According to the Market Abuse Regulation itself, the permanent section of an insider list should, “only include those persons who, due to the nature of their function or position, have access at all times to all inside information” – Template 2 of Annex 1 - paragraph 4 (Commission Implementing Regulation (EU) 2016/347).
The definition is pretty clear, however this topic still causes a fair amount of confusion amongst compliance professionals – in a recent survey EQS Group conducted with Link Ahead Programme, more than 15% of respondents said that they were unsure or had a problem distinguishing permanent and project-related insiders.
It seems there’s a discrepancy between the theory and practice – I speak to many company secretaries day-to-day and some still tell me that they have more than 20 permanent insiders, sometimes sighting that all employees are on the permanent list.
Obviously, the regulation is interpreted differently from company to company and, as such, can cause confusion and potential misuse.
Do permanent insiders really exist?
Does anyone in the company have access to all inside information all the time? I was speaking with a company secretary at an industry event in April. She told me about a scenario she had dealt with that I think makes a good point.
An executive board member was going to be removed without her prior knowledge. The company considered all executive board members to be permanent insiders. However, while the board was drawing up the necessary special resolution to remove her, the said board member was unaware for the intervening period that she was going to be removed from her post – therefore, she couldn’t be a permanent insider as she wasn’t privy to potentially share price-sensitive information.
If, then, the MAR definition is strictly adhered to, few if any people meet the criteria for a permanent insider. This being said, some companies have opted for a more practical approach (which has often been signed off by internal or external counsel) where a permanent insider list is limited to a small number of directors and other senior executives within the company.
So, should I have a permanent insider list?
It depends on the company and the legal advice received. It appears that market practice accepts both not having any permanent insiders and having a limited number. It’s true that having a permanent insider list can alleviate the administrative burden of managing insider information as you don’t need to manage putting the same person on different lists. However, given that inside information should only be disclosed to persons who require the information to perform their functions, it’s important that the permanent insider list doesn’t become disproportionately large, veering away from the MAR definition.
If you are finding that the administrative burden of keeping track of a number of projects and thus insiders is weighing you down, automated solutions exist. These solutions can take care of much of the day-to-day admin and thus make keeping multiple project lists simultaneously a far more manageable task.
What about employees who always need to seek permission to deal?
There has been some confusion between having permanent insiders and also providing for employees who must always seek permission to deal, with some companies including the latter group as permanent insiders. To avoid this, companies should consider setting up a separate “restricted persons” list for those who always need to seek permission to deal and make sure they are captured by the provisions of the company’s securities dealing code.
Permanent insider lists are being used to varying degrees for their intended purpose and still appear to be a grey area for some.
Adding insiders to a permanent list as a means to avoid having to add them to multiple project lists impinges on the true intention of permanent lists. With the FCA’s recent emphasis that complying with MAR is more than adhering to a set of prescriptive requirements, it requires a state of mind – judgement on whether someone is truly a permanent insider is elemental in subscribing to this state of mind.
Use EQS Insider Manager to manage your insider lists easily, securely and in compliance with MAR. Learn more about the product and arrange a free demo.