Directive 2013/50/EU1 (the Amending Directive) which amends Directive 2004/109/EC2 commonly known as the Transparency Directive has just been implemented in Luxembourg through the adoption by the Parliament of the law dated 10 May 2016 (the Law) which is a substantive revision of the law of 11 January 2008 on transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, as amended (the Transparency Law).
1. Revising the Transparency Law
The Law is the result of a process that started with the report issued by the European Commission on 23 May 2010 on the operation of the Transparency Directive, and which ultimately led to the adoption of the Amending Directive which entered into force on 6 November 2013.
The main objective of the revision of the Transparency Directive at European level is to make regulated capital markets more attractive for issuers, by simplifying the administrative burden on them, especially small and medium- sized companies, and by improving the effectiveness of the existing regime and making it more protective for investors. Notably, it is considered that simplifying the transparency requirements and reinforcing supervisory control will help to make the transparency regime more efficient. The Grand Duchy of Luxembourg (Luxembourg) has followed this route by closely implementing the Amending Directive.
This newsflash highlights the key changes introduced by the Law, including in relation to the notion of the home Member State, the publication and disclosure requirements and the role and disciplinary powers of the Luxembourg supervisory authority, the Commission de Surveillance du Secteur Financier (the CSSF).
2. Key changes
Choice and disclosure of the home Member State
To ensure that all transparency requirements are properly monitored by the relevant supervisory authority, the Law introduces amendments to the rules pertaining to the determination of the home Member State in certain specific cases. In particular, the revised rules simplify and clarify the criteria for determining the home Member State in the case of third-country issuers, as well as for issuers having securities admitted to trading on regulated markets in several Member States. Depending on the circumstances, the choice of home Member State will now need to be notified to the competent authorities of (i) the Member State where the issuer has its registered office, (ii) its home Member State and (iii) all host Member States. When an issuer has not disclosed its home Member State, a situation that frequently arose in practice under the previous transparency regime, the home Member State will by default be the Member State where the issuer’s securities are admitted to trading on a regulated market.3
Amendments to publication requirements
In line with the concerns raised by market participants, the Law also amends the publication requirements relating to periodic and ongoing information. The aim is to obtain a better balance between reducing the administrative burden for issuers and maintaining adequate protection for investors. Consequently, the Law (i) extends the period for publishing half-yearly financial reports from two to three months and the period during which annual and half-yearly financial reports must remain publicly available (now extended to ten years),4 but also (ii) repeals the requirement to publish quarterly financial statements.
It should be noted that from 1 January 2020 annual financial reports will have to be drafted according to the new “European Single Electronic Format” (ESEF), concerning which the European Securities and Markets Authority (ESMA) launched a consultation on 25 September 2015 with a view to developing regulatory technical standards.5
Moreover, the Law introduces a new disclosure obligation for issuers who are active in the extraction or logging of primary forest industries. Influenced by the Extractive Industries Transparency Initiative, a global standard for promoting the open and accountable management of natural resources, this new obligation requires those issuers to publish annually a report on payments made to governments in the countries where they operate. The aim is to fight corruption, preserve the environment and shed light on the revenues from the exploitation of natural resources.
Major shareholdings disclosures
In addition to the simplification of publication requirements, the Law revises the obligation to disclose major shareholdings which is triggered when the proportion of voting rights reaches, exceeds or falls below certain thresholds set out in the Transparency Law. In order to keep up with financial innovations, which may enable shareholders to circumvent the obligation to disclose major shareholding notifications, the Law clarifies the notion of specific financial instruments falling within this requirement by including all instruments with an economic effect similar to holding shares and entitlements to acquire shares.6 The Law further specifies the methods for determining the number of voting rights attached to such financial instruments with physical or cash settlements.7
On a related note, to make sure that notifications of major holdings are now harmonised uniformly in all the Member States, the Amending Directive amended the aggregation rules relating to the holding of shares and financial instruments. The Law now implements these rules strictly by requiring the number of voting rights related to financial instruments to be aggregated with the number of voting rights attached to shares held directly or indirectly for the purposes of such disclosures.8 This measure is an important step towards a more efficient transparency regime, since it enables issuers and investors to better assess how corporate ownership is evolving, notwithstanding the use of specific financial instruments.
As well as the clarifications about major holdings disclosures, the Law also introduces an exemption for stabilisation activities. When such activities are carried out in compliance with European Commission Regulation No 2279/2003,9 the voting rights attached to shares acquired for those activities are excluded from the requirements for disclosure of major shareholdings, unless those voting rights are exercised or used to intervene in the management of the issuer.
European electronic access point to regulated information
To improve access to regulated information throughout the European Union, and hence facilitate cross-border investments, the Law now requires the Officially Appointed Mechanism (OAM) designated for the central storage of regulated information10 to enable access to such regulated information through the European Electronic Access Point (the EEAP). The EEAP is defined in the Amending Directive as a web portal developed and operated by ESMA, which should be in operation as from 1 January 2018.11
Disciplinary powers of the CSSF
Last but not least, the Law reinforces the role of the CSSF in relation to the supervision and enforcement of transparency requirements and the penalties for breaching those requirements, with a view to increasing their deterrent effect. The CSSF is now entitled to impose heavier administrative fines on both individuals and legal entities. The fines can even be levied on members of the management, the board of managers or the supervisory board in the case of a legal entity. Along with the heavier fines, the CSSF now explicitly has the power to publish its decisions regarding failures to comply with the transparency regime. In certain circumstances specified by the Law, the CSSF may also delay such publication, or omit the names of those concerned.
3. Next steps
The full implementation of the Law requires further developments at both national and European levels:
- The European Commission is currently reviewing ESMA’s final report on the EEAP which will lead to the adoption of new regulatory measures.
- ESMA’s consultation on the ESEF regulatory technical standards (which closed on 18 January 2016) will be followed by the publication of a set of draft regulatory technical standards which the European Commission will review within three months after its publication before approving said standards.
- Following the implementation of the Law, the update of ESMA’s Q&A document on 22 October 2015,12 and the adoption of the new regulatory technical standards, it is expected that the CSSF will update its own circulars and Q&A document on the transparency regime to reflect the changes implemented by the Law.