The Market Abuse Regulation and what it means for AIM Companies
The Market Abuse Regulation (MAR) comes into force on 3 July 2016 and AIM companies need to take steps to ensure compliance with MAR with effect from that date.
ONE Advisory has created a set of template policies, records and notifications and can assist companies with their MAR compliance requirements both from 3 July 2016 and going forward.
What is MAR?
MAR is an EU regulation which replaces the Market Abuse Directive (MAD). MAR establishes a new, common regulatory framework on market abuse, as well as measures to prevent market abuse, aimed at ensuring the integrity of the EU financial markets and enhancing investor protection and confidence in those markets.
What is Market Abuse?
Market abuse is described in MAR as “a concept that encompasses unlawful behaviour on the financial markets”. This can be considered as comprising the following prohibited activities:
- insider dealing;
- unlawful disclosure of inside information;
- market manipulation (attempted and actual).
MAR will be policed by the Financial Conduct Authority. Failure to comply with MAR could expose companies and individuals to substantial fines, censures and other sanctions.
Share Dealing Codes – Updating Required
All AIM companies should already have a share dealing code in place which sets out the Company’s share dealing approval procedures for its directors and employees who are, or may be, in possession of price sensitive information. Under the new regime, a share dealing code will still be required and the proposed new AIM Rules set out in more detail the required minimum contents of that code. Most of these will already be covered in the standard documentation but share dealing codes should be reviewed and updated or replaced to ensure that they are compliant with new AIM Rule 21 and MAR and in particular that:
- the new definitions of close periods are reflected where necessary;
- they apply to all “Persons Discharging Managerial Responsibilities” (PDMRs), and PDMRs are required to seek compliance with the restrictions by “Persons Closely Associated” with them (PCAs);
- the procedures enable the AIM company to make public all deals required by MAR to be announced in accordance with the applicable timescales (within 3 business days of the transaction);
- changes are communicated to affected persons.
PDMRs will include all AIM company directors and potentially other staff at the senior executive levels. PCAs include spouses, dependent children and related trusts.
Although MAR only requires notification of transactions once a PDMR reaches EUR 5,000 within a calendar year, we would recommend that share dealing codes require disclosure of all deals to the company.
With effect from July, close periods will be defined by MAR rather than the AIM Rules and will cover:
- 30 days prior to publication of annual accounts (currently 2 months);
- 30 days prior to publication of interim results (currently 2 months for 6 monthly reporters).
The MAR definition of close period does not include periods when the company is in possession of price sensitive information but, in practice, we consider that these will also form part of the close periods for the purposes of share dealing codes.
The obligation under AIM Rule 17 to notify any deals by directors without delay will be removed from the AIM Rules and companies will be required to comply with MAR’s disclosure requirements for PDMRs and PCAs. PDMRs and PCAs must notify the company within 3 business days of any dealing, and the company must report to the market within that same timescale (subject to the EUR 5,000 annual threshold).
Insider Lists – Now Required for AIM Companies
Until now, AIM companies have not been required to maintain insider lists (although some adopted them as good practice). However, the introduction of MAR means that all AIM companies will now have to put in place systems to record inside information and those who have access to it. MAR prescribes the detailed contents of insider lists which include the time when an insider obtained the inside information, their contact details, date of birth and national identification number (if applicable). The contents are more detailed than those under the current regime and accordingly, existing insider lists should be reviewed and updated to include the new categories of information. Insider lists must be made available to the FCA on request.
Disclosure of Inside Information
While the definition and requirement to disclose inside information will be largely the same following the introduction of MAR, AIM companies will have to comply with both MAR and AIM Rule 11.
Compliance with one does not guarantee compliance with the other, but AIM has indicated that it intends to work with the FCA to coordinate their approaches. Under MAR, companies are required to maintain on their websites all information they have been required to publicly disclose for at least five years.
MAR permits delays to the disclosure of inside information provided the following conditions are met:
- immediate disclosure is likely to prejudice the company’s legitimate interests;
- delay of disclosure is not likely to mislead the public;
- the company is able to ensure the confidentiality of the information.
Where disclosure is delayed in compliance with MAR’s requirements, immediately after the information is made public the AIM company must inform the FCA that disclosure of the information was delayed and explain in writing how the conditions set out above were met (although the FCA may make this necessary only on request).
MAR introduces new rules on “market soundings” where companies or their representatives talk to third parties to gauge the level of interest in a potential transaction. Market soundings are permitted but are subject to record keeping requirements and detailed procedures. This includes assessing whether a disclosure includes inside information, determining a standard set of information for all recipients, obtaining the consent of the person approached and informing them when the matter has ceased to be inside information and keeping detailed records of what was given to whom. The records should be kept for at least 5 years.
What do AIM Companies need to do?
- review and update the share dealing code;
- review procedures for identifying and disclosing inside information and put in place appropriate record keeping measures;
- prepare for maintaining insider lists on an ongoing basis (and/or update existing ones for MAR compliance) and gather appropriate information on key persons;
- put in place procedures to deal with market soundings;
- compile a list of PDMRs and their PCAs and keep it updated;
- review website and maintenance procedures to be able to comply with the five year disclosure rule for inside information;
- communicate with PDMRs to ensure they are aware of the company’s and their own obligations relating to share dealings, insider lists and inside information (and that they communicate with their PCAs accordingly).
ONE Advisory MAR Services
ONE Advisory has produced a set of template policies, procedures, notices, registers and records required to comply with MAR which are suitable for AIM companies together with an implementation guide and a draft board resolution to adopt them.
We will ask subject companies to complete a short questionnaire and we will personalise these policies, records and notices to suit the Company’s requirements.
This service is available at very competitive rates. Please contact us for details.
Laura Nuttall, Director
Liam O’Donoghue, Director
T: 020 7583 8304
© ONE Advisory Limited 2016
This note does not constitute and should not be construed as legal advice. Specific legal or other appropriate professional advice should be taken before acting on any of the topics covered.