Inside information: It could be sooner than you think

Identifying inside information

Following the FCA’s work in relation to potential leaks and live market monitoring, PMB 52 highlights three common scenarios in which the FCA has seen differing approaches taken by issuers (offer processes, preparation of periodic financial information and CEO resignations and appointments). It highlights a number of practical steps that issuers should consider taking in relation to identification of inside information in these scenarios and more generally.

Offer processes

The FCA gives non-exhaustive examples of potential factors that could be taken into account by issuers when assessing whether the receipt of an offer is inside information, such as:

• the identity of the bidder;
• the nature/quantum of the offer; and
• the likelihood of it being recommended by the issuer’s board.

In relation to the last of these, the FCA flags that it is possible that receipt of an offer could amount to inside information before it has been formally considered and recommended by the board.  This is because, when assessing whether information is “precise” for the purposes of the inside information analysis and considering whether future circumstances/events can reasonably be expected to come into existence/occur, the test is not whether this is “more likely than not”; instead the test is lower and capable of being met where there is a “more than fanciful chance” of the future event or circumstances occurring.

PMB 52 also discusses the implications of press speculation/rumours during an offer process, stresses the importance of issuers complying with insider lists and other obligations under UK MAR during any period of delayed disclosure, and notes that there may be circumstances where a disclosure requirement is triggered under UK MAR notwithstanding that an announcement is not required under the UK Takeover Code.

Preparation of periodic financial information

PMB 52 refers to the guidance on periodic financial information and inside information in Technical Note 506.2, reminding issuers that assessment must be made on a case-by-case basis (rather than taking a blanket approach that information to be included in periodic financial reports will always or never constitute inside information) and that, where inside information does arise, delayed disclosure will only be permitted in the limited circumstances discussed in the Technical Note.

The FCA highlights that there are situations where information could be inside information at an early stage but where delayed disclosure is not justified, in which case information should be disclosed as soon as possible in a way which allows it to be correctly assessed by the public. By way of example, the FCA has seen cases where finance packs presented to the board weeks before a scheduled earnings announcement have shown revenues did not meet internal/external consensus forecasts.  In some cases, a decision has been taken not to disclose the fact that performance is significantly behind forecast on the basis this will be made up for by significant over-performance later in the year.  Where this has then not happened, publication of the financial statements has in some cases resulted in share price falls of between 40% and 50% (the FCA has also seen similar effects from the loss of major contracts which it notes is another event which may take time to become certain).

The FCA points to the existing guidance which makes it clear that justifying non-disclosure by offsetting negative and positive news is not acceptable and that issuers should not delay disclosure of the fact they are in financial difficulty or that their financial condition is worsening, although they may be able to delay disclosure of the fact or substance of negotiations to deal with such a situation.

CEO resignations and appointments

While the FCA is conscious issuers are likely to want to manage disclosure of a CEO’s resignation and the appointment of their replacement as smoothly/concurrently as possible, it stresses the importance of timely identification and disclosure of inside information – especially where there is a leak or press speculation during the succession process.

Separate assessments should be carried out in relation to both the resignation and the appointment (given each could on its own be capable of constituting inside information at different points in time) and issuers should carefully and continuously consider on a case-by-case basis whether inside information has arisen. It is possible for inside information to exist at an early stage and before the formal resignation of the existing CEO/appointment of their replacement – the FCA notes, for example, this could include where the CEO has signalled an intention to resign and/or the board has started discussions to appoint a potential successor. In this context, when assessing whether inside information exists, the test of whether the information is precise is most relevant and the FCA reminds issuers that intermediate steps in a protracted process are capable of constituting inside information. Factors that issuers may want to consider when assessing the price sensitivity of the resignation/appointment could include the existing CEO’s length of service (and therefore the market’s expectation in terms of their retirement as CEO), the expectation that a “natural” successor exists or the reasons behind the resignation. Particular care should be taken to control inside information during the recruitment process – especially where an external search consultancy has been appointed.

