Insider lists: the new must-do
Anyone acting for a listed company, or even an individual connected with such a company, may be caught by the “insider list” requirements of the new Market Abuse Regulation
The UK market abuse regime has been overhauled by the Market Abuse Regulation (MAR), which came into force on 3 July 2016. The new regime aims to enhance market integrity and investor protection, and features changes to insider dealing, unlawful disclosure of inside information, and market manipulation.
No doubt the changes will be of great interest to listed company in-house lawyers and company secretarial teams as well as those practising in corporate or capital markets in private practice. However, the impact of MAR and its new requirements to keep an insider list are far reaching. The new obligations apply to those who have access to inside information and who are working for a listed company, which will include professional advisers. Firms should ensure that they and their teams understand the potential to receive inside information during the course of an engagement, and prepare themselves for requests from clients and third party listed companies to maintain insider lists.
What is inside information?
To comply with MAR, a listed company (an issuer) must ensure it has an up to date record of anyone holding inside information. The definition of inside information is that it must:
- be of a precise nature;
- not have been made public;
- relate to an issuer or financial instrument; and
- if it were made public it would likely have a significant effect on the prices of relevant financial instruments or any derivative of such financial instruments.
Examples of financial instruments are stocks and shares, but “financial instruments” are currently defined in the Markets in Financial Instruments Directive (MiFID) I. From 3 January 2018 they will be defined in Annex 1 of MiFID II.
Readers in the energy sector should note that emission allowances and auctioned products based on emission allowances are now also caught by the new regime.
Compliance with the AIM Rules for Companies is not sufficient for compliance with MAR. Nominated advisers and company secretarial teams should ensure that they comply with the requirements of MAR, as these are likely to exceed those of the AIM Rules in relation to information and disclosures. This only applies until 3 January 2018, when AIM becomes a designated SME growth market (those markets will be exempt from the requirement to draw up an insider list if certain conditions are met).
The insider list
Article 18 of MAR requires issuers to prepare and keep (for five years from preparation or update) a list of “insiders”. Insiders are those with access to inside information. The list must be kept in electronic format and comply with a specific form set out in the legislation. There is an obligation on the issuer, or any person acting on its behalf or account, to take all reasonable steps to ensure that all identified insiders acknowledge in writing that they are aware of the legal and regulatory duties involved in being an insider, and that they are aware of the sanctions applicable to insider dealing and unlawful disclosure of such inside information.
Clients are likely to ask firms to confirm that they maintain an insider list and comply with the above requirements.
Who goes on the list?
The list is to include all persons with access to inside information of the issuer and those working for it under contracts of employment. It also includes anyone “performing tasks through which they have access to inside information such as advisers, accountants or credit rating agencies”. The definition is broad and will include the deal teams, and client facing staff (including support/secretarial staff) if they have access to inside information. Even IT staff could fall within the definition.
What triggers an entry?
Insiders included on the issuer’s list may only have access for a particular transaction or event, or they may be included permanently. An “event” triggering an entry would be the coming into existence of inside information, which need not correspond to an actual or contractual event. Insider lists must precisely identify the specific pieces of inside information to which persons working for an issuer have had access. The information might relate to a deal, a project, a corporate or financial event, or publication of financial statements or profit warnings.
Always on the list?
Issuers have the option to include certain insiders on the list permanently so as to avoid repeated and duplicate entries. Typically a permanent insider will be a person with a function or position in the relevant issuer which allows for access to all information at all times. Permanent insiders may be limited to an issuer's CEO and CFO, or may extend to a wider group of people such as all persons discharging managerial responsibilities. In-house legal teams are unlikely to have access to all information concerning an issuer’s price-sensitive information, and so are not expected to be considered permanent insiders. For the same reasons, external firms of advisers will typically be engaged, and therefore included in the insider list, on a transaction by transaction basis.
Issuers engaging firms
Issuers will need to prepare an insider list entry when engaging an adviser on a transaction at the time they are instructed (most likely on larger transactions which would be price sensitive), and will write to advisers requesting information and confirmation. Firms will be required to produce a list of the individuals who carry out work for the relevant issuer on any particular transaction to allow that issuer to complete the entries needed in the insider list.
When instructed on a deal requiring an entry in an insider list, firms will have to confirm in writing that the people on the deal team acknowledge their responsibilities as insiders. On larger deals, firms will need to ensure they have an adequate overview of which members of the legal team are working on a transaction and those members of staff supporting them. Where a transaction involves contributions from multiple teams across multiple offices, particular care will need to be taken to ensure that a comprehensive list can be produced.
Under MAR, an issuer will need to list anyone who has access to inside information. The capture of advisers in this net is easy to grasp when the adviser is engaged or acting for the issuer, but there may be occasions when the issuer is not a client of the firm that require consideration. For example, where a firm acts for an individual director, a purchaser or individual seller in a transaction involving in some way an issuer, its business or assets, there is ample scope for the disclosure of inside information by the firm’s client to members of the firm.
Whilst corporate teams will be alert to situations giving rise to the disclosure of inside information, all solicitors need to be aware of the potential to become insiders whether it be in a corporate or commercial, real estate, private client or criminal context. In such circumstances firms will need to be prepared to provide the details of their deal, transaction or case team to the issuer in such a case, despite the fact that the firm does not act for the issuer.
What should firms and issuers do next?
Issuers and adviser firms should ensure that all staff across the business are alive to their responsibilities when it comes to dealing with information which might be inside information. Internal reporting and staff policies should be checked and updated if necessary. The immediate impact of the new requirements under MAR will be to begin identifying who has access to inside information on any given transaction on both sides of the client/firm relationship, particularly where any matter involves an issuer.
Alexander Lamley is a solicitor with Shoosmiths LLP, Edinburgh, dealing with mergers and acquisitions, private equity and equity capital markets.