On 9 August 2023, the Malta Financial Services Authority (“MFSA”) published a circular with its observations following numerous market abuse-related supervisory inspections which it has been carrying out with Maltese issuers since 2018.
The circular makes for some interesting reading as it gives the MFSA’s perspective on issuers’ compliance with MAR generally. The circular also includes some recommended best practice to help issuers adhere to their obligations under the Market Abuse Regulation (“MAR”); as well as a number of poor practices which the MFSA observed in the market, all of which are summarised below.
General observations
The tone of the circular is overall quite positive since it opens by saying that, generally speaking, the majority of Maltese issuers have adequate measures and controls as required by MAR. This is a welcome observation as it underscores the market’s collective effort to align itself with MAR, not least as a result of the MFSA’s increased focus on the area.
That said, the MFSA has also made it clear that certain issuers did not live up to expectations and were (or are) expected to take the action to implement new measures and controls, or to further strengthen their compliance with MAR.
In our view, a number of shortcomings identified by the MFSA are relatively technical in nature and can easily be remedied – for example, the MFSA’s comment that the notification to insiders is not always up to scratch (section 3.3(c), pg. 13) can be easily remedied by a minor tweak the issuer’s template notification, which is often contained in its Dealing Code. Other shortcomings, however, point to a deeper problem, perhaps even to a basic misunderstanding of the law. For example, an issuer that decides not to keep a list of persons discharging managerial responsibility (“PDMRs”) because it keeps a permanent insider list instead (section 3.4(b), pg. 13) demonstrates that it is not sensitive to the fact that, although the two may be similar, permanent insiders are not necessarily PDMRs. These shortcomings highlight the need for Maltese issuers to keep investing in on-going training programmes with a view to increasing awareness of the requirements of the Market Abuse Regulation (and its Implementing and Delegated Regulations). Failure to do so will result in poor practices remaining unaddressed and mistakes being repeated. Furthermore, these issues reinforce the notion that certain practices and behaviours – which may have served issuers well in the past – need to be updated, in order for the company to align itself with the MFSA’s expectations. Until then, boards must keep MAR-compliance front and centre of their agendas.
Best and poor practices
As mentioned, the MFSA’s circular sets out recommended best practices, as well as examples of poor practices observed by the MFSA. We’ve set out a summary of these in the table below. Kindly note that the good practices do not necessarily correspond to the poor practices set out in the same row and each column should therefore be read separately.
| Area | Good practices | Poor practices |
| Market soundings | Issuers should designate an individual responsible for carrying out the assessment of whether a market sounding will include the disclosure of inside information, drawing up and forwarding communications market sounding recipients, and retaining necessary records. | It was noted that some of the issuers who confirmed that they had carried out a market sounding appeared not to have wholly and effectively adhered to the requirements stemming from MAR, during the course of the market sounding. |
| During the course of a market sounding, issuers should ensure that all market sounding requirements are being fully adhered to in order to benefit from the safe harbor against the allegation of unlawful disclosure of inside information. | ||
| Public disclosure of inside information | Ensure timely public disclosure of inside information | Some issuers appeared not to be properly assessing whether a piece of information arising within the company fulfils the definition of inside information hence meriting public disclosure. |
| Designate individuals within the issuer tasked with ongoingly assessing whether information arising within the issuer constitutes inside information (e.g. Board of Directors, Audit Committee, Disclosure Committee, etc.). | In certain instances it was noted that issuers did not fully understand the definition of inside information and generally only considered financial information to be inside information. | |
| Keep a record of the assessment carried out in relation to whether a piece of information constitutes inside information and the ultimate decision of whether the information satisfies the definition set out in article 7 of MAR (in turn meriting disclosure), or otherwise. | ||
| Delay of disclosure of inside information | The issuer should start compiling the notification form which is to be submitted to the MFSA as soon as inside information is identified within the issuer and the decision to delay the disclosure of inside information is taken. | Submissions of delay of disclosure notifications are not always timely |
| Implement and have effective procedures in place which ensure the timely submission of the notification form to the MFSA e.g. where the primary individual designated with the task of submitting the notification form to the MFSA is indisposed, the issuer should have an alternative individual tasked with ensuring timely submission. | In certain instances, the notification form appeared to have been filled in retrospectively given that the assessment of how the conditions were met was extremely high-level and did not provide sufficient detail to explain how the conditions laid out in article 17(4) of MAR were met. | |
| Whilst the delay in disclosure of inside information is ongoing, the issuer should monitor content issued by media houses and blogs to ensure adherence with the requirement stemming from article 17(7) of MAR should the issuer no longer be able to ensure confidentiality of inside information subject to the delay. | ||
