The Market Abuse Regulations – Impact on AIM companies: are you prepared?
April 27, 2016
With effect from 3 July 2016, the Market Abuse Regulation (“MAR”) comes into force. AIM companies should be reviewing their internal policies and procedures to address these new rules relating to the control of inside information, announcements and staff dealings in preparation of the implementation date. The impact of the introduction of MAR is to align AIM companies more closely with the regime that applies to Main market companies.
From July, AIM companies will be subject to two regimes: one enforced by the London Stock Exchange plc (“AIM Regulation”) and another by the Financial Conduct Authority (“FCA”).
As set out in AIM Notice 44 published on 13 April 2016, AIM Regulation is currently consulting on proposed changes to the AIM Rules for Companies (“the AIM Rules”) as a consequence of the introduction of MAR. The consultation closes on 12 May 2016. On 29 April 2016, AIM Regulation published an Inside AIM update setting out information to support nominated advisers as they work with their clients to prepare them for the introduction of MAR and the consequential changes to the AIM Rules.
The key concerns for AIM companies are:
- Additional rules relating to the disclosure of inside information to the market and new further requirements such as comprehensive record keeping requirements – which the FCA can ask to see, where disclosure is delayed.
- A new requirement to keep insider lists in a secure electronic and prescribed format containing detailed information on the individuals included. This information must be made available to the FCA on request.
- Amendments to the regime for the approval and reporting of PDMR dealings including notices to be given directly (in a prescribed form) to the FCA as well as to the company when directors and persons discharging managerial responsibilities (“PDMR”) conduct certain transactions – usually for dealings above EUR 5,000.
- Introduction of new mandatory close period prior to the release of financial results during which directors (and PDMRs) cannot deal (subject to certain exceptions).
Disclosure of inside information
Disclosure of inside information to the market is already governed by AIM Rule 11 and AIM Regulation intends to continue to keep AIM Rule 11 in place although it notes that it will amend the guidance notes to clarify that compliance with MAR does not mean that an AIM company will have satisfied its obligations under the AIM Rules. It is important for AIM companies to be aware that, as a result of this approach, AIM companies will be subject to the remit of both AIM Regulation and the FCA although AIM Regulation notes that it intends to work closely to with the FCA to minimise duplication of activities.
Under MAR, there is a similar disclosure requirement to AIM Rule 11 that is, AIM companies will be required to disclose inside information to the market as soon as possible, with delay only permitted in limited circumstances however MAR has further requirements that apply where disclosure of insider information is delayed. Two of the most significant differences are:
- MAR has detailed record keeping requirements that will apply where disclosure is delayed including but not limited to the time and date when the decision to delay was made, who made the decision to delay, ongoing monitoring etc.
- MAR includes a requirement to notify the FCA at the time of disclosure that the disclosure was delayed and provide accompanying information relating to the delay, such as identifying the person(s) who took the decision to delay.
Under MAR, AIM companies will now be required to keep secure electronic insider lists in a prescribed format containing the details of every person with access to inside information. This information can be requested by the FCA and must be made available to it.
The lists are required to have sections for: (a) event or deal specific inside information; (b) a section for “permanent insiders” (those with regular access to inside information if any exist within the company); and (c) personal details (i.e. birth surnames (if different to current surnames), date of birth; personal phone numbers and home addresses of individuals included on the lists). MAR also require companies to take all reasonable steps to ensure that those on the insider lists are aware and acknowledge their legal and regulatory duties, and are also aware of the sanctions for insider dealing and improper disclosure of inside information that could apply to them.
MAR will provide detailed disclosure obligations for dealings by PDMRs and their “closely associated persons” including the form and content of such disclosures as well as the application of a de minimis threshold of EUR 5,000 per calendar year, below which transactions will not need to be notified. As mentioned earlier in this article, such notifications by the PDMR will need to be made not only to the AIM company itself, but also to the FCA in the prescribed format.
Under the current AIM Rule 17, AIM companies are required to notify all dealings by directors and to ensure that directors and applicable employees do not trade in a close period (AIM Rule 21). AIM Regulation proposes to remove these requirements insofar as they relate to directors dealings from July as they overlap, and to a degree conflict with the new MAR requirements. New proposed high level guidance to AIM Rule 17 will be provided instead.
Introduction of new mandatory close period
The definition of “close period” under the current AIM Rules is wider than the same definition under MAR and MAR does not include the specific exemptions relating to takeovers or rights issues, as currently permitted under AIM Rule 21. MAR imposes a mandatory close period of 30 calendar days before the announcement of an interim financial report or a year-end report which an AIM company is obliged to make public, during which PDMRs are not permitted to deal, subject to very limited exceptions and with the issuer’s approval.
AIM Regulation is proposing to delete the current AIM Rule 21 together with the associated definitions of “deal” and “unpublished price sensitive information” and to require all AIM companies to have a dealings policy in place which must be reasonable and effective, as well as comply with specific minimum provisions to be set out in new AIM Rule 21. This obligation will be separate to an AIM company’s compliance with the provisions of MAR in relation to disclosure of PDMR dealings. AIM Regulation notes that an AIM company’s compliance with MAR will not mean it will have automatically satisfied its obligations under new AIM Rule 21. AIM Regulation has indicated that it will expect existing AIM companies to update their policies to ensure compliance with the new AIM Rule 21 by 3 July 2016.
Practical steps to take
AIM companies will need to start reviewing their internal systems, policies and procedures so that they are ready for 3 July 2016 when MAR becomes effective and will also need to be ready to move quickly to implement any necessary amendments when the proposed amendments to the AIM Rules and guidance notes become clearer.
Some initial practical steps for consideration:
- Review the company’s share dealing code in accordance with the MAR requirements and proposed amendments to the AIM Rules.
- Compile a list of PDMRs and “persons closely associated” with them. Ensure directors and PDMRs are briefed on the new regime.
- Inform in writing all PDMRs of their obligations in respect of having to notify dealings, as well as the prohibition on dealing in a close period under MAR, in writing. PDMRs should also be told to notify any persons closely associated with them in writing and to retain a copy of such notification.
- Draft or amend the company’s current forms of notice (if appropriate), and address in the company’s code any wider obligations.
- Review the company’s procedures for the control of inside information and consistency with MAR.
- Consider setting up a disclosure committee, if the company does not already have one. The company will then be able to decide when it is in possession of information, whether such inside information can be delayed, how to monitor the deal, and how to comply with the MAR and AIM Rules requirements in respect of the announcement of inside information and the keeping of records of the delays to such announcements.
- Ensure a person is appointed to be responsible for the record keeping of the delays to disclosure of inside information, which can be provided to the FCA when requested. Templates for record keeping should be put in place.
- Compile an insider list. The prescribed MAR template should be used, which identifies those considered as permanent insiders. Any missing personal information should also be collated.
- Consider who the appropriate person to take responsibility for liaising with the FCA in consultation with discussions with the nominated advisor about interaction with the FCA in respect of MAR.
- Review compliance with MAR requirements regarding disclosure of inside information on the company’s website including (amongst others) the requirement for insider information to be included on the website for at least five years.
- Identify any existing transactions that will cross the implementation date of 3 July 2016 and note whether those transactions will be affected by the MAR and proposed amendments to the AIM Rules
For further information and assistance, please contact your usual contact in the Capital Markets Team.
The contents of this article are intended to provide a general overview of the key changes only and neither constitutes investment nor legal advice.