Explanatory Memorandum to COM(2011)683 - Amendment of directives on transparency requirements for issuers whose securities are admitted to trading on a regulated market - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2011)683 - Amendment of directives on transparency requirements for issuers whose securities are admitted to trading on a regulated ... |
|---|---|
| source | COM(2011)683  |
| date | 25-10-2011 |
Contents
- 1.1. General context
- 1.2. Existing Community provisions in this area
- 1.3. Consistency with other policies
- 2. Results of the consultations with the interested parties and the impact assessment 2.1. Consultations with the interested parties
- 2.2. Impact assessment
- 2.3. Legal basis
- 2.4. Subsidiarity and proportionality
- 2.5. Choice of instruments
- 2.6. More detailed explanation of the specific provisions of the proposal
Article 33 of the Transparency Directive (Directive 2004/109/EC) requested the European Commission to report on the operation of this Directive[1]. The report published by the Commission in accordance with this Article shows that the transparency requirements of the Directive are considered to be useful for the proper and efficient functioning of the market by a majority of stakeholders.
However, despite these achievements, the review of the operation of the Transparency Directive showed that there are areas where the regime it created could be improved. It is thus desirable to provide for the simplification of certain issuers' obligations with a view to make regulated markets more attractive for small and medium-sized issuers raising capital in Europe. Additionally, the legal clarity and effectiveness of the existing transparency regime needs to be increased, notably with respect to the disclosure of corporate ownership.
This proposal for an amendment of the Transparency Directive is consistent with the objective of maintaining and, where necessary, enhancing the level of investor protection envisaged in the Directive and ensuring that the information disclosed is sufficient and useful for investment purposes at acceptable cost.
The objective of the Transparency Directive is to ensure a high level of investor confidence through equivalent transparency for securities issuers and investors throughout the European Union. In order to achieve this objective, the Transparency Directive requires issuers of securities traded on regulated markets to publish periodic financial information about the issuer's performance over the financial year and on-going information on major holdings of voting rights. It also introduces minimum standards for access to and storage of regulated information. The Transparency Directive was complemented by Commission Directive 2007/14/EC[2] which contains implementing measures and by Commission recommendation on storage of regulated information[3]. The Transparency Directive has been subsequently amended by Directives 2008/22/EC i and 2010/78/EU[5] as regards the implementing powers conferred on the Commission and the draft technical standards developed by the European Securities and Markets Authority, and by Directive 2010/73/EU[6] to align certain provisions of the Transparency Directive with the modified Prospectus Directive[7].
The Transparency Directive obligations are closely connected with requirements set out in other EU texts, either in the corporate governance/company law field or in the financial markets/securities field. In particular, the Prospectus Directive includes disclosure requirements that are very close to the core area of the Transparency Directive obligations. The Prospectus Directive requires companies offering shares to the public in the EU to issue a prospectus that complies with the detailed rules under the directive. It also allows companies to issue a prospectus in one EU country that would cover subsequent offers of securities to the public or admission to trading throughout Europe, with minimal translation obligations.
In addition, the Transparency Directive is the instrument for implementing disclosure obligations under other directives, such as the Market Abuse Directive[8], which prohibits abusive behaviour on regulated markets (e.g. insider dealing and market manipulation) and requires issuers to disclose inside information.
Improvement of the regulatory environment for small and medium-sized issuers and their access to capital are high political priorities for the Commission. In this respect, in the Single Market Act Communication of April 2011[9], the Commission stated that the Transparency Directive should be revised 'in order to make the obligations applicable to listed SMEs more proportionate, whilst guaranteeing the same level of investor protection'. This proposal aims at amending the Transparency Directive in order to meet this objective.
In addition, the review of the Transparency Directive aims at ensuring transparency of major economic acquisitions in companies, investor confidence and increased focus on long-term results, and thus contributes to the general objective of the Commission to strengthen the financial stability. Moreover improving access to regulated information at the Union level aims at increasing functional integration of European securities markets and at insuring a better cross border visibility of small and medium-sized listed companies.
