The Act gives the FSA the power to implement the EU Transparency Directive in the UK, through the FSA Transparency Obligations Directive (Disclosure and Transparency Rules) Instrument 2006. At the same time, the FSA Disclosure Rules have been renamed the FSA Disclosure and Transparency Rules and a new sourcebook came into force.

The aim of the Directive is to create a framework for companies across Europe to adopt similar standards around information disclosure. The Directive will have relatively limited effect in the UK because the UK’s disclosure regime is already well developed in comparison to other European states.

The main benefit of the Directive is perceived to be greater transparency, which will make comparative analysis easier for investors, boost shareholder confidence and reduce the cost of capital for some companies, as investors show preference for corporate transparency.

There are three areas of major change:

	The periodic financial reporting rules for companies
	The regime for disclosing major shareholdings
	Communication with shareholders and the market

Periodic financial reporting rules for companies

The periodic financial reporting rules for companies fall into three categories: annual and half-yearly (formerly interim) financial reports and an “interim management statement” for the first and third quarters of the financial year (a new requirement for some companies: the specific nature of these statements is still under debate). There is no longer an obligation to publish a preliminary statement of annual results, although companies may choose to do so.

The Annual Report must be published within 4 months of year-end (rather than 6 months), but the requirements are broadly unchanged. It must contain:

	Audited financial statements;
	A management report including a fair review of the business and a description of the principal risks and uncertainties going forward;
	Responsibility statements from ‘persons responsible’ within the issuer; and
	KPIs financial and non-financial (e.g. including environmental and human capital KPIs).

The Half-Yearly report must be published within 2 months of half year and they no longer need to be sent to shareholders or published in a newspaper. It must include:

	a condensed set of financial statements (this is a current requirement for UK-listed companies)
	a management report and responsibility statements, and
	a statement of the principal risks and uncertainties that may affect the business over the following six months (a new requirement).

Interim Management Statements are published reports issued between the annual report and half-yearly report, at least 10 weeks after the start of the half-year and 6 weeks before the end of the period. They describe a company’s financial position and performance during the reporting period and any material events or transactions and their impact on the financial position. They are intended to be less demanding than a quarterly report. Those companies that already publish quarterly reports do not need to produce interim management statements as well.

The new periodic reporting requirements will apply according to the start of the issuer’s accounting year.

The main differences between the new and the current regime are outlined in the table below:

 

	Existing deadlines	New Deadlines
Annual Report	6 months	4 months
Preliminary Statements (of annual results)	120 days	Voluntary (no deadline)
Half-yearly reports	90 days	2 months DTR 4.2.2(2)
Interim Management  Statements (for issuers of shares who do not publish quarterly reports)	n/a	Between 10 weeks after the beginning, and 6 weeks before the end of the relevant 6 month period. DTR 4.3.2. DTR 4.3.3.

Concern has been expressed that the increased reporting requirements will extend a company’s liability to all potential investors. The Companies Act 2006 addresses this in part. A listed company may be liable to compensate an investor who suffers loss as a result of an untrue or misleading statement in or omission from a report. However the director must have known or been reckless as to whether the statement was wrong or misleading, or have known that any omission was a dishonest concealment. Only the company is liable to the investor but the director may be liable to the company.

The regime for disclosing major shareholdings

The disclosure requirements for Non UK Issuers Investors are those in the Directive and they are obliged to notify companies when their voting rights reach, exceed or fall below 5%, 10%, 15%, 20%, 25%, 30%, 50%, and 75%. Direct or indirect shareholders of UK Issuers will be required to simultaneously inform the issuer concerned and the FSA if:

	they have a notifiable interest in holdings of 3% or above of the issuer’s total voting rights and capital in issue; and
	if their holdings change to reach, exceed or fall below 3% or any whole percentage figure above 3%.

Transitional provisions

UK issuer’s on regulated market

Disclosure requirement	Deadline	Details
Total voting rights	By 31 December 2006	Disclose the total number of voting rights and capital for each class of share (and identify the number of voting rights attaching to shares in treasury (in accordance with DTR 5.6.1R)
Changes to voting rights	Between 31 December 2006 and 20 January 2007	Announce any subsequent alteration as soon as possible between these dates
Outstanding notifications from shareholders	By 20 April 2007	Disclose any outstanding notifications from shareholders by 20 April 2007

The London Stock Exchange also required AIM companies within the scope of the DTR to announce the total number of voting rights in respect of each class of share in issue and admitted to trading on AIM (or another UK prescribed market or a regulated market) by 31 December 2006. They also had to identify the number of voting rights attaching to any shares held in treasury and update this information if necessary before 20 January 2007.

Communication with shareholders and the market

There are no proposed changes for issuers who already use a Regulated Information Service. A decision to use electronic means to communicate with shareholders must be taken at a general meeting. If a company has express permission from shareholders under the Companies Act 1985 to communicate using a website, it may rely on that permission. A company can write to shareholders every 12 months asking for permission to use a website, and failure to respond within 28 days can be taken as consent.