On June 4, HM Treasury published the final report by Professor Paul Davies QC, a leading company law academic, on issuer liability to investors in respect of misstatements to the market.

The background to the review is that Section 90A of the UK Financial Services and Markets Act 2000 (FSMA), introduced by section 1270 of the UK Companies Act 2006, establishes a statutory liability regime under which issuers will be liable for fraudulent misstatements in periodic disclosures to the market – a law change required in order to implement the EU Transparency Directive. The review was commissioned to consider industry concerns about the consistency of the new statutory liability regime and whether common law rights of shareholders were at risk.

The final report recommends that HM Treasury should introduce regulations to extend the statutory liability regime to include liability for corporate misstatements to the market. The report also recommends that (i) fraud be maintained as the standard of liability; (ii) the statutory regime should apply to all ad hoc disclosures and Regulatory Information Service (RIS) announcements; (iii) the regime should extend to disclosure by issuers with securities listed on exchanges (including AIM and the Plus (Ofex) Market) and all multilateral trading facilities; (iv) there should be liability for dishonest delay in making statements to the RIS; and (v) rights should be conferred equally on buyers and sellers.