Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Tuesday, March 22, 2005

Who are the regulators?

To understand the rules, it is helpful to under who are rule makers are.

Lets start with the HM Treasury. The Treasury is the United Kingdom's economics and finance ministry. It is responsible for formulating and implementing the Government's financial and economic policy. The Treasury appoints the board of the Financial Services Authority, which has day to day, the most influence on regulation affecting IRO’s.

The Financial Services Authority (FSA) is an independent non-governmental body, given statutory powers by the Financial Services and Markets Act 2000, which includes several sections of law which directly impact IRO’s of UK listed companies.

The FSA is a company limited by guarantee and financed by the financial services industry. The Board sets out overall policy, but day-to-day decisions and management of the staff are the responsibility of the Executive. The FSA is the UK’s competent authority, and responsible for implementing new regulations that impact IRO’s. Among the ‘departments’ of the FSA are the UK Listing Authority, whose help desk on 020 7066 8333 is the day to day point for IRO’s of UK listed companies.

The Department of Trade and Industry is a government ministry, linking government, businesses, employees, unions, consumers and the scientific community. One part of its responsibilities is the Companies Act 1985, which mandates a lot of work done by IRO’ and company secretaries.

The Panel on Takeovers and Mergers (“the Panel”) is the regulatory body which administers the City Code on Takeovers and Mergers (“the Code”). Its central objective is to ensure equality of treatment and opportunity for all shareholders in takeover bids. It is a kind of independent referee which lays down the rules in a contested takeover, and then ensures they are met.

Finally, The Financial Reporting Council (FRC) is the UK's independent regulator for corporate reporting and governance. Its main area of responsibility is for the UK’s corporate governance code – the Combined Code - which is itself not legally binding.

Thursday, March 03, 2005

General intro to UK rules

The task facing an Investor relations Officer in the UK in compliance with the regulations is far from easy. The following notes are aimed to help an IRO navigate successfully through the legislation of the UK. So what is the role of the IRO? Go between? Independent? Marketing person? Well no, increasingly it is the IRO who is the decision maker in the final instance. And in the UK they are driven by a series of codes, which lay out their required actions. For example, the Price Sensitive information Guide (about which more later) contains the following:
“Stock markets need a flow of relevant and timely information to function efficiently. Information on listed company’s performance and prospects is of particular importance as this is the basis on which many investment decisions are made; if the information deviates from the generally accepted view of a company’s status it can have a significant effect on the price of its listed securities…Recognising the vital importance of such information the UK Listing Authority requires that the market as a whole, and not just select groups of individuals, has rapid access to it.”
Whereas many countries lay out an encouraging statement similar to this, not all take such a structured mandatory regulatory approach to regulation.

The good news is that by comparison with some other regimes, the UK requirements are a model of clarity. Over recent years, regulators have spent a great deal of time in making the rules as easy to interpret as possible.

The bad news is twofold. Firstly there is an awful lot of it; nearly 3000 pages of regulations exist, which can directly impact the issuer. Secondly, a great deal of it is changing as a result of the EU-inspired plan to create a single European market for financial services.

In some cases these Directives from Brussels are tearing up whole sections of familiar laws, and replacing them with ‘principles’. So the first piece of advice: before acting on any written regulation, especially in the latter part of 2005, and into 2006, check the sell-by date. It could no longer be required/ appropriate.

A great deal of the rules are to do with disclosure. In many instances ‘disclosure’ is the action to be taken to achieve compliance. Many IRO’s – even the most experienced and dedicated – will admit that they do not have perfect recall on all 3000 pages of the regulations affecting disclosure.

What the regulators have done is to create a “slice” through the different regulations, that impacts IRO’s. The

The next set of articles examine the specific regulations, and lays out the key elements that IRO’s should be aware of.