The FCA references the possibility of delayed disclosure of either a resignation or appointment noting that, where there is a leak, an announcement should be made as soon as possible.  Where there is continuous press speculation about the succession, issuers should consider whether this constitutes a leak. The FCA reminds issuers of the guidance on delaying disclosure and dealing with leaks and rumours in Technical Note 520.2 and suggests factors to take into account could include the accuracy of the speculation in relation to both the identity/number of potential successors and the stage to which the identification and appointment process has progressed.

Issuers with a listing in the equity shares (commercial companies) (ESCC) category are also reminded that they must comply with the specific notifications required under UKLR 6 in relation to board changes.

Practical steps issuers can take

The FCA sets out a number of actions issuers could take to make sure they are well prepared to correctly identify when information may constitute inside information. These include:

• Establishing a disclosure committee with a clear understanding of the definition of inside information and access to external advisers at short notice.
• Ensuring that the CFO, CEO and company secretary can make announcements on performance/event based inside information outside of normal reporting timetables and absent a formal disclosure committee being held.
• Appropriate training for relevant employees (including within the finance function) to enable them to recognise when information may amount to inside information – the FCA notes this could include rehearsing scenarios that could arise (for example, during preparation of periodic financial information).
• Ensuring inside information is promptly controlled and managed appropriately and that insider lists are created/updated on a timely basis.
• Documenting the reasons information was (or was not) classified as inside information.

Shareholder calls/meetings

The FCA recognises regular shareholder engagement is a key principle of good governance and that issuers will interact with their shareholders multiple times during a financial year and will use different channels to do so. It is aware that (alongside communications with the media, analysts, institutional shareholders and other stakeholders) some issuers use communication apps and private calls to interact with investors, in particular groups of smaller private shareholders. While these interactions can provide smaller shareholders with an important opportunity to engage directly with the issuer’s management on performance and strategy, they can also create risks that confidential, non-public or price-sensitive information is shared. The FCA has seen these risk crystallise where calls take place in the absence of the issuer publishing any RIS announcements regarding progress/financial performance outside its periodic financial reporting obligations under DTR 4.

Issuers are reminded that the disclosure of inside information is prohibited under UK MAR unless it is necessary in the normal exercise of an employment, a profession or duties and PMB 52 refers, among other things, to the financial penalty imposed on Sir Christopher Gent in 2022 (see our briefing Key takeaways in relation to the FCA's decision concerning Sir Christopher Gent) in this context. Other points made by the FCA include:

• Communications between issuers and shareholders in private forums/channels are considered “dissemination” under UK MAR for the purposes of the offence of market manipulation by dissemination of information which gives, or is likely to give, false or misleading signals.
• Shareholders may perceive statements made by management during a communication to be price sensitive and/or material new information even where they are not – as such, management should be careful to ensure language used is clear and unambiguous so that it is understood by investors.
• Issuers should be cognisant that, where they are delaying disclosure of inside information, an announcement will be required as soon as possible if they are no longer able to ensure the confidentiality of that information.

Where the FCA sees untoward share price movements on the back of investor calls taking place, it is likely to make contact in real time to understand what was discussed and whether the issuer may have an announcement obligation. It may also make further enquiries (which could lead to enforcement action) after the event if it suspects inside information may have been disclosed or discussed.

Practical steps issuers can take

The FCA sets out some actions which issuers may want to consider in order to limit the risk of inside information being disclosed or misleading statements being made if they do communicate privately with shareholder groups. These include:

• Avoiding scheduling calls/making communications during closed periods where information relating to the preparation of financial reports could constitute inside information.
• Making communications after the issuer has published a financial report or update to the market so management’s messaging can be closely aligned with those statements.
• Ensuring (prior to a communication) that all inside information – in particular, concerning the issuer’s current trading/financial position – has been published and there is no inside information disclosure of which is being delayed. In this context the FCA notes that issuers should consider carrying out their own assessment and may want to take legal advice on whether a piece of information they wish to disclose on a call is (or may be) inside information.
• Reiterating at the outset of the call that no inside information will be disclosed.
• Avoiding deviating from the language/tone of previously published statements to avoid any misconception that new information is being disclosed – particularly in discussions around outlook and future performance/strategy. The FCA notes that it may be helpful to use a script or speaking notes.
• Considering taking contemporaneous written notes of what was discussed where calls or meetings are not being recorded.

