In brief...
As the coronavirus COVID-19 outbreak develops
into a full-scale pandemic, financial markets
participants may find it challenging to meet their
regulatory and other obligations in a timely fashion.
In an effort to mitigate the impact of coronavirus on
the orderly functioning of capital markets, financial
services regulators in the UK and the EU have
issued relevant guidance for issuers of securities.
The key takeaways for issuers are that they should:
- consider how coronavirus may affect their
disclosure obligations;
- make all efforts to meet their regulatory and
other obligations in a timely manner, despite any
operational obstacles they may be facing – even
though certain delays with regards to financial
reporting will be permitted; and
- seek advice and/or speak to their regulator
where they deem they are unable to comply with
their obligations.
ESMA recommendations
On 11 March, the European Securities and Markets
Authority (ESMA) published its statement outlining how
market participants should act in light of the coronavirus
outbreak. Among other things, ESMA recommends that
issuers should do the following:
- Market disclosure – issuers should disclose as soon
as possible any significant information concerning
COVID-19 that may affect their fundamentals,
prospects or financial situation, in accordance with
their transparency obligations under the Market
Abuse Regulation (MAR).
- Financial reporting – issuers should disclose in
their 2019 year-end financial reports or – if these
have already been finalised – in their interim financial
reporting disclosures, actual and potential impacts of
COVID-19 on their business, financial situation and
economic performance. However, ESMA recognises
that issuers may face difficulties in submitting
their financial reports on time. To this end, in its
subsequent statement of 27 March 2020, ESMA
recommended that national competent authorities
should not take supervisory action against issuers
who are unable to meet the upcoming reporting
deadlines under the Transparency Directive, for a
period of two months for annual financial reports
and of one month for half-yearly financial reports.
However, ESMA expects issuers to inform their
national competent authority and the markets of the
delay, the reasons for such delay and the estimated
publication date – to the extent it is feasible.
In addition, to assist financial reporting, ESMA has
issued guidance on the accounting implications of the
COVID-19 outbreak on the calculation of expected credit
losses in accordance with the International Financial
Reporting Standard 9 (IFRS 9).
FCA guidance
On 17 March, the UK Financial Conduct Authority (FCA)
published the 27th edition of its Primary Market Bulletin,
which includes a commentary for issuers of securities
and coronavirus.
The main points are the following:
- Ongoing disclosure under MAR – The FCA expects
issuers to make every effort to remain compliant with
their regulatory obligations under MAR and the FCA
rules. Given the circumstances, however, it may be
challenging for disclosure committees to convene
and operate as usual. The FCA is conscious that, at
least at the beginning, there may be slight delays as
new processes are being implemented, but in general
expects issuers to meet their obligation in a timely
fashion. According to the FCA, issuers’ operational
response to COVID-19 may itself meet the disclosure
requirements under MAR.
- Transaction notifications – Persons discharging
managerial responsibilities (PDMR) and closely
associated persons are also expected to comply with
their notification requirements under MAR within the
required timeframes.
- Shareholder meetings – Issuers must ensure that
shareholders can exercise their rights, for instance
in the Annual General Meeting, using virtual methods.
- Corporate transactions – The FCA will continue to
review documentation for corporate transactions in
accordance with its established principles.
If a transaction is urgent, issuers are advised to
engage, in the first instance, with their relevant
sponsor firm or adviser.
With regards to corporate reporting, the FCA will
grant a temporary relief by giving listed companies an
additional two months to publish their audited financial
statements. This means that issuers may publish
their financial statements within six months of their
year-end, instead of four months, as required under
the Transparency Directive. At the same time, the FCA
strongly recommends that listed companies revise all
elements of their timetables for publication of financial
information to ensure accurate and carefully prepared
disclosures. However, this temporary relief does not
affect issuers’ disclosure obligations (and timing for
these) under MAR.
The Financial Reporting Council (FRC) and Prudential
Regulation Authority (PRA) have also issued useful
guidance for companies preparing financial
statements in the current circumstances.
1 Regulation (EU) 596/2014
2 Directive 2013/50/EU