Investor Relations: Open for business

European 'transparency' law will soon compel listed firms to increase their reporting frequency. Richard Carpenter looks at the UK implications.

The last thing many financial PR and IR officers struggling to get to grips with International Accounting Standards (IAS) want to do right now is cast their wary eyes towards Brussels. Yet cast their eyes they must. IAS is just one part of Europe's financial integration model. The Market Abuse Directive was recently passed in the European Parliament,and hot on its heels is the Transparency Directive (TD) - soon to affect investor relations.

This month is a crucial time for TD as the Committee of European Securities Regulators (CESR) submits its recommendations on how it should be implemented to the European Commission.

The TD proposals caused a storm in 2002 - they suggested full quarterly reporting for all of Europe's listed companies. That suggestion was toned down to quarterly trading statements in the final draft - to the relief of many smaller listed companies - but despite this, the directive has still been criticised as another layer of red tape in the City communications process.

Extra reporting

TD has to be complied with by all EU member states before 20 January 2007, but the Financial Services Authority and the Treasury are still working out how to phase in the regulation.

For financial PR practitioners there are several major implications.

The switch to publishing quarterly management/trading statements is probably the most obvious practical burden for companies that do not already report with this frequency or release other forms of data between their half and full-year reports. There are also new deadline requirements for publishing full and half-year reports after the end of trading periods, and the obligation to update authorities on significant changes in share ownership.

Beyond this practicality, TD also dives into the 'how to release information to the market' debate, as it seeks to mandate the way in which companies send reports to investors, analysts and the media.

PR Newswire managing director of investor relations Mark Hynes has been working on a response to the CESR consultation on behalf of the Investor Relations Society, of which he is a board member. He believes that the CESR's recommendations are likely to become law because the EC has a tendency to follow the committee's advice.

Hynes notes that UK issuers of financial reports will not be too drastically affected by some of the likely changes to news dissemination because Britain has already opened the process up to competition. Since 2003, for example, issuers have had a choice of regulated agencies through which to send their releases to the market - they are no longer restricted to the London Stock Exchange. These Primary Information Providers (PIPs) send releases to Secondary Information Providers (SIPs), such as Reuters and Bloomberg.

The aim is to ensure wide dissemination to the market.

Implications for the UK

The TD draft mirrors much of the UK system, but how it will be implemented remains to be seen - governments have the power to take its rules at a minimum implementation level and enhance the regulations as they see fit.

Currently, the regulations suggest that issuers could become PIP equivalents, although that is unlikely to appeal to most firms given their strict auditing and security requirements.

It is also suggested that newspapers be added to the required list of SIPs. What this means in practical terms remains unclear. In the UK, it is likely that PIPs will simply add major newspapers to their distribution list, but whether this will lead to increased costs for companies is debatable.

The Investor Relations Society has been keen to stress that, whatever the final decision on TD, the aim should be maximum transparency. It recommends distribution to financial news and press agencies, newspapers and financial websites: 'The underlying principle should be to ensure that announcements can be reached simultaneously by all investors, institutional and retail, across Europe, with or without access to the internet.

'We agree that it is impossible for the CESR to mandate that the media should always publish every announcement. However, by mandating that the media should receive these announcements, every chance is given to their wide distribution.'

That is all well and good on the dissemination front, but what about the thorny question of quarterly updates to the market? Various UK organisations kicked up a storm when the nascent TD originally proposed quarterly reporting.

The response

The Quoted Companies Alliance (QCA), which represents smaller quoted companies, delighted in publishing a survey that '100 per cent' of its members were against the directive.

The QCA has become more amenable to the proposals since they were toned down to simply stipulate a quarterly management report: 'The mandatory requirement to publish quarterly reports to pre or post-tax level has been removed in favour of a quarterly management report which does not need to include any financial information,' it notes. 'This should be straightforward for the smallest of UK quoted companies to comply with, and the final text of the directive seems to confirm this.'

Larger companies will not be too drastically hit by the quarterly reporting updates - most of them have already upgraded their reporting accordingly in one form or another.

For example, a Centrica spokesman confirms that the consumer services group introduced pre-close-trading updates last December and will now send five formal reports to the market, including an update at the time of its AGM.

Marks & Spencer points out that it - like many other retailers - has been making similarly regular statements to the market for nearly three years. And Lloyds TSB says that, as a result of its regular pre-close-trading statements, it 'does not believe the TD changes will be significant' in reporting terms.

Unfortunately, where the TD fails to improve transparency is in terms of ensuring companies know all of the changes in their shareholder base.

The directive only mandates that shareholders inform the 'competent authority' when shareholders pass certain thresholds (ten per cent, for example) of ownership. The competent authority in the UK's case would be the FSA.

Hynes and others are vexed that the TD will not require institutional investors to inform company secretaries or IR departments about their transactions; they argue that better knowledge of shareholder movement is a requisite of improved investor relations.

The QCA spokesman is similarly aggrieved: 'We believe that it is a fundamental right of the body corporate to be able to identify its owners, as that has important bearings on transparency, the ability to communicate, voting arrangements, and so on. We are pursuing this topic within the discussion of the proposals in Brussels.'


The Transparency Directive covers three main areas:

- Minimum content of annual, semi-annual and interim (in effect, quarterly)

management reports

- Notification requirements that both issuers and investors have to comply with in relation to buying or selling major holdings in quoted companies

- Method of disseminating and storing the above information The directive covers all issuers, i.e. companies, that have securities trading on a market situated within, or operated from within, the EU.

It will require them to disclose periodic and ongoing information to investors across the European Union.

Implementation of the TD - required by each member state by 20 January 2007 - will require significant changes to the UK's Listing Rules and expand the FSA's regulatory role. The FSA will, for example, take over the regulation of major shareholding disclosures, which are currently regulated by the DTI. The exact UK implementation timetable is still to be confirmed.

TD is known as a 'minimum harmonisation' directive. In other words, member states may choose to impose additional requirements where they think appropriate.


Toning down the quarterly reporting requirement to simple quarterly updates seems to have assuaged even the most ardent opposition to the Transparency Directive. In any case, best practice has, in effect, caught up with and overtaken the regulators. Many large and small companies are already ahead of the game.

Bankside Consultants account director Susan Scott notes that many of the very smallest quoted companies - for example, those trading on Ofex - already produce full quarterly reports so a trading statement should not be too much of a problem for those yet to move up to more frequent reporting. 'The benefits from a news-flow basis are obvious and clearly a statutory requirement to report would discourage less than scrupulous management,' says Scott.

'However, I would caution that the reporting requirements should be commensurate with the company's size and stage of development. A small executive management team should be focused on growing the company, winning new business, and so on, rather than tied up in the red tape of quarterly reporting. Hence I welcome the fact that the EU has toned the requirement down to a trading statement rather than full disclosure of financial results.'

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