| Consider whether any other obligations under MAR are triggered as a result of the delay in disclosure of inside information. | ||
| Insider lists | Make use of the MFSA’s official templates to draw up the temporary and permanent insider lists. | In some cases, it was noted that issuers used the permanent insider list as a substitute to the temporary list, which practice in turn led issuers to have an extensive permanent list. |
| Ensure that all fields within the insider list include complete and accurate information for each individual included therein. | Some issuers only had a permanent insider list, but did not have a temporary insider list drawn up on a deal, project- or event-specific basis. | |
| Assess on an ongoing basis whether inside information exists within the issuer and in the affirmative, have the individual(s) privy to such inside information included within the temporary or permanent list of insiders. | Individuals who became privy to inside information in relation to a repeated event such as the auditing of the issuers’ financial statements, such individuals were included within the temporary LOI only once and consequently access to inside information vis-à-vis that event was presumed to be continuous. | |
| Clearly distinguish between individuals, privy to all inside information at all times (permanent insiders), as opposed to individuals, privy to a subset of inside information (temporary insiders). | Some issuers did not restrict access to their insider lists | |
| Avoid adopting an overcautious approach which would result in having an extensive permanent insider list unnecessarily. | Some issuers overwrite their previous insider lists whenever they are updated, thus not leaving an audit trail of all versions of the insider list. | |
| Keep insider lists saved electronically in a restricted folder, solely accessible to a limited group of persons designated with the task of updating the lists. | A few issuers appeared not to have properly informed their insiders of their obligations under MAR and/or at times, did not obtain an acknowledgement in writing. | |
| Save a new version of the insider list every time it is updated, hence ensuring that an audit trail of the individuals with access to inside information over a period of time is effectively maintained on file. | Some issuers only informed insiders that they were placed on an insider list, and obtained a written acknowledgement, well after such individuals were first deemed to be insiders of the issuer and included within the respective issuer’s insider list. | |
| Prior to circulating a written communication to insiders, hold a face-to-face meeting with the insiders to explain the legal and regulatory duties and sanctions applicable under MAR. | Notifications to insiders were at times considered to be weak given that they failed to highlight important information which an insider ought to be aware of to be in a position to acknowledge its legal and regulatory duties, and the sanctions applicable under MAR. | |
| Send a concise communication to remind insiders of their obligations from time to time. | Some issuers had informed the individuals listed on the permanent list of insiders of their obligations under MAR, but the same was not carried out in respect of individuals included within the temporary list of insiders. | |
| For temporary insiders engaged to perform a task on behalf of the issuer from time to time (e.g. the auditing of financial statements), circulate the communication and obtain an acknowledgement in writing from said insiders every time such insiders are engaged. | A few issuers subject to a supervisory inspection had obtained a verbal acknowledgement from their insiders and were thus not in a position to confirm adherence with article 18(2) of MAR. | |
| Managers’ transactions (PDMR notifications) | Inform PDMRs of their obligations under MAR as soon as they are included within the PDMR List | A few issuers appeared not to have properly informed their PDMRs of their obligations under MAR. |
| Hold a face-to-face meeting with PDMRs to clearly explain the obligations applicable to them under MAR, then follow up the meeting with a written communication. | Some other issuers had informed PDMRs of their obligations, however, this was Some other issuers had informed PDMRs of their obligations, however, this was | |
| Request an acknowledgement in writing from PDMRs confirming that they have read and understood their obligations under MAR, even though this is not a requirement in terms of MAR. | In some instances, the communication failed to highlight important information (e.g. the notification deadline, the obligation on PDMRs to inform PCAs of their obligations, etc.) which is important information for PDMRs to in turn be in a position to comply with their obligations under MAR. | |
| Send the communication to PDMRs on an annual basis as a reminder of the obligations which they are required to comply with. | Some issuers did not keep a list of PDMRs because, they claimed, that this was unnecessary since the issuer had drawn up a permanent list of insiders. | |
| Request a copy of the communication sent by the PDMRs to their respective PCAs. | The list of persons closely associated to PDMRs (PCAs) did not feature the PDMRs’ dependent children, legal persons, trusts or partnerships | |
| Ensure that the communication used to inform PDMRs of their obligations is exhaustive and includes all the information necessary for PDMRs to be fully aware of their obligations under MAR. | ||
| Prior to collating information for the List of PCAs, hold a meeting/training session with PDMRs to explain the full definition of a PCA and provide examples of what qualifies as a natural/legal PCA. | ||
| From time to time, circulate a communication requesting PDMRs to confirm whether the List of PCAs requires that any updates are made thereto. |
Author: Beppe Degiorgio