Essential corporate news – Week ending March 1, 2019

FCA: Primary Market Bulletin 21

On February 22, 2019 the Financial Conduct Authority (FCA) published Primary Market Bulletin 21. The Bulletin focuses on the new regulatory obligations that issuers will need to implement for the Short Selling Regulation and Market Abuse Regulation (MAR), if the UK leaves the EU without an implementation period.

In a no deal scenario, the Market Abuse (Amendment) (EU Exit) Regulations 2019 (UK MAR) will apply. Issuers with financial instruments admitted to trading or traded on a UK trading venue which are based in an EU Member State will be required to notify the FCA of delayed disclosure of inside information, obtain the FCA’s consent when delaying disclosure under Article 17(5) of UK MAR, and persons discharging managerial responsibilities (PDMRs) of such issuers will need to send their PDMR transaction reports to the FCA.

The market abuse regime under UK MAR retains the same scope of financial instruments admitted to trading or traded on UK and EU trading venues as the existing regime under MAR and the same requirements on market soundings, insider lists, and the prohibitions on the unlawful disclosure of inside information, insider dealing, and market manipulation. The key changes are as follows

• Article 17: Public disclosure of inside information – UK MAR retains broadly the same disclosure and notification requirements for inside information and delaying disclosure for issuers with financial instruments on UK trading venues. However, for reporting purposes, issuers with financial instruments on a UK trading venue will be required to send the FCA notifications of delayed disclosure of inside information. This is regardless of any additional obligation under MAR to notify an EU competent authority due to, for example, the issuer being registered in an EU Member State and/or having instruments admitted to trading on an EU trading venue. The content and format of the notifications remain the same. In addition, issuers with financial instruments on a UK trading venue will also be required to obtain the FCA’s consent when delaying disclosure of inside information in addition to any existing requirements to seek the consent of an EU competent authority under MAR.
• Article 19: Managers’ (PDMR) transactions – UK MAR retains broadly the same requirements for PDMRs of issuers with financial instruments on UK trading venues for managers’ transactions. However, PDMRs of issuers with instruments on a UK trading venue will be required to send the FCA their PDMR transaction reports. This is regardless of whether they are also required to report to an EU competent authority under MAR, due to the issuer being registered in an EU Member State. The content and format of the reports remain the same.
• Article 5: Exemption for buy-back programmes and stabilisation – UK MAR will retain the same exemptions for issuers undertaking buy-backs and stabilisations on UK and EU trading venues. For reporting to benefit from the exemption for buy-backs and stabilisations under UK MAR for shares and securities on EU trading venues, issuers should continue to report to the EU competent authority of the EU trading venue in accordance with MAR (which differs from the reporting changes for Articles 17 and 19 under UK MAR). To benefit from the exemption for buy-backs and stabilisations under UK MAR for shares and securities on UK trading venues, issuers will continue to report to the FCA.

(FCA: Primary Market Bulletin 21, 22.02.19)

CMA: Proposals to BEIS to focus the CMA’s work on protecting consumer interests

In August 2018, the Secretary of State for Business, Energy and Industrial Strategy (BEIS) asked Lord Tyrie, chairman of the Competition and Markets Authority (CMA), to make proposals on legislative and institutional reforms to safeguard the interests of consumers and to maintain and improve public confidence in markets. These proposals were sent to the Secretary of State on February 21, 2019 in the form of preliminary advice and published on February 25, 2019.

The proposals include the following

New duties and responsibilities

• The CMA’s existing statutory duty would be changed so that the economic interest of consumers, and their protection from detriment, is paramount.
• There would be a statutory requirement on the CMA to conduct its investigations swiftly, while respecting parties’ rights of defence.
• The new duties should increase the scope and speed at which the CMA can act to address new and emerging forms of consumer detriment, particularly in digital markets, and to protect vulnerable consumers.

