Companies Act 2006 - Transparency

Part 43: Transparency obligations and related matters – Transparency Directive(2004/109/EC)

1747. Sections 1265, 1266, 1267, 1268, 1270, 1271, and 1272 in Part 43 (Transparency obligations and related matters) of the Act implement Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC.

Section 1266 inserts seven new sections into Part 6 of the Financial Services and Markets Act 2000; sections 89A, 89B, 89C, 89D, 89E, 89F and 89G. The new sections give power to the competent authority (at present the Financial Services Authority (“FSA”)) to make rules for the purposes of the Transparency Directive (2004/109/EC) (“Transparency Directive”) and connected regulatory purposes. Sections 1267 and 1268 insert three and four sections, respectively, into Part 6 of FSMA (89H to 89N) setting out the regulatory powers of the FSA in connection with the Directive. Section 1270 inserts new sections 90A and 90B into FSMA, which set out the issuers’ liability in damages for disclosures required under the Transparency Directive, and section 1271 inserts a new section 100A into FSMA setting out provisions in relation to the exercise of the FSA’s powers where the UK is a host member state.

1748. The Transparency Directive imposes minimum harmonisation requirements on the information to be provided to the public about issuers whose securities are traded on a regulated market and the control of votes attached to shares in those issuers. It permits Home Member States to impose more stringent requirements on entities that they regulate but Host Member States, i.e. those states in which the issuers securities are traded on a regulated market but whose competent authority are not responsible for primary oversight of that issuer, are not permitted to impose any requirements more stringent than those contained in the Transparency Directive.

1749. There are three main categories of obligation that are imposed under the Transparency Directive and that the FSA’s transparency rules will implement in respect of UK markets and issuers:

a) requirements for issuers to make public, at regular intervals, information about their financial position and the progress and management of the business of the issuer;

b) requirements for holders of votes attached to shares of issuers to notify the issuers when the number of votes they control reaches specified proportions of the total votes available; and

c) requirements for issuers to treat the holders of the same securities equally.

1750. The detailed and technical provisions about the required notifications, disclosures and treatment of security-holders will be prescribed in rules made by the FSA under the new rulemaking power at section 89A of the Financial Services and Markets Act 2000. The FSA is required by that Act to carry out consultation and a cost benefit analysis when making any rules under this power.

1751. Having the power to make these rules will promote the harmonisation of practice with other EU jurisdictions, and help enhance investor confidence through increased transparency of the financial markets.

1752. Responsibility for the transposition of the Transparency Directive lies both with HM Treasury and with the FSA. The measures in the Companies Act that implement the Transparency Directive are the responsibility of HM Treasury.

1753. The table below describes the substantive provisions in the Act implementing the Transparency Directive.

Part 43: Transparency obligations and related matters

Article Objective Implementation

1. Sets out scope of the Directive and two derogations from the requirements of the Directive. The Member States may apply the derogations in respect of securities issued by the government, local government or a state’s national central bank.

Part 43 of the Act inserts new provisions into the Financial Services and Markets Act 2000 (“FSMA”) to give the Financial Services Authority power to make Transparency Rules.

Most provisions in the Transparency Directive will be implemented by the FSA’s Transparency Rules. Other provisions in the Act or in FSMA implement the other requirements.

If the derogations are to be implemented, the FSA’s Transparency Rules will do this.

2. Provides various definitions used in the Directive.

These will be applied in Transparency Rules, or apply in relation to the implementation of the Article to which they relate.

3. Limits the circumstances in which Member States may impose more stringent requirements than those contained in the Directive on issuers of securities and holders of interests in those issuers’ shares.

Transparency Rules and new FSMA section 100A(2) introduced by section 1271 of the Act.

4. Requires issuers of securities which are traded on regulated markets to make public its annual financial report consisting of its audited financial statements and the management report.

Transparency Rules: see in particular new sections 89A and 89C of FSMA, inserted by section 1266 of the Act.

5. Requires issuers of shares or debt securities which are traded on a regulated market to make public a half-yearly financial report.

Transparency Rules: see in particular new sections 89A and 89C of FSMA, inserted by section 1266 of the Act.

6. Requires issuers whose shares are traded on a regulated market to make public an interim quarterly statement.

Transparency Rules: see in particular new sections 89A and 89C of FSMA, inserted by section 1266 of the Act.

7. Requires Member States to ensure that responsibility for the information to be drawn up and made public in accordance with Articles 4, 5, 6 and 16 lies at least with the issuer or its administrative, management or supervisory bodies and to ensure that their laws, regulations and administrative provisions on liability apply to the issuers, the bodies referred to in this article or the persons responsible within the issuers.

Provisions relating to liability inserted into FSMA as new sections 90A and 90B by section 1270 of the Act.

8. Provides various exemptions from the requirements of articles 4, 5 and 6 including to optional exemptions.

Transparency Rules.

9. Provides that where a shareholder with a significant level of holding acquires or disposes of shares of an issuer whose shares are admitted to trading on a regulated market and to which voting rights are attached, such shareholder notifies the issuer of the proportion of voting rights in the issuer held by the shareholder as a result of the acquisition or disposal where that proportion reaches, exceeds or falls below the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%.

Transparency Rules: see in particular new sections 89A and 89B of FSMA, inserted by section 1266 of the Act.

