Delay of Disclosure of Inside Information
The UK's Financial Conduct Authority (FCA) published its 19th edition of the Primary Market Bulletin on 11 June, 2018. The FCA is consulting on a proposed update to its existing guidance note on periodic financial information and inside information1.
Inside InformationUnder Article 17 of the Market Abuse Regulation (MAR)2, an issuer must:
- inform the public as soon as possible of inside information that directly concerns that issuer; and
- post and maintain on its website, for at least five years, all inside information which it is required to disclose publicly.
Under Article 17(4) of MAR, an issuer may delay disclosure of inside information if:
- immediate disclosure is likely to prejudice the issuer's legitimate interests;
- delay of disclosure is not likely to mislead the public; and
- the issuer is able to ensure the confidentiality of the information.
Article 17(4) requires an issuer to notify the FCA if it has delayed the disclosure of inside information and provide an explanation of the delay if the FCA requests.
In October 2016, ESMA published guidelines which set out a list of situations in which an issuer may have legitimate interests in delaying the disclosure of inside information as well as a list of situations in which delay of disclosure of inside information is likely to mislead the public. The list is indicative and non-exhaustive.
The Updated Note
The proposed FCA technical note uses the example of the preparation of a periodic financial report to illustrate its recommendations on the process for identifying and handling inside information.
When preparing its periodic financial reports, an issuer should assess on an on-going and case-by-case basis whether the information it holds satisfies the criteria of inside information in Article 7 of MAR. In doing so, the issuer should start from the assumption that information relating to financial results could constitute inside information.
The note sets out the following guidelines for the assessment of such information:
- issuers should exercise judgment and should conduct the ongoing assessment in good faith;
- issuers should record and be able to submit evidence of the assessment process to the FCA on request; and
- issuers should not take a blanket approach to the assessment of the status of the information they hold.
Once it has been established that information constitutes inside information, the FCA considers that disclosure may be prejudicial to the issuer's legitimate interests where:
“the issuer is in the process of preparing a periodic financial report and immediate public disclosure of information to be included in the report would impact on the orderly production and release of the report and could result in the incorrect assessment of the information by the public.”
The FCA notes that in many cases, the issuer will be able to draft an appropriate announcement which allows the public to undertake a correct assessment of the inside information. However, it accepts that in some cases such assessment will not be practicable other than through publication of the full financial report.
As with the initial assessment of the status of information, the note states that issuers should assess both the existence of a legitimate interest and the question of whether delay of disclosure is likely to mislead the public on an ongoing and case-by-case basis.
The note concludes with a reminder that when an issuer has delayed the disclosure of inside information in accordance with Article 17(4) MAR, it is required immediately following disclosure of the information to inform the FCA that disclosure of the inside information was delayed. The issuer must be able to provide the FCA upon request with a written explanation of how the conditions permitting such delay were satisfied.
Comments on the proposal should be submitted by 23 July 2018.
If the proposals are approved, the revised technical note will offer some guidance on the identification and disclosure of inside information, particularly in the context of preparing periodic financial reports.
Firstly, the FCA makes clear that the decision-making process when identifying and disclosing or delaying disclosure must be subjective. A blanket approach will not be sufficient and issuers should take a more nuanced approach.
Secondly, issuers should take care to keep written records of such decisions and should be prepared to produce evidence to the FCA as to how information has been categorised and how a legitimate interest which allows for a delay in disclosure has been determined to exist.
Thirdly, the note sheds some light on the type of situation in which immediate disclosure would be likely to prejudice the issuer's legitimate interests. Taken alongside the ESMA guidance, it potentially opens the door to delaying disclosure on new sets of facts. However, although the proposals are to be welcomed, it is worth bearing in mind that the FCA has stated that both it and ESMA interpret Article 17(4) of MAR narrowly.