As regards the general issue of implementation, the Transparency Directive is also revised in order to follow the conclusions of the Commission Communication on reinforcing sanctioning regimes in the financial services sector[10]. In this Communication, the Commission has envisaged EU legislative action to set minimum common standards on certain key issues of sanctioning regimes, to be adapted to the specifics of the different sectors. In order to ensure that sanctions of breaches of the transparency requirements are sufficiently effective, proportionate and dissuasive, the proposal aims to reinforce and approximate Member States' legal framework concerning administrative sanctions and measures by providing for sufficiently dissuasive administrative sanctions which apply to breaches of the key requirements of the Transparency Directive, and an appropriate personal scope of administrative sanctions and publication of sanctions. Criminal sanctions are not covered by this proposal.
2. Results of the consultations with the interested parties and the impact assessment 2.1. Consultations with the interested parties
The proposal has been prepared in accordance with the Commission's approach to principles of better regulation. The initiative and the impact assessment are the result of an extensive dialogue and consultation with all major stakeholders, including securities regulators, market participants (issuers, intermediaries and investors), and consumers. It is built upon the observations and analysis contained in the above mentioned Commission report on the operation of the Transparency Directive and the more detailed Commission staff working document which accompanied it. It draws on the findings of an external study[11] conducted in 2009 for the Commission on the application of selected obligations of this Directive, which includes evidence gathered from market participants through a survey. The Commission report also draws on reports published by the Committee of European Securities Regulators (CESR) (now ESMA)[12] and by the European Securities Markets Expert Group (ESME)[13] in this area. CESR (ESMA) and ESME reports have been particularly valuable to identify areas of the Transparency Directive with unclear provisions and/or which could be improved.
Comments received from stakeholders participating in the public consultation were also taken into account. As part of the consultation process, the Commission services organised on 11 June 2010 a public conference with the participation of several stakeholders. Discussion focused on the attractiveness of regulated markets to small and medium sized issuers and the possible enhancement of the transparency obligations regarding corporate ownership disclosures.
In line with its 'Better Regulation' policy, the Commission conducted an impact assessment of policy alternatives. Below are presented the best policy options which were retained for the following topics:
- allow for more flexibility regarding the frequency and timing of publication of periodical financial information, in particular for small and medium-sized issuers:
Abolish the obligation to present quarterly financial reports for all listed companies – Introducing differentiated disclosure regimes for companies listed on a regulated market according to their size was considered undesirable as such a regime would introduce double standards for the same market segment and would therefore be confusing for investors. The preferred policy option reduces compliance costs for all companies listed on regulated markets but should in particular benefit the smaller ones, reducing considerably the administrative burden linked to the publication and preparation of quarterly information. This option enables the small and medium-sized issuers to redirect their resources to publish the kind of information that suits best their investors. This option should reduce short term pressure on issuers and incentivise investors to adopt a longer term vision. It should not have negative impact on investor protection. Investor protection is already sufficiently guaranteed through the mandatory disclosure of half yearly and yearly financial results, as well as through the disclosures required by the Market Abuse and Prospectus Directives. Therefore, investors should be duly informed about important events and facts that could potentially influence the price of the underlying securities independently of the disclosure of quarterly information currently required by the Transparency Directive.
- simplify the narrative parts of financial reports for small and medium-sized issuers:
Require ESMA to prepare non binding guidance (templates) on narrative content of the financial reports for all listed companies – This option allows for cost savings and improves comparability of information for investors. It also increases the cross-border visibility of the small and medium-sized issuers.
- eliminate the gaps in requirements for notification concerning major holdings of voting rights:
Extend the disclosure regime to all instruments of similar economic effect to holding of shares and entitlements to acquire shares – This option captures cash settled derivatives[14] as well as any future similar financial instruments and closes a gap in the existing disclosure regime. It has a strong positive impact on investor protection and market confidence as it discourages secret stock building in listed companies.
