FCA review of delayed disclosure of inside information notifications

The FCA recently published a review of Delayed Disclosure of Inside Information (“DDII”) notifications received under Article 17.4 of MAR[1] in which they have identified a number of areas in which it will be increasing its oversight going forward, aimed generally at raising awareness of the DDII notification requirements and MAR and stressing the importance of issuers having adequate arrangements in place to identify, handle and disclose inside information.

Inside Information and Delayed Disclosure

MAR requires an issuer to inform the public as soon as possible of any inside information directly concerning that issuer unless the issuer may delay the disclosure of such inside information pursuant to the delayed disclosure rules under Articles 17(4) and (5) of MAR.

Pursuant to Article 17(4) of MAR, an issuer may delay disclosure of inside information only if all of the following conditions are met:

1. immediate disclosure is likely to prejudice the legitimate interests of the issuer;
2. delayed disclosure is not likely to mislead the public; and
3. the issuer is able to ensure confidentiality of that information.

When an issuer delays disclosure of inside information pursuant to Article 17(4) of MAR, it must, immediately after disclosing the information to the public, inform the FCA that disclosure was delayed and be prepared to provide, upon request, a written explanation as to why it was entitled to delay the disclosure.

Prior to undertaking its DDII notification review, the FCA had established a baseline of expectations in respect of the volume of notifications for particular categories of inside information, the length of delay between the decision to delay disclosure and the eventual announcement, and price movements in securities in connection with delayed disclosures. However, the FCA has found disparities between the expected and actual results, most notably in respect of the volume of DDII notifications received for certain categories of inside information and/or the proportion of issuers submitting such notifications, raising concerns that issuers may not be aware of the requirement to submit a DDII notification.

The areas where such disparities were the greatest, and which will therefore be subject to increased scrutiny in the future are as follows:

1. Periodic Financial Information

Issuers in the process of preparing their periodic financial reports should be assessing on an ongoing and case-by-case basis whether the information they hold fulfils the criteria of “inside information” as set out in Article 7 of MAR. A blanket approach to such assessment is not appropriate, so issuers should not assume that information to be included in their periodic financial reports will either always or never constitute inside information. Instead, the FCA has recommended that issuers always start with the assumption that information relating to its financial results could constitute inside information, but that issuers are expected to exercise their judgment and conduct their ongoing assessment of inside information in good faith, and record such assessments to ensure they are able to submit evidence of the assessment process to the FCA if it is requested.

The FCA found that fewer DDII notifications were received in respect of periodic financial information than it expected, raising a concern that issuers may not be adequately identifying and notifying the FCA of instances where periodic financial information is itself or otherwise contains inside information. While it could be that the low volume of DDII notifications received in respect of this category may be due to issuers strict discipline in identifying inside information within their periodic financial information and expediting disclosure in respect of it, the volume of unscheduled financial information being announced remained lower than expected.

2. Unscheduled Financial Information

Where there is an unexpected and significant event that affects an issuer, the Disclosure Guidance and Transparency Rules (“DGTR”) 2.2.9G provides that a short delay to disclosure of inside information could be acceptable if such delay is necessary in order to clarify the situation, and during that delay a holding announcement is released with:

• as much detail on the subject matter as possible
• the reasons why a fuller announcement cannot be made at that time, and
• an undertaking to announce further details as soon as possible.

Due to the nature of the information contained in trading updates, trading statements and other ad hoc announcements in respect of an issuer’s financial performance that are released between periodic financial reports, the FCA expects relatively low volumes of DDII notifications in respect of unscheduled financial information. Issuers would generally have few grounds to delay disclosure of unscheduled financial information, since while European Securities and Markets Authority (“ESMA”) guidance has specified that while it may be possible that information to be included in periodic financial information may, if immediately disclosed, prejudice the legitimate interests of the issuer, there is no similar specific legitimate interest in respect of the immediate disclosure of unscheduled financial information. In the event a DDII notification is made in this category the FCA would have expected the delay period to be shorter than for inside information contained in periodic financial reports.

The review found that DDII notifications for unscheduled financial information on average demonstrated longer delays than those relating to periodic financial information, and that while only 49 DDII notifications were submitted in this category, a total of 3,132 trading statements had been released in the same period. While it is possible that such disparity is a result of timely dissemination of inside information across the market, the FCA has raised a concern that it is also possible that issuers are either failing to recognise inside information early enough or failing to comply with the MAR delayed disclosure notification requirements entirely.

3. Director/Board Changes

The average period of delay in respect of disclosures of board and/or director changes is small in comparison to other categories of DDII notifications. However, the FCA was surprised by the relatively high volume of notifications in this category as it is not a specified legitimate interest under the ESMA guidelines. The FCA has indicated that this area will be one for further scrutiny as it likely exacerbates concerns that issuers may not be undertaking appropriate assessments of delays to disclosure and/or not seeking and obtaining appropriate advice in respect of delays and disclosure where necessary.

Future monitoring – key points for issuers’ awareness

In addition to the key areas indicated above, the FCA also noted the low overall volume of DDII notifications for the period under review as a proportion of the total number of issuers with securities admitted to the Official List, AIM or the NEX Growth market. While some issuers may have reported DDII notifications to their home Competent Authority, the FCA is the relevant authority for a majority of the issuers, of which only a quarter submitted DDII notifications during the review period. The conclusion drawn from this by the FCA and ESMA (during its recent MAR review) is that issuers may not have invested in appropriate procedures, systems and controls to comply with their obligations under Articles 17(1) and 17(4) of MAR.

The FCA is therefore committed to stepping up their monitoring activities in respect of DDII notifications generally and raising awareness of the need for issuers to undertake and record assessments as to whether conditions to the delayed disclosure of inside information are met on a case-by case basis, reviewing such assessments on an ongoing basis to determine whether such conditions continue to be met thereafter, and submitting DDII notifications where relevant. Issuers should ensure sufficient training and guidance is given to those involved in the process and decision making in respect of delayed disclosure and that they seek and obtain adequate advice in respect of disclosure or delay where necessary.

If you would like to discuss any of the above, please contact Alasdair Steele or your regular CMS contact.

[1] MAR will be incorporated into UK law with effect from the end of the Brexit transition period (31 December 2020).