Newsletter for primary market participants
March 2021 / No. 33
About this edition
This is a packed edition, featuring Brexit-related changes for EEA audit firms, information on Short Selling Regulation notification compliance, our recent Enforcement outcome against Asia Research and Capital Management Limited and details of our new online portal for submitting major shareholdings notifications (TR-1 Form) which went live on 22 March 2021.
It also includes our review work on issuers’ compliance with major shareholding notifications and deficiencies observed in reporting total voting rights, annual FCA reporting requirements of payments to governments and our response to feedback received on Delayed Disclosure of Inside Information (see PMB 31).
Audit of financial statements by EEA audit firms
Audit firm registration
From 11:00pm on 31 December 2020 all EEA States became third countries following the end of the transition period. This has practical implications for third country (including EEA) issuers which have transferable securities admitted to trading on a UK regulated market and whose auditors are from an EEA State. If you are one of these issuers, your auditors will have to register as 'third country auditors' with the UK’s Financial Reporting Council (FRC) in time for the publication of annual financial statements for financial years beginning on or after 1 January 2021. For more information on how your auditors can register, please refer to the advice from the FRC here. If your auditors do not register, then the financial statements won’t be audited for the purposes of compliance with DTR 4.1.7R (auditing of financial statements).
EEA Audit equivalence
On 9 November 2020, the Department for Business, Energy and Industrial Strategy announced regulations to grant audit equivalence to the EEA States and approve as adequate their audit competent authorities. See the policy paper HM Treasury equivalence decisions for the EEA States for full details of the announcement. Where audit work is undertaken by an EEA auditor, an issuer’s financial statements will be considered to be audited for the purposes of DTR 4.1.7R, as long as the EEA auditor is registered with the FRC.
Short Selling Regulation
Timely disclosures of Net Short Positions
On 14 October 2020, the FCA published a Final Notice against Asia Research and Capital Management Limited (ARCM), and imposed a penalty of £873,118 for the failure to disclose over 150 notifications related to its net short position (NSP) held in Premier Oil Plc. On 5 July 2019, ARCM reached a NSP of 16.85% of Premier Oil’s issued share capital. This position was built over 2 years and resulted in the largest NSP held in a listed issuer in the UK. ARCM submitted delayed NSP notifications to the FCA on 3 December 2019. This is the first enforcement action we have taken for the failure to disclose NSPs in a timely manner, as required under the Short Selling Regulation (SSR).
Persons failing to comply with their obligations under the UK SSR can potentially disrupt the orderly functioning of financial markets. For example, failure to comply affects our ability to monitor short selling activity and market participants’ ability to use accurate public disclosure of net short positions to make informed investment decisions. We use this opportunity to remind market participants of the importance of making timely and accurate disclosure of their NSPs to us.
Reportable net short positions and UK sovereign debt
How to submit Net Short Position Notifications to us
A NSP notification can only be submitted to the FCA using our Electronic Submission System (ESS) portal. An ESS account is needed to access this system. Once an account is created and approved, a registration request to be a reporting person on behalf of a position holder can be submitted.
For more information on how to register and submit notifications, please see our SSR pages and registration user guide here.
Consultation feedback and changes to the Knowledge Base
Schemes of arrangement
We note that respondents felt that a prospectus is not required even where a scheme includes mix and match facilities. We are considering these responses and will provide further information in a future PMB.
Review of payments to governments disclosures by issuers in the extractive industries
In 2019, we conducted a series of reviews for DTR 4.3A and shared our results and concerns in PMB 20. In 2020, we conducted another review and our feedback is below.
- they were active in the extractive or logging of primary forest industries
- they had transferable securities admitted to trading on an EU regulated market (including debt instruments and depository receipts)
- their Home State for Transparency Directive purposes was the UK
- they are active in the extractive or logging of primary forest industries
- they have transferable securities admitted to trading on a UK regulated market
We remind issuers once again of the main requirements (summarised below) where we saw the biggest deviation from the rules.
1. Payment threshold
- breakdown by payment type
- breakdown by project (where payments have been attributed to a specific project, the total amount per type of payment for each such project and the total amount of payments for each such project)
- breakdown by government (including any national, regional or local authority, department or agency)
Outcome of the Review
- When using the National Storage Mechanism (NSM) to file the Payments to Governments Report, issuers should be aware that uploading the report in human-readable format alone (and not also in XML format using the prescribed XML data schema) is not enough to meet the DTR 4.3A requirements. This concerns us, as reports in XML format were located for only a minority of issuers in scope of our review.
- We identified that nearly a fifth of Payments to Governments Reports reviewed were missing sufficient breakdowns by project.
- Over 10% of all Payments to Governments Reports for the period were not filed with the NSM, which is required by DTR 4.3A.10R (filing of reports on payments to governments).
- Several Payments to Governments Reports were disclosed as a part of the annual financial report rather than as a standalone report.
- Several issuers in scope omitted publication of the report stating that no payments have been made, or payments have been below the threshold. This does not exempt them from the obligation to prepare, publish and file a report, disclosing this information.
- Several issuers in scope omitted publication of the report stating they are exempt on the basis of similar filings. We remind issuers that no determinations of equivalence have been made by the FCA in respect of DTR 4.3A. Therefore, all issuers within scope of DTR 4.3A are required to comply with those rules.
Feedback on Review of Delayed Disclosure of Inside Information
Periodic financial information
The factors that we highlighted in the Review do not indicate that we wished to challenge market practice. This practice might reasonably be expected to involve considerations like the extent to which:
- The periodic financial information contains an item or items that are themselves inside information for which no legitimate interest to delay disclosure exists, Article 17 of MAR requires that the inside information is announced without delay. Where there is no delay in disclosure of inside information or no inside information exists, no notification under Article 17(4) of MAR would be required.
- The totality of the periodic financial information is inside information. This typically includes an assessment of whether the results and other content differ from market expectations, where such expectations can be ascertained. Where a decision is reached that periodic financial information is not itself and does not contain inside information no notification needs to be submitted.