COL4466_LSE RNS A/W_f copy 2 26/5/09 14:20 Page 3 YOUR TRUSTED LINK TO THE WORLD’S FINANCIAL COMMUNITY RNS and the new Transparency Directive COL4466_LSE RNS A/W_f copy 2 26/5/09 14:20 Page 4 Contents Section 1 Pulling together: The Transparency Directive overview 2 Strength in numbers: How to disseminate information effectively 3 Clarity and transparency: What the Transparency Directive means for you 4 The missing link: Looking to the future 5 Glossary: Key terms explained COL4466_LSE RNS A/W_f copy 2 26/5/09 14:20 Page 5 Introduction • The Transparency Directive takes effect in the UK • We also explain the way in which the Transparency from 20 January 2007. Directive dovetails with other EU Directives, all of which are intended to make European capital markets • This guide from RNS is intended to help companies work more seamlessly and effectively. and their advisers understand more about the Directive and its impact on them. • We explain what the Transparency Directive is and the inspiration behind it. • We describe how the Directive will be applied in the UK and we explain the part RNS has played – and will play – in its implementation. COL4466_LSE RNS A/W_f copy 2 26/5/09 14:20 Page 6 “The test for the Directive is how far it succeeds in raising standards of company reporting in jurisdictions where they have not been very high, without damaging practice in jurisdictions with higher standards, such as the UK. I think we can be relatively optimistic on both counts” Peter Montagnon, Director of Investment Affairs, Association of British Insurers 1 Pulling together: The Transparency Directive overview 1.1 The Transparency Directive overview Both cover disclosure but while the MAD focuses on the need to disseminate inside information as The Transparency Directive will create a framework soon as possible in order to avoid market abuse, for companies across Europe to adopt similar the Transparency Directive focuses on the standards around information disclosure. information that needs to be disclosed on a periodic The Directive has evolved over several years and basis, as well as shareholder disclosures and the way has been influenced by consultation with a number in which disclosure should take place. of interested parties, both in the UK and overseas. Until now, each country in Europe has operated The impact of the Directive will be greater in independently, imposing its own legislation and jurisdictions where there is a less well developed guidelines on companies and investors. Some disclosure regime, so the impact for UK companies countries have been more lax than others, both in will be limited. terms of the amount of information to be disclosed by companies and the amount of information The Directive requires companies to disclose disclosed by investors. information at regular intervals through specific channels and, in that way, it bears many similarities This unlevel playing field has disadvantaged to the existing UK regime. But there are certain companies and shareholders. And in recent years, areas in which the Directive will place new demands the need for a harmonised European capital market on companies and their directors, particularly with has intensified, reflecting a growing desire among respect to forward-looking statements. global investors for dynamic disclosure – that is, immediate disclosure when there is something Generally speaking, the Transparency Directive important to say. will not apply to AIM companies; however, the requirements concerning disclosure of voting rights In most instances, the UK is already there. Much of will apply to UK AIM companies. This requirement the content within the Transparency Directive has is explained in more detail later in Chapter 3. been based on London best practice and regulators and interested parties in London, including RNS, 1.2 The rationale have been widely consulted. The brainchild of the European Commission, 1.3 The benefits the Transparency Directive is part of a broader project – the Financial Services Action Plan (FSAP) – The Transparency Directive should benefit companies designed to create a single European capital market. and investors. In the past, investors have found it The Transparency Directive works alongside other hard to compare information on companies from pieces of FSAP legislation, in particular the Market different countries in Europe and this has, at times, Abuse Directive (MAD). made them more cautious about investing. Greater transparency will make comparative analysis easier for investors and this is expected to boost shareholder confidence. The cost of capital should also be reduced, for at least some companies, as investors show their preference for corporate transparency. COL4466_LSE RNS A/W_f copy 2 26/5/09 14:20 Page 7 1.4 The key points 1.5 The Transparency Directive in the UK In essence, the Transparency Directive covers the In all four areas listed above, the Transparency content and regularity with which companies should Directive has been informed by the UK model and report financial information and the way in which recognition has been given that this model works, that information should be relayed to the market. and works well. The Directive also obliges investors to disclose key shareholdings: The legislation is, however, a “minimum harmonisation directive”, which means that • For companies, the Directive requires them to EU member states, such as the UK, can impose produce annual and half-yearly (formerly interim) additional requirements (known as super- financial reports. In addition, the Directive obliges equivalence) on companies and investors. companies to produce an “interim management statement” for the first and third quarters of their In the UK, the Financial Services Authority (FSA) is financial year. This is a new requirement for tasked with implementing the Transparency Directive companies that do not already report quarterly but it has sought the views of various representative and the specific nature of these statements is bodies and interested parties, including the London an ongoing topic for debate between companies Stock Exchange. and regulatory authorities. While some aspects of implementation are yet to • Companies are also obliged to disclose regulated be finalised and best practice interpretation will 1 evolve, the Directive will become a fact of European information on a fast and pan-European basis. 2 For UK-listed companies, this is, broadly-speaking, company life in early 2007. The final rules for initial business as usual. They already use Regulatory implementation (excluding OAMs) were published Information Services, such as RNS, to disseminate in October 2006 and markets will be expected to information widely and speedily. In Europe, however, implement the Directive from 20 January 2007. different methods have predominated – such as 1 Regulated information is all the information that is required to be disclosed dissemination via print media or company websites. under the Transparency Directive, inside information and any other information requirements required in the home member state. • The Transparency Directive places demands 2 Subject to European Commission finalisation of implementation measures on investors too as they are obliged to notify and Royal Assent to the UK Companies Bill. companies once they have built up certain share stakes. • Finally, the Directive requires member states to ensure there is at least one Officially Appointed Mechanism (OAM) for the central storage of regulated information. The precise nature of these OAMs is subject to continuing discussion and will involve a further phase of consultation and implementation. COL4466_LSE RNS A/W_f copy 2 26/5/09 14:20 Page 8 2 Strength in numbers: How to disseminate information effectively 2.1 RNS is the leading service provider for disclosure RNS meets the Financial Services Authority’s of regulated information in the UK market: (FSA) requirements for UK dissemination, which authorises Primary Information Providers (including • eight out of ten UK companies use RNS RNS) to act as Regulatory Information Services. • nine out of ten UK companies use RNS for The FSA will retain this system after implementation price-sensitive announcements of the Transparency Directive. • over 90% of the FTSE100 companies use RNS Strict guidelines apply to these authorised providers of information so users of RNS can feel comfortable • RNS releases over 650 announcements a day about submitting regulated information and can be on average. sure that announcements will be handled speedily, efficiently and securely. However, RNS sees these Since 1990 RNS has been the foremost regulatory as minimum standards and makes sure its service news distribution service in the UK and works and performance levels exceed what is required in alongside other leading financial news distributors the FSA’s approval criteria. across the world. Customers appreciate, for example, the extended With more expertise in distributing regulatory support hours offered by RNS and the wide-ranging announcements than any other organisation, RNS technical and regulatory knowledge of its support allows issuers to have confidence their information teams. A recent survey revealed, in fact, that almost will be disseminated efficiently, securely and in 100% of queries are swiftly answered to customers’ accordance with local regulatory regimes. satisfaction. RNS distribution channels use the London Stock Exchange’s trading infrastructure, which is known 2.3 Pan-European disclosure for