In 2006, a new section 90A of the Financial Services and Markets Act 2000 established a statutory civil liability regime for misstatements to the market by issuers of securities admitted to trading on regulated markets, under which issuers would be liable for fraudulent misstatements in periodic disclosures to the market, as required under the Transparency Directive (2004/109/EC). This clarified the previously uncertain common law regime.

The scope of the statutory regime was restricted to the area in which statutory provision was required by the Transparency Directive because of the differences of opinion among stakeholders with regard to the impact of any further extension. However, anticipating the benefits of expansion, the Government was granted, in section 90B of FSMA, powers to extend the scope of the regime by regulation.

HM Treasury has now published a consultation paper entitled “Extension of the statutory regime for issuer liability”. The extensions proposed to the scope of the statutory regime follow Professor Davies' recommendations, with adjustments to reflect the implementation issues arising during preparation of the proposals. The following changes are proposed in the Consultation Paper:

  • From the current scope of issuers with securities admitted to trading on regulated markets (such as the Main Market of the London Stock Exchange) to include issuers with securities admitted to trading on UK multilateral trading facilities (MTFs, such as AIM and the PLUS-quoted market).
  • To issuers with securities admitted to trading on an EEA regulated market or MTF (provided they have a registered office in the UK or the UK is their home state under the Transparency Directive).
  • To a broad range of ad hoc and periodic disclosures to markets (at present the regime is restricted to periodic disclosures required under the Transparency Directive). This is to be achieved by extending the regime to information disclosed by issuers by means of a recognised information service.
  • To permit sellers of securities to recover losses incurred through reliance on fraudulent misstatements (at present only buyers are permitted to recover).
  • To permit recovery for losses resulting from dishonest delay of a disclosure. An issuer would be liable where the delay is a dishonest act and is for the purpose of enabling a gain to be made or to cause loss to another or expose another to a risk of loss.

Comments on the Consultation Paper are due by 9 October 2008.

View Extension of the statutory regime for issuer liability: consultation, 17 July 2008