The Market Abuse Regulation: What’s changing for AIM companies?

This briefing has been updated to reflect the publication of the final changes to the AIM Rules set out in AIM Notice 45

The provisions of the Market Abuse Regulation (MAR) will apply with effect from July 3, 2016. This will involve a number of significant changes for AIM companies, bringing them more closely into line with the regime that applies to Official List issuers.

The main practical issues for AIM companies are:

• Additional rules around disclosure of inside information to the market and new requirements, including extensive record keeping requirements, where disclosure is delayed.
• A new requirement to keep insider lists, which must contain a range of detailed information on the individuals included.
• The introduction of a new mandatory closed period prior to financial results during which directors (and certain other persons) cannot deal (subject to limited exceptions).

AIM Notice 45 was published on June 14, 2016 and sets out the final changes to the AIM Rules for Companies, the AIM Rules for Nominated Advisers and the AIM Note for Investing Companies being made as a result of MAR.¹The revised rules will come into effect on July 3, 2016 (at the same time as MAR). AIM has also previously published guidance for AIM companies in the form of an edition of Inside AIM entitled "Preparation for Market Abuse Regulation" and has indicated that it intends to maintain a "frequently asked questions" section on its website. The various changes to the AIM Rules are discussed in the relevant sections of this briefing.

A checklist is included at the end of this briefing setting out some of the initial practical steps that AIM companies should consider so that they are ready to comply with the new rules by the time MAR comes into effect. Given the substantive changes that will apply, AIM companies should also consider briefing, and arranging appropriate training for, their directors and other employees prior to the introduction of the new regime.

Under MAR, AIM companies will be required to disclose inside information to the market as soon as possible, with delay only permitted in limited circumstances. Although this is similar to the general disclosure requirement which currently applies to AIM companies under AIM Rule 11 it is not identical and there are some significant additional requirements that apply under MAR.

Notwithstanding this overlap, AIM Rule 11 is being retained, with AIM companies being subject to both regimes. In this context, Inside AIM notes that the fact that an AIM company may have received legal advice that is has complied with MAR will not be a defence to a breach of the AIM Rules.² In relation to delaying disclosure, AIM Regulation has indicated (in AIM Notice 45) that in parallel with considering whether delay is permitted under MAR, AIM companies must also consider whether it is permitted under the AIM Rules.

AIM Regulation recognises that this approach means that AIM companies will be subject to the remit of both AIM Regulation and the FCA and notes that it intends to work closely with the FCA to co-ordinate their approach and minimise duplication of activities.³ It has also indicated that it will keep the operation of AIM Rule 11 under close review.

Two of the most significant differences for AIM companies under MAR relate to situations where a decision has been taken to delay the disclosure of inside information – these are:

• Detailed record keeping requirements that will apply where disclosure is delayed – including (amongst other things) the time and date when the decision to delay was made, the persons responsible for deciding to delay and for ongoing monitoring of the delay and evidence of the fulfilment of the conditions permitting delay. In this context, companies should consider whether it might be appropriate (if they do not already do so) for the board to delegate responsibility for decisions regarding inside information and disclosure to a committee – whether this is appropriate will depend on a number of factors including the size and composition of the board and the nature of the company’s operations.
• A requirement to notify the FCA, at the time the relevant information is disclosed to the market, that disclosure was delayed. In addition, if requested by the FCA, the company will have to provide a written explanation of how the conditions permitting delay were satisfied.

AIM companies will also need to comply with the MAR requirements around the format and content of notification of information to the market, including a requirement to post inside information that has been publicly disclosed on their website for a period of at least five years.

Under MAR, the requirement to maintain insider lists (which currently only applies to Main Market issuers) will be extended to apply to AIM companies. These will need to contain a range of detailed information on the individuals included on the list – for example (amongst other things): birth surname(s) (if different from current surname(s)); date of birth; national identification number (if applicable); and personal home and mobile telephone numbers and personal address. MAR envisages that companies will be able (if they want) to keep their insider lists in two sections – one which contains deal or event specific lists and another which sets out the company’s so-called “permanent” insiders, being people who (if inside information exists within the company) would have access to it.

