19 November 2024 Lucy Reeve  -  Lucy Fergusson Equity Capital Markets - Gesellschaftsrecht - M&A

FCA highlights when issuers can get it wrong on inside information

The Financial Conduct Authority has published its latest Primary Market Bulletin. It (i) highlights three common scenarios that may entail inside information, (ii) highlights the risks when an issuer communicates with a small group of shareholders, and (iii) confirms its expectations of issuers when there is an outage of the Regulatory Information Services system. Although the bulletin is consistent with previous guidance from the FCA, it is interesting that the FCA has seen different approaches to these issues in the market. As with all FCA publications, listed companies should take note of the recommendations and consider whether their systems and controls could be improved.

Inside information in takeover bids, preparation of financial results, and board changes

Offer processes

Where a company has been subject to a takeover approach, the FCA notes that some advisers have advised that inside information crystallised only when a final offer was accepted by the company's directors. The FCA highlights that the “realistic prospect" test set out in the Hannam case means that it is possible that the receipt of an offer could be inside information before it has been formally considered and recommended by the board.

The FCA reminds issuers that:

  • Once a takeover offer is inside information, the company will lose its ability to delay disclosure of that inside information if it is no longer able to preserve its confidentiality. As such, press speculation and rumours need to be carefully considered. There is no obligation to respond to false rumours, but if they indicate that the underlying information is no longer confidential, an announcement will be needed under MAR (in addition to any Takeover Code obligations).
  • There may be an announcement obligation under MAR even if there is no announcement obligation under the Takeover Code.

If a takeover offer was inside information but ceases to be (i.e. the offer falls away), there is no need to announce it but insider lists must still be kept for the period when the inside information existed.

Financial results

The FCA reminds issuers that:

  • There should be ongoing monitoring of financial results against market consensus in the period when draft results are being compiled.
  • Where draft results show that revenues fall significantly below internal forecasts and external consensus estimates by analysts, this is likely to be inside information that must be disclosed as soon as possible and cannot wait until the scheduled date for announcement of results.
  • It is not permissible to wait to announce until there is positive news to offset it.

It is never permissible to delay disclosure of the fact of financial difficulty or that the issuer's financial condition is worsening (although an issuer may be able to delay disclosure of the fact or substance of negotiations to deal with such a situation) (DTR 2.5.4G).

CEO resignations and appointments

The FCA reminds issuers that:

  • In a CEO succession process there needs to be regular assessment of whether inside information exists. Inside information about a departure can arise before a formal resignation.
  • The departure of the incumbent and the appointment of their successor should be considered as separate pieces of information, each of which might be inside information on its own.
  • Other factors which may be relevant to the price sensitivity of the resignation and appointment could include the length of service of the existing CEO and therefore the market's expectation of their retirement as CEO, the expectation that a 'natural' successor exists or the reasons behind the CEO's resignation.

If disclosure of inside information about CEO succession is being delayed, the company will lose its ability to delay if confidentiality is lost. Therefore, if there is continuous press speculation, the company should consider if there has been a leak.

Communicating with groups of shareholders

Where issuers communicate privately with shareholder groups (e.g. via WhatsApp), there is heightened risk of unlawful disclosure of inside information or market manipulation by disclosing misleading statements. The FCA makes the following recommendations to issuers: 

  • Avoid scheduling calls or making communications during closed periods.
  • Schedule communications to take place shortly after an issuer has published a financial report or update to the market so that management can closely align its messaging with those statements.
  • Prior to a communication, management should be confident that all inside information concerning the issuer, in particular information concerning the company's current trading and financial position, has been published and that the issuer is not delaying the disclosure of any inside information. Issuers should consider carrying out their own assessment and may want to take legal advice about whether a piece of information that they wish to discuss on the call is or may be inside information.
  • At the outset of the call, management could reiterate that no inside information will be disclosed during the communication.
  • Management could avoid deviating from the language and tone of previously published statements to prevent any misconception that new information is being disclosed particularly where discussions take place around the issuer's outlook and future performance or strategy. It may be helpful to prepare a script or speaking notes in advance of such a call or meeting.
  • Where calls or meetings are not recorded, management could consider making a written, contemporaneous note of what was discussed during the call or meeting which can then be referred to if required.

In certain circumstances, an issuer may wish to publish an announcement following the call or 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.

Making announcements when the RIS is down

The FCA has reflected on the CrowdStrike outages earlier this year, which resulted in some RIS services being temporarily down. The FCA reminds issuers that they must check that their announcement has actually gone out (not just been submitted to the primary information provider (i.e. PIP)) before they publish the information the company website. Issuers are encouraged to have arrangements with more than one RIS service so that they have a back-up if there is another outage.

See PMB 52 here.