- eliminate divergences in notification requirements for major holdings:
Harmonise the regime for the disclosure of major holdings of voting rights by requiring the aggregation of holdings of shares with those of financial instruments giving access to shares (including the cash settled derivatives) – This option creates a uniform approach, reduces legal uncertainty, enhances transparency, simplifies cross-border investments and reduces its costs.
In addition, technical adjustments and clarifications were considered in order to create a better implementation framework for the Directive.
The full impact assessment report is available at: […]
The EU has the right to act in this area according to Articles 50 and 114 of the TFEU.
On 23 September 2009, the Commission adopted proposals for Regulations establishing EBA, EIOPA, and ESMA. In this respect the Commission wishes to recall the Statements in relation to Articles 290 and 291 TFEU it made at the adoption of the Regulations establishing the European Supervisory Authorities according to which: 'As regards the process for the adoption of regulatory standards, the Commission emphasises the unique character of the financial services sector, following from the Lamfalussy structure and explicitly recognised in Declaration 39 to the TFEU. However, the Commission has serious doubts whether the restrictions on its role when adopting delegated acts and implementing measures are in line with Articles 290 and 291 TFEU.'
The problems identified concerning small and medium-sized issuers derive from European Union's and national legislation and can only be addressed through changes in the legislation at the level of the European Union. In addition, only a binding legal instrument adopted at the EU level would ensure that all Member States apply the same regulatory framework based on the same principles, thereby ending the current fragmentation of the regulatory response concerning the regime for notification of major holdings.
Sanctions which are divergent and too weak risk being insufficient to effectively prevent breaches of the Transparency Directive and to ensure effective supervision and the development of a level playing field. Action at EU level can avoid divergences and weaknesses in the legal framework of sanctioning and investigative powers available to national authorities and thus contribute to the elimination of regulatory arbitrage opportunities.
A modification of the current Transparency Directive seems to be the most viable solution. A directive may allow for maximum harmonisation in some areas but still leaves Member States flexibility to allow for their specific situation to be taken into account in other areas.
- Choice of the home Member State for third country issuers
The Transparency Directive is currently unclear with regard to which country is the home Member State for issuers who have to choose their home Member State according to article 2, paragraph 1, sub (i) (ii), but who have not done so. It is important that the Transparency Directive does not provide for any possibility to implement the rules in such a way that a listed company can operate without being under the supervision of any Member State. Therefore, following the comments received from the respondents to the public consultation, a default home Member State is established for third country issuers who have not chosen their home Member State in accordance with Article 2(1) (i) during a period of three months.
- The requirement to publish interim management statements and/ or quarterly reports is abolished
In order to reduce the administrative burden linked to listing on regulated markets and encourage long-term investment, the requirement to publish interim management statements is abolished for all listed companies. The publication of such information is not considered necessary for investor protection and should therefore be left to the market in order to eliminate unnecessary administrative burden. Issuers can continue to publish such information if there is a strong demand from investors. For the sake of efficiency and in order to provide for a harmonised regime for disclosure, Member States should not continue to impose such an obligation in their national legislation. Currently, many Member States impose stricter disclosure requirements than the minimum foreseen in the Directive. In order to ensure that all listed companies in the EU benefit from equal treatment and that the administrative burden is effectively reduced, Member States should be prevented from gold plating and should not require more than what is necessary for investor protection.
- Broad definition of financial instruments subject to notification requirement
In order to take account of financial innovation and ensure that issuers and investors have full knowledge of the structure of corporate ownership, the definition of financial instrument should be broadened to cover all instruments of similar economic effect to holdings of shares and entitlements to acquire shares, whether giving right to a physical settlement or not. Currently, the Transparency Directive does not require notification of certain types of financial instruments that do not give the right to acquire voting rights, but which can be used to build secret stakes in listed companies without being disclosed to the market.