New tools and powers

• There are proposals to reform the markets regime including allowing the CMA to impose legally enforceable requirements to address adverse effects on consumers, without having to show that they arise from adverse effects on competition. This would allow the CMA to impose remedies on firms in a market at an earlier stage, on an interim basis, if necessary to protect consumers and to impose fines on firms that fail to comply with remedies.
• There are proposals to strengthen the consumer protection regime by enabling the CMA to decide whether consumer protection law has been broken, declare the fact publicly, direct businesses to bring infringements to an end and impose fines, and be able to order the cessation of practices that it suspects may be harming consumers on an interim basis, pending a final decision on whether the law has been broken.
• Proposals for improving individual responsibility for competition and consumer protection law compliance are suggested, for example imposing civil fines for individuals found to be involved in serious competition law infringements and enabling the CMA to seek the disqualification of company directors for the most serious breaches of consumer law.
• Changes to corporate governance are proposed for public companies to improve board-level responsibility for compliance with the law. This could include requiring the appointment of a board director with responsibility for assessing and reporting on compliance risks and requiring auditors to report compliance risks identified during the course of their work.
• Steps to reduce risks to whistle-blowers and increase compensation payable to them are proposed, as well as requiring auditors to notify the CMA of competition or consumer law infringements identified during their usual work.
• Strengthening investigatory and information-gathering powers is proposed, for example, by proposing turnover-based fines for firms that do not comply with the CMA’s requests or that provide false or misleading information.
• It is proposed that the scope of the CMA’s information-gathering powers should be expanded to include a general power to require information to enable the CMA to identify, monitor and respond to problems in fast-moving markets.
• Changes are proposed to the standard of review of the CMA’s competition decisions, and to the rules of procedure of the Competition Appeal Tribunal, with a view to improving the efficiency of the appeals process and bringing the duration of proceedings more closely into line with the original intentions for the Competition Appeal Tribunal.In light of Brexit, the existing rules, whereby firms notify the CMA of mergers on a voluntary basis, may need amendment, so that the CMA can work effectively with its international counterparts. As a result, there are proposals to require mandatory notifications of mergers above a certain threshold, accompanied by a “standstill obligation” designed to prevent parties from proceeding with the transaction prior to the CMA’s approval.

Reduction in legal responsibility or powers

• Currently the CMA handles references and appeals of certain decisions made by sector regulators and it is suggested that this function be transferred to the courts to simplify appeal arrangements across the regulatory landscape and enable the CMA to put more resources into the investigation and remedy of consumer detriment. It is also suggested that primary responsibility for cartel prosecutions be moved from the CMA to an agency that routinely brings criminal prosecutions, such as the Serious Fraud Office.

(CMA: Proposals to BEIS to focus the CMA’s work on protecting consumer interests, 21.02.19)

FCA: Brexit Policy Statement – Feedback on CP18/28, CP18/29, CP18/34, CP18/36 and CP19/2

On February 28, 2019 the Financial Conduct Authority (FCA) published a Policy Statement and Transitional Directions (PS19/5), setting out responses to feedback received on its proposed changes to the FCA Handbook and EU derived Binding Technical Standards (BTS) if the UK leaves the EU without a withdrawal deal or an implementation period (a no-deal scenario).

The Policy Statement sets out the FCA’s responses to the feedback on its proposals regarding

• Amendments to the FCA Handbook to correct deficiencies created by Brexit.
• Amendments to BTS to correct deficiencies.
• Establishment of a temporary permissions regime for European Economic Area (EEA) entities operating in the UK and a financial services contracts regime for those EEA entities seeking to service existing business, but not undertake new business, in the UK after Brexit.
• Establishment of regulatory regimes for credit rating agencies, trade repositories and securitisation repositories.
• EU Level 3 material.
• Guidance that sits outside the FCA’s Handbook (non-Handbook guidance).
• Forms.

Included as appendices to the Policy Statement are near-final Handbook and BTS Instruments, effecting changes to, among other things

• Glossary terms.
• The Listing Rules, Prospectus Rules and Disclosure Guidance and Transparency Rules sourcebooks.
• BTS in respect of the Market Abuse Regulation, the Prospectus Directive and the Transparency Directive.

The FCA expects that final Instruments will be made by the FCA Board on March 28, 2019 if a withdrawal agreement has not been ratified by the UK and EU.

(FCA: Brexit Policy Statement (PS19/5), 28.02.19)

(FCA: Brexit Brexit Policy Statement (PS19/5) – Appendix 1, 28.02.19)

(FCA: Brexit Brexit Policy Statement (PS19/5) – Appendix 1, 28.02.19)

(FCA: Near-final Transitional Direction, 28.02.19)

(FCA: Near-final Prudential Transitional Direction, 28.02.19)

(FCA: Annex A – Application of the "standstill" in the Transitional Direction to amendments made in Statutory Instruments and Exit Instruments amending technical standards, 28.02.19)

(FCA: Annex B – Application of the "standstill" in the Transitional Direction to amendments made in the FCA Handbook, 28.02.19)

(FCA: Brexit Policy Statement (PS19/5) – Explanatory note, 28.02.19)