Tag Archives: UK

Crossing the wall? How companies can reveal inside information without contravening Market Abuse Regulations

When I hear the term “insider trading,” I tend to think of stories that make the headlines: Enron, Martha Stewart, and SAC Group. But what if you’re working for a company listed on the stock market, and need to speak to someone – say, your company’s lawyer – about an upcoming merger, profit warning, or mass redundancy?

It is not unusual for a public company to disclose important market moving information – such as advance warnings of earnings results – to analysts, lawyers, or selected investors before making the same information available to the general public.

Market moving information is a term used in stock market investing, defined as information that would cause any reasonable investor to make a buy or sell decision.

In regulatory parlance, when a public company reveals market moving information to a select group of people before it discloses that information to all investors at the same time, this is known as selective disclosure, or “wall crossing”. The problem with selective disclosure is that it creates an uneven playing field for investors, giving some people the opportunity to profit from market moving information before others.

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Transparency in control

Companies trading on the London Stock Exchange’s Alternative Investment Market are no longer exempt from publishing details of significant shareholders.

It is widely accepted that London is the money laundering capital of the world, with the property market being the primary avenue for the laundering of £100 billion ($128b USD) of illicit money each year (The Guardian, 2016).

To combat money laundering, tax evasion, terrorism financing, and fraud, both national and international organisations have introduced tougher, more wide-reaching legislation over the last few years.  One such statute came into full effect this week here in the United Kingdom: Directive (EU) 2015/849, or the fourth anti-money laundering directive (“AML4”).

Breaking it down
Complementary to the AML4 legislation is the Persons with Significant Control (PSC) regime. The new law requires all companies – private and public – to keep a recorded register of the persons (including legal entities) who can control or otherwise influence a company. A PSC, popularly referred to as “beneficial owners,” is someone with more than a 25 per cent holding of the shares in a company.

The rationale is that making public this information will prevent fraud and tax evasion through the use of overseas holding structures, which often mask the true ownership of a company or the property it owns.

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photo via Handelsblatt Global

Banks and Brexit

On Monday evening, I attended a lecture on the potential impact of Brexit on the UK financial services sector (“Report,” link).  The Report was produced by Oliver Wyman and commissioned by TheCityUK.  The presentation covered the current state of play of financial services in the UK, different scenarios for single market access, and some key recommendations for businesses and professional advisers.

Current state of play

  • The UK financial services sector earns approximately £190-205BN in revenues, and of this, up to £50BN is directly related to European Union activity. (Domestic business and other “Rest of World” interactions were not considered).
  • Together with the 1.1 million people working in financial services around the country, the sector generates an estimated £60-67BN of taxes each year, and contributes a trade surplus of approximately £58BN to the UK’s balance of payment.

Key take-aways

The five important features of a successful future relationship between the UK and EU will require the UK to (as recommended by Oliver Wyman): adhere to global norms, retain current access to international markets, maintain/create equivalence and grandfathering, implement orderly transition arrangements, and maintain ongoing regulatory collaboration.

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LS Lowry, 1929

The Purposeful Company?

Last month I attended “The Purposeful Company: a healthy prescription for UK public companies?” at the London School of Economics. The lecture was based upon a recent report published by the Big Innovation Centre (“BIC”) and focused on proposed changes to Company Law and Regulation, aimed at fostering a culture of corporate purpose. The presentation covered the importance of corporate purpose, the implications and failures of the current legal and economic ecosystem, and proposals for legislators, investors, and companies alike moving forward.

Read below for my notes on what it means to have corporate purpose, shareholder commitment to corporate vision, and proposals for decision makers.

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The Big Smoke: ClientEarth v Defra in context

Efforts to combat air pollution in London have been around since the Middle Ages. In 1307, King Edward II declared that “whoever shall be found guilty of burning coal [in the City] shall suffer the loss of his head.” Three hundred years later, English author John Evelyn published one of the earliest known publications on air pollution, entitled “Fumifugium: or, the Inconveniencie of Aer and Smoak of London Dissipated.”

John_Evelyn's_Fumifugium,_Title_Page

Evelyn wrote in his diaries that in London, “the ascent of the smoke was so filled with the [sooty] steam of the coal, that hardly could one see across the street, and this filling the lungs with its gross particles, exceedingly obstructed the breast so as one could scarcely breathe.”

In the 19th century, Parliament took some measures to investigate nuisances arising from smoke pollution. However, as smoke was essential to England’s rapidly-growing industrial economy, and because the physicians were still unable to prove that air pollution was linked to health problems, there was little political will or social pressure to justify tough action.

This remained the status quo until the 1950s, when in December 1952, London experienced the Great Smog. A combination of cold winter weather, heavy fog, and chimney smoke from households burning coal led to the worst air pollution event in British history. Up to 12,000 people are believed to have died as a result, with a further 100,000 being taken seriously ill. In response, scientific research into the environmental increased, awareness grew of the relationship between air quality and health, and of course, more substantial government regulations were introduced.

Nevertheless, air pollution is still estimated to have an effect equivalent to 29,000 deaths each year and is expected to reduce life expectancy of everyone in the UK by 6 months on average, at a cost of around £16 billion per year (UK Department for Environment, Food & Rural Affairs).

Smog over the Thames - a sight familiar to Londoners, myself included!

Smog over the Thames – a sight familiar to Londoners

Earlier this year, activist environmental lawyers at ClientEarth took the UK Government to court over its failure to meet air quality standards established by European Union law. The Air Quality Directive sets legally binding limits for major air pollutants that impact public health, including Nitrogen Dioxide (NO2) which is produced by road traffic and other fossil fuel combustion processes.

Scientists at King’s College London have said that many roads in central London have the highest concentrations of NO2 in the world due to the large number of diesel vehicles and narrow streets with tall buildings.

The current plans from the Department for Environment, Food & Rural Affairs (Defra) would see the UK achieve compliance for NOlimits by 2030 – which is 20 years after the original EU legal deadline of January 2010.

The Mayor of London published a report by King’s College London in July 2015 with the world’s first estimates for the number of deaths attributable to long-term exposure to NO. They estimated 9,400 deaths from fine particles and NO in London in 2010, making air pollution worse than smoking for the first time.

Lord Carnwath reasoned that there was no doubt in the seriousness of the breach, or the responsibility of the UK Supreme Court to secure compliance. He concluded that the Government needs to take immediate action, and ordered that new plans must be delivered to the European Commission by 31 December 2015.

Activists gather outside the UK Supreme Court for the Final Hearing of ClientEarth v Defra

Alan Andrews is the Partner at ClientEarth who has been leading this legal battle since 2011. Following the decision he said, “obviously we set EU law precedent, and we hope that’s going to allow citizens to go before national courts and uphold their right to breathe clean air, but also to enforce other environmental laws.”

Read the full judgement of R (on the application of ClientEarth) (Appellant) v Secretary of State for the Environment, Food and Rural Affairs (Respondent) here.