- On 11 November 2020, the FCA published a review of delayed disclosure of inside information (DDII)1 by issuers under MAR2 as part of its latest Primary Market Bulletin newsletter3.
- As part of this review the FCA analysed all 1,610 DDII notifications it received between MAR coming into force on 3 July 2016 and 12 November 2018.
- The review highlighted the FCA's concerns about issuers' awareness of their obligations regarding the identification, delay of disclosure, and notification of delayed disclosure of inside information under MAR, in particular when dealing with periodic financial results, unscheduled trading updates and board changes. As a result, the FCA intends to step up its monitoring activities in this area.
What does this mean for market participants?
- Issuers and their advisers should be prepared for the increased likelihood of queries from the FCA on DDII and MAR compliance more generally, particularly in response to significant share price movements or market rumours. The proper documenting of decision-making and seeking of advice continue to be vital in ensuring that issuers can address any FCA queries and avoid further scrutiny or regulatory action.
- The FCA has reiterated its view that information relating to periodic financial results could constitute inside information regardless of market expectations, which differs from the position currently taken by many market participants. Issuers may therefore want to review their financial reporting processes to ensure that any inside information arising can be identified promptly and handled correctly.
- While we note that the FCA's review period pre-dates the market volatility of the past year, the increased monitoring of trading updates will be especially relevant given ongoing economic uncertainty. Where an issuer's financial performance is not in line with market expectations and inside information arises, MAR requires this to be identified and announced as soon as possible and issuers producing trading updates should be prepared for the FCA to query any significant delays in disclosure.
- Issuers may also want to take this opportunity to review their inside information policies, procedures and training programmes more generally to ensure their management teams can make robust and timely decisions on the identification and disclosure of inside information, promptly submit any required DDII notifications and maintain appropriate records of compliance with their obligations under MAR.
- We would be delighted to discuss any questions you have around MAR compliance and provide you with the necessary training, checklists and templates to ensure that you are properly identifying, disclosing and documenting decisions in relation to inside information. Please contact Jon, Inigo, Patrick, Dom, Guy, Andy or your usual W&C contact for further assistance.
Key findings of the review
The FCA's main findings were as follows:
|Overall level of DDII notifications
- The FCA was concerned that only 25% of issuers had submitted a DDII notification during the review period, which may point to a general lack of awareness among issuers of the DDII notification requirements.
|Periodic financial information (eg annual / interim results)
- The FCA found a lower than expected volume of DDII notifications for periodic financial information (with 159 notifications against over 10,000 results announcements during the review period) and had expected more issuers to treat periodic financial information as inside information regardless of how it compared to market expectations.
- The FCA reminded issuers that, as per the guidance in its April 2019 technical note4, they should begin from the assumption that information relating to financial results could constitute inside information but that there may be a legitimate interest in delaying its disclosure where this would impact the orderly production and release of results.
- In its review, the FCA notes that this may result in a long delay period of several weeks between inside information arising and the scheduled release of results.
- The FCA expressed concern that some issuers may not be adequately identifying inside information (and submitting the necessary DDII notifications) when producing periodic financial information.
|Unscheduled financial information (eg trading updates)
- The FCA was surprised at the average length of delay (21 days) for disclosure of unscheduled financial information, since MAR provides limited grounds for delay in such cases and the DTRs say only that where an unexpected and significant event arises, a short delay to clarify the situation may be acceptable.5
- Accordingly, the FCA expected a relatively low volume of DDII notifications for unscheduled financial information. However, it noted that there were only 49 notifications against over 3,000 trading updates during the review period, suggesting issuers may not be identifying inside information early enough or complying with the DDII notification requirements.
- As a result, the FCA will increase its monitoring of both identification of inside information and compliance with DDII notification requirements by issuers when they release unscheduled financial information.
|Director / board changes
- The FCA was surprised by the number of DDII notifications (86) regarding board changes as there is no specific legitimate interest justifying delay under the relevant ESMA guidelines. The FCA will also increase its monitoring in this area.
5 DTR 2.2.9G