Ahead of the implementation of the MAR regulation - is the Polish capital

The implementation date of the Market Abuse Regulation (MAR)1 is fast approaching. The MAR, which will apply directly to each EU Member State without requiring the states to introduce laws that implement it, will come into force entirely on July 3 and will bring about significant changes to the functioning of, among others, companies traded on regulated markets and listed in alternative trading systems. This date also marks the implementation deadline for the Market Abuse Directive (MAD II)2, a supporting directive to the MAR.

MAR introduces a material change with regard to the disclosure requirements of issuers, which themselves will determine whether events should be considered as inside information. It will significantly increase the liability of not only companies themselves, but also, among others, board members of publicly traded companies. At the same time, it will abolish the dualism in Polish law, which is connected with the requirement to publish current and inside information under separate legal bases. The MAR regime, consisting of MAR and MAD II, strengthens the system of uniform and severe sanctions, administrative measures and criminal sanctions for certain violations.

In light of the previous information, a question arises as to what extent the market (and especially the issuers) is ready for the imminent changes?

Notwithstanding the fact that the MAR will apply directly in the Member States, Polish legislation requires certain changes involving the repealing of a part of statutory and/or secondary legislation, as well as amending numerous national law provisions, which would be contrary to the MAR, or would hinder the effective application of that regulation with respect to administrative sanctions. As regards administrative sanctions enumerated in the MAR, the Member States are obliged to ensure (by way of national policy framework) that they are applied at least at the level stipulated in the MAR (this is particularly related to much more severe financial sanctions for certain violations than those currently provided for in Polish law). With respect to criminal sanctions, the Member States (including Poland) are obliged to transpose the MAD II Directive into national legislation.

The state of the legislative work relating to the adaptation and implementation of the above-mentioned regulations into national law is not sufficiently advanced to – most probably – allow Polish legislators to make amendments by July 3, 2016. The bill which amends the Act on trading in financial instruments and amending certain other acts is currently at the stage of giving opinions and agreements at government level.

The extent to which the provisions of the regulation on current and periodic information will apply3 has not yet been decided. The regulation should be repealed in most part as the catalogue of current information contained therein will be replaced with a single definition of confidential information contained in the MAR.

Taking into account that the MAR provides a significantly elevated (compared to the current) level of responsibility of issuers and members of their bodies, transitional provisions which shall be implemented by the new Polish regulation are of crucial importance. Under these provisions it will be possible to determine liability for infringements committed before the introduction of legislation ensuring the use of MAR or implementing MAD II.

If the Polish regulations do not come into force before July 3, 2016, there will be a situation in which, on the one hand, the requirements of the MAR will already be applicable, but regarding administrative sanctions and penalties, the national legislation will still refer to the legal status that existed before July 3, 2016. This could raise doubts as to the possible liability rules for breach of the MAR during the period before the entry into force of the relevant provisions of national law.

In this regard, an important indication will be announced on the website of the PFSA (the Polish Financial Supervision Authority), concerning the position of the PFSA Office. The PFSA announced that if by July 3, 2016 the Polish legal system has not adapted to the MAR, the Office of the PFSA is going to publish their position on the rules of procedure in such a situation on their website. The position of the PFSA in this regard is very important and anticipated by the issuers.

Regardless of the risks associated with the fact that on July 3, 2016 Polish legislation may not be adapted to the MAR regime, the question remains of how issuers from the regulated market and alternative trading system will be prepared for their new responsibilities?

Fulfillment of new responsibilities will probably be easier for those issuers who have, in advance, developed internal procedures and regulations to support the qualification of certain information or events as confidential information.

Even if the companies develop and implement internal systems related to the identification of significant and precise events that can be classified as confidential, and specify the catalogue of such events using appropriate analytical tools, there are some risks associated with the fact that issuers will treat this kind of catalog of the price-setting events as the sole source of information obligations. Past practice indicates that some of the issuers limited their reporting to the current information that was listed in the above regulation, without identifying other information that met the criteria of confidential information, and which should be disclosed to the market. Such an approach, in light of the new regulations, may be risky and costly. Hence, it is advisable that issuers remember that even the best-prepared internal rules or individual reporting standards should be an important, but not exclusive, tool supporting the identification of specific information concerning the issuer in terms of their accuracy and price-setting factors. U