The Financial Conduct Authority and Her Majesty’s Treasury have made some significant changes in its draft of the implementation of the Transparency Directive Amended Directive (Directive 2013/50/EU, which amends 2004/109/EU). In part 1 of our blog series about the Transparency Directive, we focused on the global changes to the Directive, in particular the adjustments prescribed for the financial instruments captured, aggregation methods, and calculations on the percentage of holdings. You can read our previous post here and complete coverage here.
On March 29, 2015, the FCA and HM Treasury published a joint consultation paper (CP 15/11) with details of how the implementation would look. Today, we will take a closer looking at the legislation surrounding exempt managers, the scope of the sanctions, and the reporting requirements.
Exempt Financial Institutions
Currently, some investment managers are exempt, however, from disclosure requirements even as major shareholders. US managers had been exempt, for example. But all exemptions are removed in the FCA draft, although disclosure is only obligatory at the minimum thresholds of ownership prescribed by the directive. Trading involving client-serving intermediaries was exempt from disclosure requirements, under the original UK legislation. There is no separate client-serving intermediary exemption in the draft for implementation.
The power for authorities to impose sanctions has also been broadened. These should include the ability to order a non-compliant person or company to alter its conduct. Sanctions can also be applied to administrative or management personnel or groups which have breached compliance.
In the case of very serious breaches – a definition of “very serious” is being worked out by the Treasury -- of the obligation to notify when ownership of shares reaches a specific threshold, voting rights can be suspended. There is also an amendment which would permit the FCA to apply to the courts for a suspension of voting rights for the most serious breaches. The Treasury is also seeking views on how a ‘most serious breach’ should be defined.
Another change made in the original directive is to end the requirement to make quarterly reports of results. Half-year reports are still required, and they will now have to remain available to the public for 10 years, instead of 5 as in the previous UK legislation.
It is currently possible to lend and borrow shares without disclosing the activity. This will change under the FCA’s version of the amended directive. New provisions will require both borrowers and lenders to disclose voting rights on the shares being transferred. But such disclosure is only required where the borrowed or lent shares place the holder above the minimum thresholds for notification of majority share ownership – those thresholds are 5 per cent, 10 per cent, and more.
Borrowers or lenders who hold shares for less than 24 hours are not obliged to make this notification.
Issuers of shares also face some new requirements. They must choose a home Member State for the stock within three months of the shares’ being listed for trading. If no choice is made within that time, the shares will be considered as having for home Member State in which the securities are listed. If they are listed on multiple markets, the shares will be treated as being in home Member State in each jurisdiction in which they are listed, until the company makes a choice of home state.
The FCA and HMT have only until 26 November 2015 to complete implementation of the amended directive. The FCA will make feedback on the implementation public at the end of the year.
The upcoming implementation of the amended Transparency Directive is surely looming large in minds. If you are a FundApps customer, you have no need to worry, our dedicated team of regulatory experts with Allen & Overy platform - aosphere, as a legal provider, ensure the updates to the major shareholding rules are made accurately and in time. And don’t forget - the changes we make are instantly synced to the cloud!
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