The FCA also notes that, in certain circumstances, an issuer may wish to publish an announcement following the call/meeting to confirm that it took place, set out any information that was shared and confirm that the issuer does not deem the information to be inside information.

Dissemination of regulatory information during interruptions to Primary Information Provider (PIP) services

PMB 52 notes that the widespread disruption caused by the Crowdstrike update in July 2024 affected some PIPs, resulting in them being unable to disseminate issuer’s announcements for a period of time. The FCA notes, among other things, that during the outage it saw some issuers publishing regulated information on their websites despite it not having been released via a PIP. This has the potential to be inadvertent unlawful disclosure, and issuers should always confirm by observation that the announcement has been successfully disseminated via their PIP before uploading regulated information onto their website or otherwise disclosing/publishing it themselves.

Issuers are also encouraged to consider having alternate PIP accounts in place so that they can meet their disclosure obligations if their usual PIP is affected by an outage. Where their usual PIP has not released the regulated information, issuers should discuss with them when it is likely to be disseminated and whether the PIP has alternate arrangements in place. Subject to those discussions, the issuer should consider whether the information can be disseminated using its own second PIP account.

Key takeaways for issuers

PMB 52 follows on from a number of previous bulletins relating to inside information, including PMB 42 (Unlawful disclosure: FCA discusses areas of risk for issuers) and PMB 46 (see here) – as such, this is clearly a current area of focus for the FCA. In addition to the specific actions suggested in PMB 52, other areas that issuers should think about include:

• Ensuring that an assessment of the UK MAR position is carried out and appropriately documented in addition to the analysis of any announcement requirements that may apply under other regulations such as the UK Takeover Code.
• Keeping in mind that (depending on the specific circumstances) information may be capable of amounting to inside information at a relatively early stage. In this context, issuers should ensure that they apply the correct test in relation to the question of whether the information is “precise” - as the FCA notes, in considering whether future circumstances/events can reasonably be expected to come into existence/occur and are therefore precise, the test is not whether this is “more likely than not”, but a lower threshold of there being a “more than fanciful chance”.
• The importance of considering on a case-by-case basis whether inside information has arisen in the context of preparation of financial results and not taking a blanket approach. Particular focus will be required if there are any potential deviations from internal forecasts/market expectations. Issuers and their boards should be alive to these issues and the potential for accelerated disclosure to be required, should ensure that the position is analysed and kept under ongoing review, and should seek external advice where appropriate.
• Remembering that board changes can be capable of amounting to inside information at an early stage in the process and the importance, as underlined by the commentary in PMB 52, of carrying out a careful analysis (in relation to both the resignation and the appointment as separate pieces of information), keeping the position under review and, where disclosure is delayed, ensuring that the issuer is in a position to make an announcement as soon as possible in the event of a leak.
• Keeping in mind that communications with shareholders are a key area where there is a risk of unlawful disclosure of inside information. This should not inhibit good quality engagement, but, as the FCA outlines, there are steps issuers can take (including in relation to timing and scripting of communications) to reduce the risk of inadvertent disclosure or an incorrect perception by the recipient that inside information has been disclosed.
• Ensuring good internal governance processes are in place around the identification, handling and communication of inside information, including documenting discussions and decisions at the time in case a subsequent enquiry arises.

Boards may also want to review their internal policies and procedures around handling and disclosure of inside information to ensure that they reflect the commentary in this and other recent FCA publications, including highlighting areas of heightened risk and how these should be approached, and providing refresher training for key individuals.