FCA seeks to restore 'clarity' to inside information disclosure rules

Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said that changes to the rules were necessary following the Upper Tribunal's decision in the regulator's case against former JP Morgan banker Ian Hannam earlier this year.

"The FCA's consultation will hopefully allow for greater clarity around this issue following the Upper Tribunal's detailed analysis, including on the definition of inside information, in the Hannam case," he said. "The tribunal also commented on the circumstances in which an issuer could delay disclosing information."

"With the Market Abuse Regulation to be implemented in the UK in July 2016, it is vital that debates around the interpretation of how 'precise' information must be in order to amount to inside information and what equates to information of a kind which is likely to have a significant effect on price be clarified with clear guidance. However, only time will tell if any FCA Policy Statement or changes to its Disclosure and Transparency rules serve to provide such clarity or only continue to make the position opaque," he said.

The tests for whether information, held by issuers trading on a regulated market, should be classed as inside information are set out in the Financial Services and Markets Act (FSMA). This states that inside information is that which is not generally available; which relates directly or indirectly to one or more of the issuers or the qualifying investments; and which would, if generally available, be "likely to have a significant effect on the price of the qualifying investments or on the price of related investments". Under the FCA's Disclosure and Transparency Rules (DTR), an issuer with this information must disclose it publicly as soon as possible unless there are grounds for delay.

In the Hannam case, the FCA's predecessor regulator the Financial Services Association (FSA) announced its intention to fine the banker for sending two emails about his client, Heritage Oil Plc, that in the regulator's opinion contained inside information that was not disclosed "in the proper course of exercising his employment, profession or duties". Hannam appealed the FSA's decision notice to the Upper Tribunal, which upheld the regulator's findings in May 2014.

In its decision, the tribunal provided detailed analysis of the relevant legislative provisions including those derived from the EU's Market Abuse Directive (MAD). It also commented on the circumstances in which an issuer could legitimately delay disclosing that information. However, it did not refer to the FCA's guidance on this issue as set out in the DTR. The FCA has now proposed modifying this guidance to address its concerns that the tribunal's view of what is inside information, when combined with its own restrictive guidance on delay, could be leading to unnecessarily early announcements.

The consultation paper proposes removing a line from the FCA's guidance on when a listed company has a "legitimate interest" in delaying the disclosure of inside information. The relevant line states that delay is "unlikely" to be justified "other than in relation to impending developments" or matters set out in the EU's MAD Level 2 directive. The FCA said that this change would "ensure the maintenance of a regime which produces transparency which is useful to investors" without forcing disclosure "at a stage where it was still significantly unformed and would be of little benefit to the market".

The FCA is consulting on its proposed change until 20 February 2016.

Parts of the existing UK framework governing market abuse will need to be repealed to make way for new EU-level rules set out in its directly-applicable Market Abuse Regulation (MAR), which is due to come into force in July. The FCA is consulting separately on its proposed approach to the implementation of these rules.