- Greater harmonisation for notification of major holdings - Aggregation of holdings of shares with holdings of financial instruments
The Transparency Directive does not require aggregation of holdings of voting rights with holdings of financial instruments to calculate the thresholds for notification of major holdings. Member States have adopted different approaches in this field. This results in a fragmented market and additional costs for cross-border investors. A uniform approach concerning the calculation of thresholds for notification of major holdings is essential in order to improve legal certainty, enhance transparency, simplify cross-border investments and reduce the underlying costs. Therefore, holdings of shares need to be aggregated with the holdings of financial instruments for the calculation of notification thresholds. Netting of long and short positions should not be allowed. The notification should include the breakdown by type of financial instruments held to provide the market with detailed information on the nature of the holdings.
However, in order to take into account the differences in ownership concentration, Member States should continue to be allowed to set lower national thresholds for notification of major holdings than those foreseen in the Transparency Directive where this is necessary to ensure appropriate transparency of holdings. In fact, in some Member States companies are owned by a small number of shareholders, each shareholder holding a significant percentage of shares. Whereas in other Member States the ownership is dispersed, and a shareholder with a relatively small percentage of shares can already exercise a major influence in a company. In this latter case, the notification of holdings at a lower threshold than the minimum foreseen in the Transparency Directive may be required to ensure adequate transparency of major holdings.
- Storage of regulated information
Access to financial information on listed companies on a pan-European basis is currently burdensome: interested parties need to go through 27 different national databases in order to search for information. The level of interconnection between the 27 national storage mechanisms is insufficient. Therefore, in order to facilitate cross border access to regulated information, the current network of officially appointed storage mechanisms should be enhanced. It is proposed that the European Commission receives further delegated powers in this respect, in particular regarding the access to regulated information at the Union level. ESMA should assist the European Commission by developing draft regulatory technical standards concerning, for example, the operation of a central access point for the search of regulated information at the Union level. These measures should also be used to prepare the possible future creation of a single European storage mechanism ensuring storage of regulated information at the Union level.
- Reporting of payments to governments
The Commission has publicly expressed support for the Extractive Industry Transparency Initiative (EITI), and envisaged willingness to present legislation mandating disclosure requirements for extractive industry companies.[15] A similar pledge was made in the concluding Declaration of the G8 Summit in Deauville of May 2011[16], where the G8 governments committed 'to setting in place transparency laws and regulations or to promoting voluntary standards that require or encourage oil, gas, and mining companies to disclose the payments they make to governments.' Furthermore, the European Parliament has presented a Resolution[17] reiterating its support for country-by-country reporting requirements, in particular for the extractive industries.
EU legislation does not currently require issuers to disclose, on a country basis, payments to governments made in countries where they operate. Therefore such payments made to governments in a specific country are normally not disclosed, even though such payments by the extractive industry (oil, gas and mining) or loggers[18] of primary forests[19] can represent a significant proportion of a country's revenues, especially in third countries that are rich in natural resources. In order to make governments accountable for the use of these resources and promote good governance, it is proposed to require the disclosure of payments to governments at the individual or consolidated level of a company. The Transparency Directive requires issuers to disclose payments to governments by referring to the relevant provisions of Directive 2011/../EU Council on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings which provides for the detailed requirements in this respect.
This proposal is comparable to the US Dodd-Frank Act[20], which was adopted in July 2010, and requires extractive industry companies (oil, gas and mining companies) registered with the Securities and Exchange Commission (SEC) to publicly report payments to governments[21] on a country- and project-specific basis. The SEC's implementing rules are scheduled to be adopted by the end of 2011.
- Sanctions and investigation
In order to provide for a better implementing framework of the provisions of the Directive, the sanctioning powers of competent authorities are enhanced. In particular, the publication of sanctions is important to improve transparency and to maintain confidence in the financial markets. Sanctions should normally be published, except in certain well-defined circumstances. In addition, the competent authorities in the Member States should have the power to suspend the exercise of voting rights of the issuer who had breached the notification rules on major holdings, as this is the most efficient sanction to prevent a breach of these rules. In order to ensure consistent application of sanctions, uniform criteria should be set for determining the actual sanction applicable to a person or a company.
- Other technical adjustments
Other technical adjustments and clarifications are proposed following the results of the public consultation.