The FCA has published a speech by Marc Teasdale (Head of the UK Listing Authority, FCA). The speech is entitled Investor engagement in a changing regulatory landscape.
In his speech Mr Teasdale provides a broad overview of three areas:
- developments relating to inside information, both through the tribunal judgement concerning Ian Hannam and through the changes to the regulatory landscape as a consequence of the upcoming Market Abuse Regulation (MAR). Mr Teasdale notes that there are two areas in particular where MAR introduces new requirements which should be of direct interest to the investor relations community – market soundings and the connected requirement to produce insider lists. He notes that MAR will clarify for the first time that where an issuer delegates the task of maintaining an insider list to a third party, the issuer remains responsible for complying with the requirements. Issuers will also be required to retain an insider list for 5 years after its last update. In the case of Mr Hannam, Mr Teasdale notes that the tribunal found him guilty of committing market abuse by disclosing inside information improperly in relation to his client. Mr Teasdale states that the tribunal judgement contains a detailed and valuable discussion of a number of questions and issues that bear directly on some of the difficulties that can be experienced in this area. In particular he emphasises: (i) the tribunal found that Mr Hannam was unable to use the defence that he was passing the information in the proper course of his employment because he had not ensured that the recipient of the information understood and accepted that they were subject to a proper obligation of confidentiality; (ii) the judgement looked at the question of the sort of information that is capable of constituting inside information. Perhaps the most interesting finding here was in relation to the circumstances in which information about future events (which have not yet happened, and may in fact never happen) is capable of constituting inside information. The tribunal indicated that there is a realistic prospect of something happening where that prospect is more than fanciful; and (iii) the judgement details some of the circumstances in which a delay in announcing inside information would be appropriate, with some commentators expressing the view that the judgement seemed to contemplate delay in a broader range of circumstances than the FCA’s guidance under the Disclosure and Transparency Rules;
- the use of dealing commission to fund company research. Mr Teasdale discusses corporate access – payments by investment managers to brokers to arrange access to senior management of companies. Mr Teasdale states that the FCA clarified last May that dealing commission cannot be used to pay for corporate access. However, he stresses that the FCA was not banning corporate access itself, as it recognises that engagement between issuers and investors can be an important component of effective investor stewardship. Investment managers can still pay for corporate access directly. But by removing the link with dealing commission, the FCA thinks this process, and the costs it involves, will be both more transparent and less impacted by potentially competing incentives. Mr Teasdale adds that the debate in relation to the connection between research and dealing commission has now moved onto the European stage with MiFID II. ESMA provided its final advice to the European Commission last December on detailed proposals to support MiFID II, including in the area of research and inducements. Under ESMA’s final proposals, an investment manager can purchase research provided it is paid for either directly by the firm out of its own resources, or through a ‘research payment account’ funded by a specific, separate charge to their client, which is agreed and disclosed upfront. This charge must be based on a research budget set by the client, and cannot be linked to execution volumes or value. Whilst the nature of research that can be paid for via the new ‘research payment account’, and so charged to clients, is likely to depend on the final Commission text or potentially future ESMA guidelines, the FCA’s view is that corporate access will remain a service that should be paid for directly by the investment manager; and
- the recently announced FCA market study into investment and corporate banking. Mr Teasdale states that the key area of focus for the market study will be primary market activities (such as ECM and DCM activity, M&A and acquisition financing). Related activities such as corporate broking will also be in scope, but only insofar as those activities affect competition for primary market activities. In particular, the FCA has decided to look at three important areas: (i) what choice businesses have when choosing banks and advisers, and how they go about marking their selection; (ii) whether the practice of bundling services together is restricting competition; and (iii) whether there is sufficient transparency at key points in the primary market process.
View Investor engagement in a changing regulatory landscape, 13 July 2015