FCA issues additional guidance on inside information under UK Market Abuse Regulation

The Financial Conduct Authority (FCA) has published Primary Market Bulletin 52, providing essential updates and guidance on the UK Market Abuse Regulation (MAR).

The bulletin covers several critical areas (including helpful guidance around the management of inside information) crucial for maintaining market integrity, ensuring fair treatment of all investors, and bolstering overall confidence in public markets. Issuers should consider the new guidance and take governance and practical actions to ensure inside information is properly identified and safeguarded.

Definition and disclosure of inside information

The FCA's guidance clarifies the definition of inside information under the MAR.

As a reminder, inside information is characterised by:

Precise nature

Information must be specific enough to allow a conclusion about its potential effect on financial instrument prices. The European Court of Justice ruled in Markus Geltl v Daimler AG that information must have a "realistic prospect of coming into existence" to be considered precise.

Non-public

The information has not been made available to the public.

Relates to issuers or financial instruments

The information directly or indirectly concerns one or more issuers or financial instruments.

Price sensitivity

The information is information a reasonable investor would be likely to use as part of the basis of their investment decisions.

Timely disclosure

The FCA stresses the importance of timely and accurate disclosure of inside information to prevent market abuse and ensure that all investors have equal access to significant information.

Delays in disclosure are permissible only under specific conditions, such as protecting an issuer's legitimate interests, provided this does not mislead the public and confidentiality is maintained (Article 17(4) MAR).

Offers for traded and listed companies

For listed or traded companies, the FCA has clarified that inside information can crystallise before an offer is accepted by the board.

A company must assess whether an offer constitutes inside information on a case-by-case basis, considering factors such as the identity of the bidder, the nature and amount of the offer, and the likelihood that the board will recommend the offer.

The "realistic prospect" test must be applied to determine if the information is sufficiently precise. In Hannam v FCA (2014), the tribunal held that information is precise if there is "more than a fanciful chance" of the future events occurring, but that the threshold is lower than "more likely than not". Therefore, the receipt of an offer may be inside information before it has been formally considered by directors.

Press speculation

Companies should pay attention to press speculation or rumours during an offer process.

Although they are not required to correct false rumours, they must evaluate whether they need to disclose information under the Disclosure Guidance and Transparency Rules (DTR) 2.7.1 R and Article 17(1) of MAR.

If the issuer believes the speculation or rumour qualifies as inside information and they were delaying its disclosure under Article 17(4), they may need to release the information publicly as soon as possible if confidentiality can no longer be maintained.

Periodic financial information

The FCA has provided specific guidance on handling periodic financial information, emphasising the need to assess whether such information constitutes inside information on an ongoing basis.

For instance, if financial results are significantly underperforming market forecasts, this should be disclosed promptly. Delaying disclosure is only permissible in limited circumstances under Article 17(4) of MAR.

Managing CEO resignations and appointments

Issuers must also continuously assess when developments in the appointment or resignation process become inside information. The recruitment of a successor can have a long lead time, and the assessment should be ongoing and case-by-case.

Separate assessments should be made for the resignation and appointment, as they are distinct pieces of information that may constitute inside information at different times.

Factors to consider when assessing the price sensitivity of the resignation and appointment include the CEO's length of service, market expectations of their retirement, the existence of a natural successor, and the reasons behind the CEO's resignation.

If an issuer decides to delay disclosure and the information leaks, they must disclose it to the public as soon as possible under Article 17(7) of MAR. Continuous press speculation may also necessitate disclosure.

Companies listed in the equity shares (commercial companies) category must also adhere to the notification requirements outlined in UK Listing Rule 6.4.6 R, notifying a Regulatory Information Service (RIS) of any board changes, including director appointments and resignations, as soon as possible and by the end of the business day following the decision.

Communicating with shareholders

Issuers should exercise caution when communicating with shareholders, especially through private channels like WhatsApp. They must ensure no inside information is disclosed and consider making public announcements if necessary. However, this does not prevent discussions of a general nature of business and market developments.

FCA interventions

The FCA may intervene if unusual share price movements suggest improper disclosure of inside information. Issuers should be prepared to discuss their communications and disclosure practices with the FCA.

Dissemination of regulatory information

Issuers must use a Primary Information Provider (PIP) to disseminate regulated information.

Recommended actions for issuers

Establish a disclosure committee

Form a committee to determine when information meets the threshold for inside information and decide on the timing and content of announcements.

Ensure the committee has access to external counsel, including legal, advisory, and corporate brokers.

Empower key executives

Ensure that the CFO, CEO, and company secretary can make announcements on performance and event-based inside information outside of normal reporting timetables.

Train employees

Train relevant employees, including those in the finance function, to recognise inside information. This could include rehearsing scenarios that may arise during the preparation of periodic financial information.

Control and manage information

Promptly control and manage information classified as inside information, including the timely creation and updating of insider lists.

Document decisions

Document the reasons for classifying information as inside information or, where it was considered and concluded not to be, document those reasons.

Cordelia Lupson, trainee solicitor at Osborne Clarke, assisted with the production of this Insight