The FCA has a message for listed companies: are you listening?
When it comes to inside information controls, the FCA has clearly set out its stall in recent months. Between the Aviva enforcement decision and the Carillion warning notice statement, a review of delayed disclosure notifications, a speech by the Director of Market Oversight, and pandemic-related statements, we know that the FCA is paying close attention to the timing and content of announcements and the adequacy of companies’ internal controls. All told there is a lot for listed companies to take on board.
The good news is that this provides an opportunity to revisit your policies and controls, check they are working as they should, refresh and retrain where needed to make sure your systems are robust enough to survive any regulator scrutiny that may come your way in the future.
What has the FCA said?
- There may be a pandemic, but it’s business as usual when it comes to the control of inside information. The FCA is not slowing down in its fight against market abuse. What’s more, it has said in no uncertain terms that different working circumstances are no excuse for lax controls. With so many people working from home comes a heightened risk of leaks: the walls may not have ears but flatmates, partners and visiting tradespeople do. What are you doing to make sure your staff are not inadvertently sharing inside information?
- Unfamiliar events need careful consideration. With “unprecedented times” come new types of inside information. We all know that an M&A deal might involve inside information but what about your post-Covid recovery plans? What about your use of Government support schemes? What about your cashflow position? Make sure that the right people are thinking about your disclosure obligations arising from these sorts of developments.
- Do all the right people know inside information when they see it? The only way a company can announce inside information at the right time is if the matter is escalated to the disclosure committee or equivalent. This means that people throughout the ranks need to know at least the basics so that they can highlight anything that might need further consideration.
- Are you sure you can delay disclosure? When you delay disclosure of inside information, you must notify the FCA of that fact when your announcement is eventually made. The FCA has reviewed these notifications and highlighted two areas it will monitor closely in future as the number of delay notifications received did not match its expectations. The first is trading updates and other unscheduled financial announcements containing inside information, and the second is announcements of changes to the board. These announcements cannot be delayed other than a short delay to ascertain the facts.
- It’s not just what you say, but what you don’t say. In its decision against Aviva, and its statement regarding warning notices issued to Carillion and certain of its former executive directors, the FCA has reminded us that issuers must take reasonable care to ensure their RIS announcements are not false, misleading or deceptive and do not omit anything likely to affect the import of the information. Companies should consider this when reviewing draft announcements and think carefully about how an investor might interpret what they say to the market.
What should you do?
With a flurry of activity from the FCA and the promise of more to come, it’s a sensible time to revisit your inside information compliance processes and how they are working in practice.
- Review: not just what your policies say but how have they worked in practice? What happened the last time you had (potential) inside information? It’s not enough to make the right decisions, you also need to follow the correct processes. Are your systems pandemic-proof or are there risks that need to be addressed? If the FCA got in touch would you have the records to show what disclosure-related decisions were made, when, by whom and why?
- Revise: are any improvements needed? Are you confident that your inside information controls are adequate, or could they be better? Do all relevant staff know what types of information might trigger an announcement obligation (including Covid-related developments)?
- Retrain: when was the last time the Board had a refresher on the rules? What about others in the company – is it time to roll out a reminder? Have you captured all the right people or do you need to expand to make sure matters are escalated in the first place? Do you need to supplement usual guidance with reminders giving practical guidance on how compliance might be impacted by the pandemic or by altered working arrangements?
Linklaters’ team of market abuse specialists frequently advise listed companies on their procedures, on real-time disclosure questions and on interactions with the FCA. We also have an e-learning tool which can be purchased to help train those on the front line about inside information. Please speak to your usual Linklaters contact or one of those below if you would like further information.