCA notes that in feedback to the consultation there was a suggestion of industry-led development of codes of best practice in this area and that it would support such a development.
Areas outside the consultation
The FCA notes that it also received considerable feedback on areas outside the consultation where respondents felt further guidance on the new regime may be helpful. As these were outside the scope of CP15/35, it has not made any proposals in this policy statement, but states that it will be considering how to progress these issues. Chapter 4 of the policy statement contains a list of these issues and there are some important points included in these, including, by way of example, the issue of whether the closed period for PDMR dealings is to continue after the issue by a company of its preliminary announcement of results. Guidance on these points is required as a matter of some urgency in order for issuers to know what changes to current practice will be required when the new MARr regime comes into force in July.
The revised Handbook will come into force on 3 July 2016 at the same time as the new MAR regime will apply. However, it is still not clear when all the final Level 2 texts and associated guidance will be finalised. The FCA therefore anticipates that it will add further signposts in the Handbook to provisions of implementing measures and guidance made under MAR at a later stage, and that some Handbook provisions may have to be reassessed depending on the outcome of these.
If you have any questions about MAR or the revised Handbook, please contact your usual Hogan Lovells contact or one of the listed contacts to this article.
To see PS16/13 in full, click here.
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