10. The notification requirements in Article 9 shall also apply to a natural person or legal entity to the extent it is entitled to acquire, to dispose of, or to exercise voting rights in any of the cases set out in the Article or a combination of them.

(Voting rights acquired through agreement or interest).

Transparency Rules.

11. Exempts shares provided to or by the members of the ESCB in certain circumstances from the notification requirements imposed by Articles 9 and 10.

Transparency Rules.

12. Sets out the information that must be included in the notification under Articles 9 and 10 and includes provision on the timing of the notification and when aggregation of holdings required. Paragraph (6) requires the issuer to make public all information contained within a notification within 3 days.

Transparency Rules.

13. Requires the holders of financial instruments, which are to be specified by the Commission, to notify the issuer of their control of votes in accordance with the requirements in Article 9.

Transparency Rules.

14. Requires an issuer of shares admitted to trading on a regulated market to make public the proportion of its own shares that it holds when those proportions reach, exceed or fall below the thresholds of 5% or 10%.

Transparency Rules: see in particular new sections 89A and 89C of FSMA, inserted by section 1266 of the Act.

15. Requires the Member State to ensure that an issuer of shares traded on a regulated market, makes public the total number of voting rights and capital at the end of each month during which the number changes.

Transparency Rules.

16. Requires issuers of securities to make public information about any changes in the rights attached to their securities and any new loan issues and any guarantee or security in respect of such loans.

Transparency Rules: see in particular new sections 89A and 89C of FSMA, inserted by section 1266 of the Act.

17. Requires issuers of shares admitted to trading on a regulated market to treat their shareholders, who are in the same position, equally. It provides for information to be distributed in particular ways and for shareholders to be able to exercise their rights in specified ways.

Transparency Rules.

18. Makes similar provision as that contained in Article 17 but in respect of issuers whose debt securities are admitted to trading on a regulated market.

Transparency Rules.

19. Requires issuers to file information that they are required to make public under the Directive, with the FSA and permits the FSA to publish that information itself. It also requires issuers to inform the FSA and the regulated market to which its securities are admitted of any proposed change to its instrument of incorporation.

Transparency Rules.

20. Sets out the rules for determining which language the issuer must use to disclose regulated information in various circumstances.

Transparency Rules.

21. Requires issuers to disclose regulated information in a manner ensuring fast access to such information on a non-discriminatory basis.

Also requires each Member State to have an officially appointed mechanism for the central storage of regulated information.

Transparency Rules.

22. Requires the competent authorities of the Member States (for the UK it is the FSA) to draw up guidelines to create an electronic network at national level to share information between the various competent authorities, operators of regulated markets and national company registers. Such guidelines must aim to further facilitate public access to be disclosed under this Directive, Directive 2003/6/EC (the Market Abuse Directive) and Directive 2003/71/EC (Prospectus Directive).

The FSA will draw up guidelines in accordance with the obligations under this Article.

23. Enables the FSA to exempt issuers based in third countries from certain disclosure requirements if there are equivalent provisions in the third country. Requires the FSA to ensure that where a third country issuer is regulated in the UK for EU purposes, any information which may be important to the public in the Community is disclosed in accordance with Articles 20 and 21.

Transparency Rules.

24. Requires each Member State to designate a central competent authority responsible for ensuring that the Directive is applied and to give that competent authority specified powers which are necessary for the performance of its functions.

Permits each Member State to designate a competent authority for examining that information is drawn up in accordance with the relevant reporting framework.

The central competent authority in the UK will be the FSA, by virtue of the amendments being inserted into Part 6 of FSMA.

The FSA already has various powers under FSMA. Other powers for the FSA to perform its functions are contained in new FSMA sections 89H to 89N inserted by sections 1267 and 1268 of the Act.

The Act provides power to designate a competent authority for reporting framework purposes by amending the Companies (Audit, Investigations and Community Enterprise) Act 2004. See Schedule 15 (Part 2) of the Act.

25. Imposes a requirement for professional secrecy on those who work for the competent authority and requires cooperation between the competent authorities of the various Member States.

FSMA already contains provisions relating to professional secrecy for those who work for the FSA and the Companies (Audit, Investigations and Community Enterprise) Act 2004 also contains provisions in relation to authorities appointed under that Act.

26. Provides for host Member States to take action in relation to infringements where an issuer or security holder continues to infringe the requirements of the Directive.

New section 100A of FSMA introduced by section 1271 of the Act.

27. Sets out the committee procedure for the Commission to make implementing measures required by the Directive.

No implementing provision required.

28. Requires, without prejudice to the right of Member States to impose criminal penalties, Member States to ensure, in conformity with their national law that at least the appropriate administrative measure may be taken or civil and/or administrative penalties imposed in respect of the persons responsible.

Schedule 15 (Part 1) of the Act amends section 91 of FSMA to enable the FSA to impose financial penalties for breach of the Transparency Rules.

29. Requires a right of appeal to the courts to be in place.

No further implementation is required.

FSMA already makes provision for appeals of FSA decisions to the Financial Services and Markets Tribunal and to the Court of Appeal.

30 – 35 These articles contain transitional and final provisions, including the date by which the Directive must be transposed – 20 January 2007.

No specific implementation is required for most of these provisions. New sections 89B(4) and 89D(1) introduced by section 1266 of the Act make provision for transitional arrangements.