Listed companies’ insider guidelines and internal procedures to be updated due to reform of insider regulation during the spring

EU level regulation on market abuse will enter into application from 3 July 2016. This blog post will summarise the most significant amendments in the new regulation in relation to existing insider regulation and highlight some of the changes required under this regulation in listed companies’ insider guidelines and internal procedures.

Based on the on-going disclosure obligation included in the regulation, inside information shall be disclosed as soon as possible, but due to the new delay procedure, unfinished inside projects do not have to be disclosed. However, this always requires a separate retroactive delay procedure, where the issuer notifies the Financial Supervisory Authority (FIN-FSA) of the delay immediately after the disclosure of the inside information. However, the delayed information must be disclosed as soon as possible if its confidentiality can no longer be guaranteed. It seems as in the future listed companies will resolve on delayed disclosure of inside information in a relatively routine manner in connection with setting up project-specific insider registers.

Hence, the new regulation requires that the issuer must have functioning internal procedures for making decisions about delaying the disclosure of inside information as well as for documenting justifications and monitoring their continuation. Listed companies should therefore update their internal procedures regarding the establishment of inside projects and disclosure.

Under the new regulation, public insider registers will be scrapped and replaced with a procedure, where issuers report transactions by managers and connected persons with a Stock Exchange release. Managers and connected persons are required to notify the company and FIN-FSA of their dealings or can authorise the issuer or another party to make notifications on their behalf. It should be noted that the time limit for submitting notifications will become considerably shorter. In the future notice has to be given within three business days of the transaction and the issuer must disclose this information within the same deadline. Problems may therefore occur in the future if the company receives managers and connected persons’ notifications at the last minute, as they often tend to do.

The definition of connected persons appears to have been expanded in the new regulation in relation to connected companies. This has sparked debate about whether all companies where an insider of the listed company is in a management position are considered connected companies or whether ownership or another financial connection is also required. FIN-FSA and the Ministry of Finance have also noted this problem and different translations of the regulation have been shown to be open to interpretation. However, the matter is still under consideration, so it remains to be seen whether the definition of connected persons expands in relation to existing regulation or not.

The new regulation does not draw a distinction between permanent and project-specific insider registers. However, in the future a company can keep separate project-specific insider lists alongside the list of permanent insiders in line with old practice.

In the future, an insider cannot be listed on the insider list without first obtaining such insider’s written approval. Further, issuers will in the future always be fully responsible for maintaining insider lists even if another party acting on behalf of the issuer has taken on the task of drawing up the lists and bringing them up to date. This can be particularly problematic in an inside project that includes, for example, a non-European advisor who maintains their own insider list. To avoid problems in the future, listed companies could have an insider list template, which they could send to such advisors to ensure that the obligations imposed by the new regulation are fulfilled. Under the new regulation, issuers also have the right to access insider lists maintained by third parties at any time.

The new regulation will extend the duration of closed periods to 30 days prior to the publication of interim or annual reports, during which managers cannot trade in the issuer’s financial instruments. The issuer can permit trading during the closed period in certain specific cases on a case-by-case basis. Such situations can be, for example, a person’s serious financial difficulties or the purchase of shares as required by employee incentive schemes.

This coming spring would therefore be an opportune time for listed companies to get their insider matters in order. The experts at Fondia are happy to assist with these matters.