On 26 November 2015, the FCA updated its Disclosure Rules and Transparency Rules (DTRs). The Financial Services and Markets Act 2000 (FSMA) was also updated with effect from that date. The changes were consulted on in the FCA's joint consultation paper with the Treasury, CP15/11. The amendments were needed in order to implement EU changes to the Transparency Directive (TD). The FCA also took the opportunity to propose other miscellaneous changes to the DTRs. We reported on the proposals in our April newsletter – click here to see a copy of that article.
The FCA and the Treasury published their responses and a summary of feedback received in a joint policy statement,PS15/26. The changes outlined in the consultation have been implemented largely as proposed. However, key differences to note are:
Changes to the original proposals for the DTRs
Despite intending to retain use of the term "qualifying financial instrument", the FCA has decided to remove such references from DTR5 and replace them with a reference to financial instruments to reflect the wording in the relevant provisions of the revised TD. Consequently, paragraphs (1) and (2) of DTR 5.3.2R will also be deleted.
The Glossary definition of "trading book" has been updated for the purposes of the DTRs to reflect a change in the underlying instrument which the TD relies on for its definition of this term.
A consequential amendment has also been made to DTR 5.4.5R which sets out the requirements where a parent undertaking intends to benefit from exemptions in article 12(4) and (5) of the TD.
A new rule (5.7.1AR) has been inserted to clarify the notification requirements where a person who has notified voting rights relating to financial instruments acquires the underlying shares. The new rule reflects the amended text of the TD.
All text in DTR 5 which reproduces the text of Regulatory Technical Standards has been updated to reflect the actual text adopted – the consultation relied on the latest draft text then available.
A consequential amendment has been made to DTR 5.1.4R(2), as this provision for market makers should now refer to financial instruments within DTR 5.3.1R(1) as well as shares, reflecting the change to the market maker exemption in DTR 5.1.3R(3) which has been extended to cover financial instruments.
Following publication by the European Securities and Markets Authority (ESMA) of its updated TD Q&A on 22 October 2015, the FCA is aligning its proposed changes in respect of the requirement for annual and half yearly financial reports to remain publicly available for at least 10 years. The original proposal was that this requirement should apply only to reports published on or after the date that the new rules came into force. However, ESMA's guidance is that reports published less than 5 years before the transposition date should remain publicly available for at least 10 years, whilst those published 5 years or more before the transposition date will be unaffected. The FCA has amended the DTRs in line with this approach.
The FCA is proceeding with its original proposals regarding disclosures of stock-lending transactions other than the proposed notification thresholds. Consequently, stock-lending transactions will be subject to the same notification requirements as all other holdings within the scope of the DTRs.
Notifications under the DTRs
In our November 2015 newsletter, we noted that ESMA had published two new standard forms for:
- issuers to disclose their home Member State, and
- shareholders to notify major holdings of voting rights to competent authorities and issuers as required under the TD.
In respect of the notifications of major holdings, we noted that the FCA had not yet updated its form for this purpose (TR1). In PS15/26, it states that, for the time being, it will continue using the existing TR1 but does propose implementing the new ESMA standard form in the future. It is currently considering the most practical way of doing this.
As regards the notification of home Member States, Primary Market Bulletin 12 provides additional guidance. The FCA advises that it has adopted ESMA's standard form with effect from 26 November 2015. Under the revised TD, from that date, all issuers must disclose their home Member State to the competent authority of the Member State where it has its registered office (where applicable), to the competent authority of the home Member State, and to all host Member States.
If an issuer has a choice of home Member State and does not declare this information within three months of its securities first being admitted to trading, a default home Member State will be given. The new default provision under the revised TD will also apply to any existing issuer who has a choice of home Member State but has not yet notified the FCA of their choice. The FCA therefore requests all issuers who have not yet notified it of their choice of home Member State to do so by 26 February 2016 using ESMA's standard form. In addition, any existing issuers incorporated in the EU who do not have a choice of home Member State will need to inform the FCA of their home Member State if have they not already done so.
In respect of issuers who have already disclosed their home Member State to the FCA, there is no obligation under the revised TD to do so again. However, the new ESMA notification form contains more detail than previously requested by the FCA and it is therefore asking all existing issuers to submit the form to it.
The FCA also advises issuers to use the same standard form to let it know about changes in information previously supplied.
The ESMA standard form is available here.
Changes to the original proposals for FSMA
The revised TD mandates that for breaching the rules around major shareholding notifications, voting rights can be suspended. Member States can specify that voting rights are only to be suspended for the most serious breaches. The TD specifies that competent authorities should be able to impose “an order requiring the natural person or the legal entity responsible to cease the conduct constituting the breach and to desist from any repetition of that conduct”. In CP15/11, the Treasury proposed that the FCA use the existing court-based procedure of section 380 of FSMA to meet this requirement. This enables the FCA to seek an order from the court in the event of a person breaching a ‘relevant requirement’. The order will require the person to remedy the breach.
In response to feedback around the issue of defining what is meant by "most serious breaches", the Treasury has taken on board comments for the purposes of drafting the provision of the statutory instrument which permits the FCA to apply to the court for a suspension of voting rights.
It has also made an amendment to reflect the amount of time taken for a breach to be remedied. To see the text of the statutory instrument, click here.