29/11/2024[2nd Edition] The Football Governance Bill and the Independent Football Regulator
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27/11/2024
The Financial Conduct Authority (“FCA”) has released some new guidance and provided a reminder to listed issuers as to the manner in which they should identify and make public any inside information under the UK Market Abuse Regulations (“MAR”). The guidance is contained in Bulletin 52 (see here for full details: Primary Market Bulletin 52 | FCA ) and has recently been issued by the FCA in order to illustrate how it expects listed issuers to react in certain scenarios where inside information may arise and also to give some guidance as to the approach that issuers may look to take in those scenarios.
In particular, the FCA have provided some particular guidance on the use of social media, such as WhatsApp and other platforms that directors may use to communicate with shareholders and other key stakeholders.
Bulletin 52 considers three common scenarios where information may constitute insider information.
Receipt of takeover offers for all or part of a company
Acceptance of a takeover offer made in accordance with the UK’s City Code on Takeovers and Mergers will always constitute inside information. However, as to whether the receipt of an offer constitutes inside information will need to be assessed on a case-by-case basis. Under Article 7 of MAR, inside information has to be ‘precise’, the test for which is set as indicating that a set of circumstances exist, or which may reasonably be expected to come into existence. As such, in assessing whether the knowledge that the directors have of a takeover bid is precise enough to be considered inside information, issuers should have regard to the following factors:
Bulletin 52 suggests that an offer may be classified as inside information before the board has formally considered it, noting that in Hannam v FCA [2014] UKUT 0233 (TCC) the threshold for precision was described as being lower than the event being more likely than not.
A further factor to consider may be whether there is press speculation surrounding a potential takeover. If an issuer believes that speculation or rumour amounts to inside information, then it is obliged to make public the information under Article 17(1) of MAR in any event.
Periodic financial information
Bulletin 52 refers to previous guidance provided (in Technical Note 506.2) on the classification of periodic financial information. If finance packs are presented to the board weeks prior to a scheduled earnings statement and they show internal forecasts not being met, or major contracts being lost, then this may constitute inside information.
There are a limited number of circumstances contained in Article 17(4) of MAR where an issuer is able to delay the disclosure of the information. For this provision to apply, immediate disclosure of the inside information must be likely to prejudice the legitimate interests of the issuer and the delay must not be likely to mislead the public. The FCA also took the opportunity to remind issuers that delaying the disclosure of insider information cannot be justified by offsetting negative and positive news.
CEO resignations and appointments
The imminent departure and, in some cases, replacement of a CEO may also be considered inside information. Separate assessments should be carried out for the departure of the CEO and the appointment of another as these are two separate pieces of information.
Such decisions do not need to be formally taken before they can become inside information; for example, a CEO signalling their intention to resign to the board may reach the threshold for being a precise enough. Whether an announcement of this information is likely to affect the share price is also baked into the definition of inside information and an issuer will therefore also have to assess price sensitivity of such an event occurring. In doing so, the factors it should have regard to are:
The FCA has registered its concern that inside information is being disseminated to major shareholders via communication apps such as WhatApp. Recital 19 of MAR states that discussions of a general nature regarding the business between shareholders and management are perfectly valid. But such conversations carry the risk of management either deliberately or inadvertently disclosing confidential, non-public or price-sensitive information which does meet the threshold for inside information. The Bulletin distinguishes this from market soundings, which are permitted under Article 11 of MAR.
Bulletin 52 offers the following guidance for issuers in their private communications with shareholder groups:
Issuers are obliged to use a Primary Information Provider (i.e. a Regulatory Information Service or RIS) when they have to disclose regulated information. However, the global technology issues caused by the CrowdStrike update on 19 July 2024 caused some advisers to be unable to make these disclosures on behalf of issuers.
While the PIP’s did generally follow the business continuity arrangements imposed upon them by the Disclosure and Transparency Rules (DTR 8.4.9), there were some instances where issuers published information prior to it being disseminated by their PIP. In this context, the FCA has reminded issuers that they do not pass on their disclosure obligations to PIP’s upon submitting a request to release information. It is therefore vital that issuers double check that their PIP has properly disseminated the inside information before making their own announcements.
This latest Bulletin issued by the FCA once again underscores the importance that the FCA places on the requirement for issuers to comply with the requirements of UK MAR and that this is a key area of focus for them. This follows various censures and fines that have been issued recently by the FCA to a variety of listed issuers for failure to observe the requirements of UK MAR.
Issuers need to be mindful of this when considering whether an announcement needs to be made because they are in possession of inside information and where there is no legitimate reason to delay making it available to the public. The use of social media platforms by directors to communicate with shareholders and other stakeholders needs to be given proper consideration and the same level of diligence and approach applied as if communicating through more conventional outlets.
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