The Finnish Financial Supervisory Authority (FSA) has imposed its first significant penalty payment for failures relating to disclosure of inside information and maintenance of insider lists on Afarak Group Plc. The EUR 1,450,000 penalty is the largest ever imposed by the FSA and it emphasizes the importance of organizing insider management and planning of processes related to inside information in advance.
In summary, the FSA states that the inside information regarding the planned takeover bid of Afarak Group Plc’s shares arose, at the latest, on the 20th of December 2017. Pursuant to article 17 of EU’s Market Abuse Regulation (MAR), at this time the company should have disclosed the information to the public or alternatively assessed whether the situation met the conditions for delayed disclosure of inside information laid down in the regulation. According to the FSA’s resolution, the company should have established an insider list in accordance with MAR’s Article 18 by the 20th of December 2017. The company was considered to have failed to fulfil these obligations, since the above-mentioned duties were not carried out in time. The decision to create the insider list was made during week 3 in 2018 (15–21 January 2018), but the list was not actually created until the 26th of January 2018. Stock exchange release related to the public tender offer was released on the 30th of January 2018, well over a month after the deadline when the company should have disclosed the inside information or assessed the prerequisites of deferring the disclosing of the information, according to the FSA.
Based on FSA’s decision, one of the main – but not the only – reason for the omissions was that the company had assessed that the inside information was not yet created as of 20 December 2017, and thus the company did not make any decisions related to the creation of insider information until January 2018. FSA’s decision does not explicitly disclose whether the company had assessed the potential creation of inside information on 20 December 2017. In any case, because FSA considered the inside information having been created on 20 December 2017, the company should have then made a decision regarding the disclosure of information and maintenance of insider lists.
It should be noted that the company had, in addition, failed to comply with several other duties under the MAR. The company had decided on creating an insider list during week 3 (15–21 January 2018) but the list was actually created only on Friday the following week (26th of January 2018). According to MAR, the insider list must be created and updated without delay. According to the company, the delay was caused by an error in their internal processes, which according to the company, also prevented the company from immediately delivering a notice of a delay in disclosing inside information to the FSA after disclosing the information on the 30th of January 2018. According to the company, the error also prevented them from duly collecting and documenting information regarding the fulfilment of the conditions for postponing the disclosure of inside information.
Further, there were serious deficiencies in the substance of the company’s insider lists; the list was missing e.g. the reason why the persons were included in the insider list and the date and time when they were granted access to the inside information. Furthermore, the insider list had not been compiled in accordance with the template of the relevant EU Commission’s implementing regulation. The company tried to justify this partially by the fact that the company did not have, nor did it receive all relevant information from certain insiders, who submitted the information late and incomplete. In that regard, it is noted in the FSA’s resolution, that based on the information received from the company, the company neither actively pursued to obtain information which was missing from the insider list.
In addition, there have been deficiencies in the company’s conduct in supplying the FSA with documents and other information specifically requested by the FSA. For example, the list of insiders that the FSA requested on the 6th February 2018 to be submitted by 8th of February 2018, was submitted only on the 24th of April 2018, i.e. approximately 2,5 months late and after the FSA had initiated a hearing procedure with the company regarding a conditional fine in the matter. According to the company, the reason why the insider list was not submitted to the FSA as soon as possible after the request was made by the FSA, was due to confusion as to who would forward the insider list to the FSA. According to MAR, a listed company must submit the insider list to the FSA as soon as possible upon request. In this case, the FSA had interpreted the expression “as soon as possible” to mean that the information should have been provided within two days from the request.
In conclusion, the FSA’s decision emphasizes the importance of organizing insider management properly, and planning the processes related to inside information in advance. For example, who is responsible for maintaining the insider list and, if needed, who is responsible for forwarding the list to the FSA, should be specified in advance in the company’s internal guidelines. It is also advisable to try to determine in advance the criteria for when any information is to be considered as inside information, taking into account the circumstances specific to the company in question. The reasoning and the underlying consideration of the Board of Directors and management of the company as regards the creation of insider information should be documented in writing. Furthermore, the decision by the FSA emphasizes the active duty to obtain information that may be missing from the insider list. Besides listed companies, this applies, as appropriate, to other entities to which MAR’s insider regulations apply to (such as advisors and consultants). The complete decision made by the FSA (not legally binding) is available on FSA’s website.