In this issue we look at when issuers can delay the disclosure of inside information to the market in light of final guidance published by ESMA, as well as the FRC's recent review on annual reporting.

Final guidance from ESMA on delaying inside information

The European Securities and Markets Authority (ESMA) has published final guidelines for when it may be legitimate for issuers to delay the disclosure of inside information under the Market Abuse Regulation ("MAR"). These are substantially the same as the draft guidelines published by ESMA in July 2014. The final guidelines can be found here.


Under Article 17 of MAR, an issuer must disclose inside information as soon as possible. In the UK, this is typically done by publishing the information through a regulatory information service (RIS).

However, Article 17(4) of MAR allows an issuer to delay disclosure if certain conditions are met. These include that immediate disclosure would be likely to prejudice the issuer's legitimate interests, and that delaying disclosure will not mislead the public.

MAR does not define "legitimate interests", but it does give ESMA the power to issue a non-exhaustive list of circumstances that might justify delaying disclosure. The guidelines contain these circumstances.

Financial Conduct Authority (FCA) guidance on delaying disclosure also exists in the form of DTR 2.5.

Legitimate interests

The ESMA guidelines give six circumstances where an issuer might be able to delay disclosure:

  • Disclosure is likely to jeopardise the outcome of on-going negotiations.
  • The issuer's financial viability is in "grave and imminent danger" and immediate disclosure would jeopardise the negotiations to ensure the issuer's financial recovery.
  • The issuer has a dual board structure and is awaiting supervisory board approval (which will not be relevant for companies registered in the UK).
  • Disclosure is likely to jeopardise the issuer's intellectual property rights in a product or invention.
  • Disclosure is likely to jeopardise the acquisition or sale of a major holding in another entity.
  • The issuer has announced a transaction is subject to approval by a public authority, and revealing the conditions for that approval might affect the issuer's ability to satisfy those conditions.

The list is non-exhaustive and appears to give issuers a good degree of flexibility to delay disclosure.

However, issuers in the UK should take care.

The first three circumstances are also set out in DTR 2.5.3G, and UK issuers should feel comfortable relying on them. By contrast, the other examples do not appear in DTR 2.5. Moreover, DTR 2.5.5G specifically states that there are unlikely to be any circumstances justifying delayed disclosure, other than those set out in DTR 2.5.3G.

The FCA consulted on this in November 2015 in CP15/38. At the time, it recommended amending DTR 2.5.5G to make the list of legitimate interests in DTR 2.5.3G non-exhaustive (in line with MAR). However, respondents were worried that, without further guidance, this would introduce uncertainty. The FCA therefore decided not to amend DTR 2.5.5G until ESMA published final guidelines.

A further issue is that neither the ESMA guidelines nor the DTR address financial statements. Issuers publish their financials on an annual or half-yearly reporting date. However, financial statements usually contain inside information for the purposes of MAR, which would need to be disclosed "as soon as possible". This would clearly be contrary to market practice and give rise to problems for issuers.

One view is that an issuer may have a legitimate interest in delaying disclosure of its financial statements in order to preserve an orderly market in its securities. This would not be incompatible with the non-exhaustive list set out in MAR, but it would seem to run counter to DTR 2.5.5G.

Misleading the public

The guidelines also provide examples of situations where delaying disclosure is likely to mislead the public. These include where the inside information being withheld is materially different from a previous announcement or is in contrast with market expectations based on signals sent out by the issuer.

Practical implications

The mismatch between DTR 2.5 and the ESMA guidelines essentially creates two tiers of regulation on delaying disclosure of inside information. This is not in line with MAR's primary purpose of harmonising standards across the European Union and creates a degree of confusion.

Now that the ESMA guidelines have been published, we will be looking to see whether the FCA decides to review DTR 2.5 again and to provide guidance on what it considers to be a "legitimate interest". This may result in the two regimes coming into alignment.

For the time being, however, UK issuers should stay within the strict limits of DTR 2.5 and delay disclosure only where there are on-going negotiations or the financial viability interest applies.


Final guidance from ESMA on market soundings

ESMA has also published final guidelines for persons who receive market soundings under MAR (so-called "MSRs"). These are substantially the same as the draft guidelines published in July 2014. The final guidelines can be found here.

FRC Corporate Reporting Annual Review 2016

  • The Financial Reporting Council (FRC) has published its Corporate Reporting Annual Review for 2015/2016. The review sets out the findings and analysis of the FRC's Corporate Reporting Review team for the year to 31 March 2016. The report can be found here. The key points coming out of the report are:
  • The introduction of strategic reports has improved the quality of narrative reporting. However, overall quality could be improved by making linkages between different aspects of the business.
  • Specific examples of weaknesses include excessive use of underlying profit figures and inappropriate use of alternative performance measures.
  • Stakeholders remain concerned about the length and accessibility of annual reports and accounts.
  • There were too many instances of reports containing generic references to judgments and estimates that could be explained by more concise explanations.
  • The FRC's approach of "pre-informing" companies that it intends to review their tax reporting resulted in improved quality of reporting on tax matters.
  • There are still too many examples of companies giving too much emphasis to pro-forma information prepared on a non-IFRS basis and failing to discuss IFRS results adequately.
  • Detailed disclosure of how dividend policies operate in practice could be better linked to how those policies may be impacted by risks facing the company.