MAR also requires companies to take all reasonable steps to ensure that any individuals added to insider lists acknowledge their legal and regulatory duties and are aware of the sanctions for insider dealing/improper disclosure of inside information. The company will need to provide its insider lists to the FCA on request.

Under MAR, a slight relaxation to the rules on insider lists will apply for companies on “SME growth markets”.⁴ However this relaxation will only apply from January 2018, as it is not until then that the legislation under which markets can seek to be designated as SME growth markets will come into effect.⁵ Therefore, even if AIM does in due course choose to seek SME growth market status, as noted in Inside AIM there will be an initial period during which AIM companies will need to fully comply with MAR.

MAR will also introduce:

• detailed disclosure obligations in relation to conducting “transactions on own account”⁶ by PDMRs⁷ and their “closely associated persons”;⁸ and
• restrictions on PDMRs dealing during a “closed period” of 30 days prior to annual and interim results announcements (this is shorter than the two month period provided for under the AIM Rules and, unlike the AIM Rules definition, does not extend to other periods when the AIM company is in possession of unpublished price sensitive information).⁹

Disclosure

Although directors are already required to disclose dealings under current AIM Rule 17, the MAR regime differs in certain respects. In particular:

• The MAR restrictions apply to all PDMRs (not just to directors), which means that, depending on the nature and size of the company, their application may be broader than AIM Rule 17.
• Whereas AIM Rule 17 currently requires disclosure of all dealings, MAR includes a de minimis threshold below which transactions will not require disclosure. This is set at €5,000 per calendar year (note that this should be calculated without netting of transactions).¹⁰
• Disclosure under MAR (by the PDMR to the company and the FCA and by the company to the market) must be made in the form of a mandated template.

AIM Rule 17 has been amended to remove the provisions relating to disclosure of directors’ dealings, on the basis that MAR provides an appropriate level of transparency. New guidance to AIM Rule 17 signposts companies’ obligations under MAR in this context.

Prohibited dealings

Although directors and applicable employees are restricted from dealing during close periods under current AIM Rule 21, that rule is not fully aligned with MAR. The definition of close periods under the current AIM Rules is more extensive than the MAR “closed period” definition, although MAR does not include specific exemptions relating to acceptances of takeovers or rights issues as currently permitted under AIM Rule 21. The exceptions to the prohibition on dealing during a MAR closed period are also narrower in scope than those provided for under the current Listing Rules Model Code (which many AIM companies adopt a version of as their share dealing code). In addition, there is still something of a lack of clarity around how the MAR closed period prohibition will operate in respect of transactions which are not actively controlled by the PDMR (for example, automatic conversion or vesting) and further guidance from the FCA or ESMA in this area would be helpful.

Current AIM Rule 21 is being deleted in its entirety (together with the associated definitions of “deal” and “unpublished price sensitive information”). However, a revised Rule 21 is being introduced which requires AIM companies to have a dealing policy in place in relation to their directors¹¹ and applicable employees. The definition of “applicable employee” is being narrowed for these purposes to cover only any PDMRs that are not also directors. Such policies must be reasonable and effective, set out the requirements and procedures for dealings by directors and applicable employees and comply with specific minimum provisions to be set out in new AIM Rule 21.¹² Although most AIM companies will have share dealing codes in place, these will need to be reviewed for compliance with the revised AIM Rules and also to ensure they are aligned with the relevant provisions of MAR. In this context, Inside AIM notes that AIM companies and nominated advisers are expected to consider the design and implementation of share dealing codes in a meaningful way, to ensure they are capable of working in practice taking into account the nominated adviser’s knowledge of the company and its management. AIM Regulation has indicted that it will expect existing AIM companies to update their policies to ensure compliance with new AIM Rule 21 by July 3, 2016.

AIM companies will need to progress the necessary amendments to their internal systems and controls so that they are in a position to implement these prior to MAR coming into effect. In this context, some initial practical steps for consideration are set out below.

This note is only intended to provide an overview of the key changes – to the extent you have any further questions or detailed queries about how these rules will impact on your systems and controls, please let us know.

