At one of our Annual Conference's breakout sessions, Michael Higgins, Chairman, Quoted Companies Alliance and Ebiquity plc, chaired a panel including Debbie Farman of Jordans Corporate Law Limited, Victoria Younghusband of Charles Russell Speechlys LLP and Stuart Andrews of FinnCap, who explained why directors should be aware of upcoming changes regarding the Register of People with Significant Control (PSC Register) and the Market Abuse Regulation.
Regarding the PSC Register, Debbie Farman, Director of Legal Practice at Jordans Corporate Law Limited, highlighted that all UK companies (but not DTR 5 issuers), including LLPs, but excluding UK companies whose voting shares are listed on a regulated market in any European Economic Area (EEA) state, or on markets in Japan, USA, Switzerland or Israel, should now have a PSC Register.
She explained that the particulars of "persons with significant control" (PSC) must be entered onto the PSC Register, unless the PSC is a relevant legal entity (RLE) – defined as a UK company that is either subject to the transparency rules stated in the Small Business, Enterprise and Employment Act 2015, a DTR 5 issuer or a UK company whose voting shares are admitted on a regulated market in any EEA Member State or other permitted market.
Debbie stressed that PSC details must be available for public inspection from 30 June 2016 (or when the first confirmation statement after this date is provided).
She set out the five conditions – of which only one needs to be satisfied – for X to qualify for PSC status:
- X holds directly or indirectly more than 25% of the shares in the UK company;
- X holds directly or indirectly more than 25% of the voting rights in the UK company;
- X holds the right directly or indirectly to appoint or remove a majority of the board of directors of the UK company;
- X has the right to exercise significant influence or control over the UK company (e.g. shadow directors);
- The fifth condition is designed to ensure that where an individual other than trustees or members of the firm has influence over activities of the trust or firm, (s)he is a PSC.
Regarding MAR, Victoria Younghusband, Partner at Charles Russell Speechlys LLP, gave an overview of the new regulation, which came into force on 3 July 2016. She explained that MAR prohibits insider dealing (which includes amending or cancelling an order once inside information has been received), unlawful disclosure and market manipulation.
With regards to inside information, Victoria emphasised the importance of establishing exactly when companies are in possession of inside information as many obligations stem from this. She explained that at the start of each transaction, a discussion should occur as to what and when information will constitute insider information; prudent record keeping is essential to tracking insider information and the onus is on the company to know if this inside information exists, not on the FCA to provide evidence of this later on.
Victoria highlighted that when MiFID II comes into force in January 2018, AIM and ISDX companies will not be required to draw up an insider lists except on request by the FCA. However, she mentioned that it, in the meantime, AIM and ISDX companies would be required to produce and maintaining the insider lists.
Stuart Andrews, Head of Corporate Finance at FinnCap, emphasised the difference between market soundings and discussions in the ordinary course of business (for example, broker-led discussions); the latter do not need to follow the detailed procedures and record-keeping that is required to fall within the market soundings safe harbour.
Stuart also stated that it was a good idea to have a company policy in place to identify insider information. He noted that although most companies already have these processes in place, the new legal requirements were now more stringent and required prudent documentation by small and mid-size quoted companies.
Victoria highlighted that delayed disclosure of inside information is possible if immediate disclosure would prejudice a legitimate interest, would not mislead the public and confidentiality is ensured.
Regarding managers’ transactions in Article 19 of MAR, Victoria explained that Persons Discharging Management Responsibilities (PDMRs) must notify the FCA of transactions carried out by them or their persons closely associated (PCAs), as well as the company within three business days. The company must then notify the market within three business days. Furthermore, there is a threshold of €5,000 per calendar year, below which dealings do not need to be notified.
Victoria commented that the MAR closed period for transactions – applying to all companies including those listed on AIM – is 30 days before the announcement of interim or year-end reports. This means that there are few exceptions for PDMRs to deal in a MAR closed period; in this respect, PDMRs are more limited than they were previously under the Model Code.
Stuart reinforced the fact that, in practice, not much has changed. Although the rules are now stricter, companies are still required to announce price-sensitive information and declare insider dealings. He strongly encouraged directors to take sensible precautions and advice to protect themselves and their companies.