In this piece, we highlight some of the most commonly overlooked aspects of Shareholding Disclosure and how they can lead to inaccurate disclosing - or worse - failure to disclose, risking regulatory fines and reputational damage for your firm.
1. Not monitoring Corporate Actions:
Corporate Actions are events that occur within the companies that issue shares. These types of events vary and can be difficult to monitor. For instance, a stock split can result in a change in the number of shares outstanding, affecting your actual holdings and voting rights. Other corporate action events that can affect your holdings include share buybacks, a share being given a new ISIN or a new class of securities being issued.
Our Corporate Actions data service allows you to stay up to date with the most recent events.
Screenshot of our Corporate Actions data service
2. Inaccurate data = Incorrect denominators:
Using incorrect denominators can lead to either disclosing too early or failing to disclose on time to the regulator. Over the years, we noticed that sourcing accurate data is a widespread issue within the regulatory compliance space. So, we decided to develop our Denominator Check feature, allowing our clients to cross reference their numbers with other financial firms trading the same securities.
This couldn’t be achieved without 2 main factors - the breadth of our client base and our compliance community.
With 100+ financial institutions using the same unified rules package (with legal information sourced from aosphere - an affiliate of Allen & Overy) and a compliance community of over 1000 compliance professionals globally, you can rest assured that incorrect denominators will be highlighted.
All data is kept confidential, however, we will flag a warning if there is a discrepancy with your Total Shares Outstanding value, allowing you to investigate before filing a disclosure.
3. The “We Are Not Invested In That Country” Trap:
Often, investment strategies contain a more geographical focus, for example, Asia Pacific Mid-Cap or US Large Cap Value funds. Regulators in each country want to ensure that holders of the companies which are listed on their exchanges (or involved in a takeover), are disclosing their substantial holdings.
Usually, compliance officers will look solely to the ‘domicile’ of the company issuing the securities. However, one of the single most important properties of financial assets in shareholding disclosure is the list of ALL markets or exchanges where an asset is listed. For instance, a well-known firm that is cross-listed is IBM - listed on various stock exchanges in the US, London, Paris as well as Frankfurt!
When determining if it is necessary to monitor disclosure requirements or holding limits across multiple countries, our Shareholding Disclosure service ensures nothing slips through the cracks by monitoring holdings globally. For example, with the incorporation of FIRDS, we can determine the EU home Member State where substantial holdings in the issuer need to be reported. This allows us to identify if, for example, an Australian company is disclosable within the EU.
4. Not Checking Takeover Panels:
Once an issuer is listed on a takeover list, they are in many jurisdictions subject to lower reportable thresholds during the lifetime of the takeover. Without an automated matching of current holdings with the current takeover panel, the risk of under-disclosing in these rules is high.
To avoid missing a disclosure, a compliance officer will need to manually check each takeover panel on a daily basis to ensure no new transactions have begun and also check if positions have been purchased during the last trading day which may be disclosable under a new takeover regime.
Without automation, this is a rather burdensome and time-consuming task. However, with our Shareholding Disclosure solution, we provide data directly sourced from 18 takeover panel lists.
In almost every jurisdiction, there are specific obligations to ensure aggregation all the way up to the top level holding company. The regulation around when to aggregate assets and where to aggregate them to, is by far the most complex area of shareholding disclosure compliance in general.
Whilst there are plenty of nuances between countries, at a high level, there are two main categories to be aware of when aggregating your holdings:
- Aggregation Structure: the interpretation of disclosure regulation in each jurisdiction not only requires the assets to combine up the corporate tree, but also to identify the relationship each entity has with the assets it holds, manages, or votes.
- Aggregation Level: this is where it gets even trickier. Depending on the jurisdiction, there are different ways of aggregating in regards to where in the corporate hierarchy the calculation of percentages actually needs to be performed. If disclosures are required at both a top level and a portfolio level for example, there will be multiple calculations required. The more complex the corporate structure, the more combinations of calculations will need to be made to ensure accurate compliance.
Our automated service accounts for all of these structures, allowing for accurate representation of the entire corporate hierarchy and correct aggregation of positions at the right corporate level (from entity to portfolio), as well as adherence to ownership (e.g. legal, voting, management).
If you’d like to enhance your regulatory knowledge, you can now sign up to our FundApps Academy, a series of online courses taught by our subject matter expert, Ebbe Filt.
If you’re interested in seeing how Compliance-as-a-Service (CaaS) can help your firm save time and reduce operational risk when meeting regulatory obligations, book a demo with us to see our solutions in action.