Footnotes 

1. This follows on from the consultation on proposed rules changes set out in AIM Notice 44 which was published on April 13, 2016.

2. Inside AIM notes that “inside information” under MAR has a specific and technical definition (given the context of protecting investors from market abuse) whereas the consideration of AIM Rule 11 is a principles based consideration in the context of maintenance of a fair and orderly market. AIM Regulation has indicated that it does not expect AIM companies or nominated advisers to take a different approach to compliance with AIM Rule 11 following the introduction of MAR and that, as is the case currently, the consideration of AIM Rule 11 disclosure obligations should not be overly narrow or technical.
3. Inside AIM clarifies (for the avoidance of doubt) that AIM Regulation will not be able to opine on MAR obligations or compliance and that any guidance provided by AIM Regulation in respect of disclosure will only be in relation to an AIM company’s obligations under the AIM Rules. 
4. In particular, they will not need to maintain insider lists on a real time basis so long as they can provide the relevant information to the FCA on request and they need only include personal addresses and telephone numbers if available at the time the information is requested by the FCA. 
5. The relevant legislation is MiFlD II the application of which, it was announced on 10 February 2016, would be delayed until January 2018.
6. Disclosure is required in respect of “own account transactions” in shares or debt instruments of the company or derivatives or other financial instruments relating thereto. The types of transactions required to be disclosed are also wide-ranging and companies and their PDMRs should seek advice prior to dealing. 
7. A PDMR is defined in MAR as a person within an issuer who is (i) a member of the administrative, management or supervisory body of that entity; or (ii) a senior executive who is not a member of any of these bodies who has regular access to inside information relating directly or indirectly to that entity and power to take managerial decisions affecting the future developments and business prospects of that entity.
8. This definition is similar, but not identical, to the current AIM Rule definition of a director’s family.
9. On May 25, 2016, the FCA published a statement setting out its approach to closed periods and preliminary results under MAR. In this statement it notes that, pending clarification from the European Commission and ESMA, it will take the view that, where an issuer announces preliminary results, the closed period where dealing is prohibited is immediately before the preliminary results are announced. It also notes that this approach applies only where the preliminary announcement contains all inside information expected to be included in the year-end report.
10. There is flexibility under MAR for competent authorities to increase this threshold (up to €20,000), however in PS 16/13 the FCA has indicated that it does not intend to do this. The FCA has also indicated that companies are able, on a voluntary basis, to continue to disclose all transactions (regardless of the €5,000 threshold) if they wish. We expect that some companies may wish to take this approach in order to avoid the additional administrative process involved in calculating when/whether the threshold has been crossed. 
11. Paragraph 5.1 of the AIM Note for investing companies currently specifies that investment managers and their key employees responsible for making investment decisions in relation to the investing company will be considered to be directors for the purposes of AIM Rules 7, 13, 17 and 21. This is being amended to only refer to AIM Rules 7 and 13. Under MAR, however, consideration will need to be given by investing companies as to whether such persons constitute PDMRs.
12. Revised AlM Rule 21 requires such dealing policies to set out: (i) the AIM company's close periods during which directors and applicable employees cannot deal; (ii) when a director or applicable employee must obtain clearance to deal; (ill) appropriate person(s) within the AIM company to grant clearance requests; (iv) procedures for obtaining clearance for dealing; (v) the appropriate timeframe for a director or applicable employee to deal once they have received clearance; (vi) how the AIM company will assess whether clearance to deal may be given; and (vii) procedures on how the AIM company will notify deals required to be made public under MAR. The notes to the Rule provide that, in determining whether it is appropriate to give clearance to deal, AIM companies will be expected to consider their wider obligations under MAR. It is also noted that AIM would expect companies to appoint independent staff of sufficient seniority to grant clearance requests and that the procedures should give consideration as to an alternate person where they are not independent in relation to a particular request. In AIM Notice 45, AIM Regulation noted (in response to questions raised as to what was meant by references to the policy being “reasonable and effective”) that the design of the policy should be considered in a meaningful way, taking into account the needs of the particular company and ways to ensure that the policy is understood and applied effectively in practice.