On 01 October 2018, the European Securities and Markets Authority updated its Q&As on the Market Abuse Regulation to clarify issues around when a credit or financial institution can delay disclosure of inside information.
On 01 October 2018, the European Securities and Markets Authority (ESMA) published a further update (Version 12) to its Q&As on the Market Abuse Regulation (MAR).
The new questions included in Version 12 (Q5.3, Q5.4 and Q5.5) look at the ability or otherwise of a credit or financial institution (the institution) to delay disclosure of inside information under Article 17(5) of MAR and, in particular, at the issues of:
- how to assess the relevant conditions contained in Article 17(5)
- whether the institution must notify the expected duration of the delay in disclosure, and
- whether the institution can delay disclosure under Article 17(4) of MAR where the national competent authority (NCA) has denied consent under Article 17(5).
Article 17(5) of MAR permits an issuer which is a credit or financial institution to delay public disclosure of inside information on its own responsibility in order to preserve the stability of the financial system. For it to do so, the following conditions (the Article 17(5) conditions) must be met:
- disclosure of the inside information must entail “a risk of undermining the financial stability of the issuer and of the financial system”
- it is in the public interest to delay the disclosure
- the confidentiality of that information can be ensured, and
- the relevant NCA has consented to the delay on the basis that the three conditions above are met.
When intending to rely on Article 17(5) of MAR, the institution should provide evidence to the NCA that the Article 17(5) conditions are met - this assessment should be “as complete as possible to the best of the [institution’s] knowledge”.
Questions included in the Q&As
Version 12 of the ESMA Q&As includes examination of the following questions:
A. What elements should the institution consider in its assessment of the Article 17(5) conditions?
Does disclosure entail a risk of undermining the financial stability of the issuer and the financial system?
Before Article 17(5) of MAR can apply, disclosure of inside information must entail a risk of undermining the financial stability of both the issuer and the financial system. In ESMA’s view, this means that the disclosure of inside information “is likely […] to pertain and be performed by an institution of relevance, eg in terms of impact and interconnection”.
Is it in the public interest to delay the disclosure?
There is no formal definition of the term “public interest” in MAR, though recital 52 of MAR states that “the wider public and economic interest in delaying disclosure outweighs the interest of the market in receiving the information which is subject to delay”.
In assessing the public interest, ESMA notes that it is “important to consider interests beyond the direct economic impacts and other non-financial interests of the public”, all of which interests would have to be considered. The institution should try to identify different entities who could be affected by the decision to delay disclosure of the inside information and whose interests may be understood as a public interest.
Where there are divergent public interests, the institution should assess whether the prevailing public interest(s) is to delay the disclosure of inside information and to do so on a case-by-case basis.
By way of example, ESMA notes that “a potential loss to investors who have made or may make an investment decision should be weighed against the adverse effect of public disclosure on other groups, such as depositors and consumers”.
Can the confidentiality of the information be ensured?
The institution is expected to assess the information’s confidentiality at the time it notifies the NCA as well as how confidentiality can be ensured during the period of delay in disclosure.
To this end, the institution should consider the procedures it has put in place to ensure the confidentiality of information and draw up its insider list given that, pending the NCA’s decision to consent to the delay, the disclosure of the inside information is already, in fact, delayed.
B. Notifying the NCA of the expected duration
ESMA confirms at Q5.4, that an institution notifying the NCA of its intention to rely on delay under Article 17(5) is expected to provide its assessment on the expected length of the delay and the details of expected trigger events.
Where the NCA gives its consent to the delay further to its own assessment of the relevant conditions, ESMA clarifies that the institution should inform the NCA whenever it becomes aware of a new element or event that might affect the duration of the delay.
C. Can the institution delay disclosure under Article 17(4) of MAR where the NCA has denied consent under Article 17(5)?
Article 17(4) of MAR also permits an issuer or emission allowance market participant to delay disclosure of inside information on its own responsibility, provided that:
- immediate disclosure is likely to prejudice the legitimate interests of the issuer or emission allowance market participant
- delay of disclosure is not likely to mislead the public, and
- the issuer or emission allowance market participant is able to ensure the confidentiality of that information.
ESMA confirms that, where the Article 17(5) conditions are not met, the NCA cannot consent to the delay under Article 17(5) and, by Article 17(6), the institution will have to disclose the inside information immediately. This means that the institution could not then resort to delaying disclosure under Article 17(4).