Shareholding Disclosure: What’s the issue with Issuer Requests?

Issuer Requests can be a nuisance for those of us working in shareholding disclosures.  Large financial institutions can receive more than 50 of these notices a week.  At least this was my experience when I was responsible for shareholding disclosure monitoring and reporting at UBS and Morgan Stanley.

Earlier this month, the FSA of the Isle of Man issued a consultation paper on sanctions for non-compliance with the Beneficial Ownership Act.  Although the Isle of Man has no legal requirements for investors to disclose substantial shareholdings (in Isle of Man incorporated companies), the FSA do require compliance with what is referred to more broadly as an “Issuer Request”.

What is an Issuer Request?

In some jurisdictions, a legal obligation exists for an ultimate beneficial owner to provide details of their shareholdings (and on occasions including details of ‘other’ interested parties). This request can be made in the form of a letter by the Issuer itself or an investor relations representative.  The aim of these requests is to provide the issuer with transparency of their shareholders on request, without having crossed a particular threshold. 

What is challenging about them?

The calculation basis for an Issuer Request can be entirely different to that of a substantial shareholding (also referred to as beneficial ownership, major shareholding, or long) disclosure.  In many jurisdictions there is little to no direction on exactly which financial instruments are included, what type of holdings are included, whether netting instruments is allowed and if the percentage is based on a notional number or votes held etc. 

There is also the serious risk of reporting sensitive or client confidential information where there is no obligation to respond; several investor relations companies send out requests for information where there is no legal requirement.  If you are including positions held by your clients in any external disclosure, it is critical that you know if you are legally required to provide the information, otherwise you could be breaching contractual agreements.

Where are the most frequent requests from?

The most prevalent requests are the UK Section 793 Companies Act and Australian Section 672 Corporations Act notices.  In addition to volumes, many internally-built disclosures systems do not include the functionality to automate a response to these notices.  

What is the Isle of Man FSA proposing?

The Isle of Man FSA intends to broaden the scope of contraventions and offences for which a civil penalty can be considered (Draft Beneficial Ownership (Civil Penalties) Regulations 2022), including those where currently only criminal sanctions are available. 

Within their consultation paper the FSA note that the topic of beneficial ownership is attracting increasing scrutiny from international parties.  It is expected that we will see more jurisdictions increasing disclosure obligations and the sanctions imposed, as this focus increases.   Aosphere (the leading providers of shareholding disclosure rules and used as part of the Kaizen Shareholding Disclosure Service) noted that in a 12 month period last year, 15 jurisdictions published 68 sanctions, not including all those private fines that are administered.

Take the pain away from Issuer Requests

Our regulatory subject matter experts can provide a suggested calculation methodology addressing all the grey areas highlighted above which is then teamed with our simple-to-use automated shareholding disclosure interface. 

All you need to do is select the legal obligation on the platform and provide the issuer’s identifier and hey presto! just like magic, you have a response created for you. 

Further features:

• We can upload your own preferred template response letter or provide connections to investor relations portals.
• Select an investor relations company from the platform’s drop down which includes their details into the response, reducing that manual effort and reducing time spent on these requests to a nominal amount, giving you confidence in the response itself and increasing efficiency.
• Built in functionality that only allows responses to permitted requests to be created.  This will remove the risk of responding to requests where no legal requirement exists, eliminating the risk of confidential client information being incorrectly disclosed.
• Our flexible rules configuration engine allows your own legal or in-house interpretation of the calculation methodology.

Because we designed the system from our own in house experiences, we know the importance of tailoring the configuration of the rules to your requirements.  This is what makes our system work so well for our clients.

• If you would like to hear more or have a demonstration of this feature, please get in touch.
• Additionally, if you would like more information on the consultation mentioned above, please contact us (feedback has been requested by 28 February 2022).