The UK’s Financial Conduct Authority (FCA) has published a special edition of the Primary Market Bulletin to consult on a proposed update to its existing technical note on periodic financial information and inside information (UKLA/TN/506.1). It concerns the delay in the disclosure of inside information under Article 17(4) of the Market Abuse Regulation (MAR).

The FCA’s proposals follow the publication of the European Securities and Markets Authority (ESMA) guidelines on delay in the disclosure of inside information.

What does Article 17 of MAR require?

MAR requires an issuer to inform the public as soon as possible of inside information that directly concerns that issuer (Article 17(1) MAR). An issuer can delay public disclosure of inside information if all of the following conditions are met:

  • Immediate disclosure is likely to prejudice the legitimate interests of the issuer.
  • Delay of disclosure is not likely to mislead the public.
  • The issuer is able to ensure the confidentiality of that information (Article 17(4) MAR).

Article 17(5) contains additional circumstances in which a credit institution or financial institution may delay public disclosure of inside information.

What are the ESMA guidelines?

ESMA guidelines provide a non-exhaustive and indicative list of legitimate interests of the issuer that are likely to be prejudiced by immediate disclosure of inside information and situations in which delay of disclosure is likely to mislead the public.

The guidelines are issued by ESMA under Article 17(11) of MAR.

Legitimate interest to delay: what are the FCA’s proposals?

The proposed amendments are extensive and centre on the issue of identifying and handling inside information during the preparation of periodic financial reports. The draft technical note (UKLA/TN/506.2) sets out another example of a legitimate interest of an issuer which may exist when that issuer is in the process of preparing a periodic financial report. The FCA notes that the requirement to disclose inside information applies even when issuers are in the process of preparing their periodic financial reports.

The draft technical note proposes that, when preparing periodic financial reports, issuers should assess on an ongoing and case-by-case basis whether the information they hold fulfils the criteria defining inside information. The note includes the following guidelines:

  • Issuers should begin from the assumption that information relating to financial results could constitute inside information.
  • Issuers should exercise judgment and conduct the ongoing assessment in good faith.
  • Issuers should record and be able to submit evidence of the assessment process to the FCA upon request.
  • Issuers should not take a blanket approach to the assessment of the status of information they hold i.e. they should not consider that information to be included in periodic financial reports will always or never constitute inside information.

As an example of where immediate disclosure of inside information is likely to prejudice the legitimate interests of an issuer, the FCA considers this may include circumstances where ‘the issuer is in the process of preparing a periodic financial report and immediate public disclosure of the 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. ‘

However, the FCA highlights that issuers should not assume this legitimate interest will always be present. In many cases the FCA believes that an issuer will be able to draft an announcement that enables the correct assessment of the inside information by the public. The FCA accepts though, that in some cases this will not be practicable other than through publication of the full financial report.

Issuers should assess, on an ongoing and case-by-case basis (i) the existence of a legitimate interest and (ii) whether delaying disclosure is likely to mislead the public.

The draft technical note reminds issuers subject to MAR that when an issuer has delayed the disclosure of inside information under Article 17(4) of MAR, the issuer is required immediately after disclosing the information to the public to inform the competent authority that disclosure of the information was delayed. The issuer must also provide to the competent authority upon request, a written explanation of how the conditions permitting such delay were met.

When does the consultation close?

The consultation closes on 23 July 2018.