HM TREASURY News
Release (PN/79/08) issued by The Government News Network on 17 July 2008
HM Treasury is
launching a consultation today on extending the statutory regime
on liability for fraudulent misstatement by issuers of securities.
This consultation responds to last year's review by Professor
Paul Davies Q.C. of the statutory regime, which recommended that
the scope of the system should be extended to provide greater
security for both investors and issuers.
In his review Professor Davies recommended that the regime should
be extended to include:
* more issuers (the extended regime will include issuers with
securities admitted to trading on UK multilateral trading
facilities, such as AIM and the PLUS-quoted market, and UK issuers
with securities admitted to trading on other EEA markets);
* a wider range of ad hoc and periodic disclosures made by
issuers to markets;
* losses arising from sales (as well as purchases) of securities;
* losses arising from a dishonest delay in disclosure.
By clarifying rights and obligations, an extended statutory
regime will improve the quality of corporate disclosure and reduce
the risks facing investors and issuers.
Economic Secretary to the Treasury, Kitty Ussher MP, said:
"There is a strong appetite from both issuers and investors
to see progress in this area.
"Through extensive consultation and analysis, Professor
Davies has developed a set of proposals to extend the statutory
liability regime. These will improve the incentives to issuers for
prompt and accurate disclosure, while providing both issuers and
investors with greater clarity as to the scope of their liability.
"These changes will improve the efficiency and
competitiveness of the UK's capital markets"
Notes for Editors
1. In 2006, a new section 90A of the Financial Services and
Markets Act 2000 (FSMA) established a statutory civil liability
regime for misstatements to the market by issuers of securities
admitted to trading on regulated markets, under which issuers
would be liable for fraudulent misstatements in those periodic
disclosures to the market required under the Transparency
Directive (2004/109/EC). This clarified the previously uncertain
common law regime.
2. The scope of the statutory regime was restricted to the area
in which statutory provision was required by the Transparency
Directive because of the differences of opinion among stakeholders
with regard to the impact of any further extension. However,
anticipating the benefits of expansion, the Government was granted
in section 90B of FSMA, powers to extend the scope of the regime
3. In response to stakeholder concerns about the consistency of
the new statutory liability regime and whether common law rights
of shareholders were at risk, Professor Paul Davies of the London
School of Economics was asked to advise on potential changes to
ensure that the regime was comprehensive and soundly based. He
reported in June 2007 and the Government now proposes to implement
proposals that substantially follow his recommendations.
4. During his review, Professor Davies consulted extensively with
stakeholders. There was a broad consensus among both issuers and
investors that extending the statutory regime was desirable.
5. Following Professor Davies' recommendations, the
following extensions are proposed to the scope of the statutory regime:
* from the current scope of issuers with securities admitted to
trading on regulated markets (such as the Main Market of the
London Stock Exchange) to include issuers with securities admitted
to trading on UK multilateral trading facilities (MTFs, such as
AIM and the PLUS-quoted market);
* to issuers with securities admitted to trading on an EEA
regulated market or MTF (provided they have a registered office in
the UK or the UK is their home state under the Transparency Directive);
* to a broad range of ad hoc and periodic disclosures to markets
(at present the regime is restricted to periodic disclosures
required under the Transparency Directive). This is to be
achieved by extending the regime to information disclosed by
issuers by means of a recognised information service. A
recognised information service would be defined as any service
used to publish regulated information under the Transparency or
Market Abuse Directives or information required to be published
under the rules of an MTF. The person claiming damages would not
have to show that the relevant information was obtained from the
recognised information service;
* to permit sellers of securities to recover losses incurred
through reliance on fraudulent misstatements (at present only
buyers are permitted to recover);
* to permit recovery for losses resulting from dishonest delay of
a disclosure. An issuer would be liable where the delay is a
dishonest act and is for the purpose of enabling a gain to be made
or to cause loss to another or expose another to a risk of loss.
6. This consultation will close on 9 October 2008.
Non-media enquiries should be addressed to the Treasury
Correspondence and Enquiry Unit on 020 7270 4558 or by e-mail to email@example.com
This Press Release and other Treasury publications are available
on the HM Treasury website hm-treasury.gov.uk For the latest
information from HM Treasury you can subscribe to our RSS feeds or