What are the key challenges with shareholder disclosure rules? In this blog, we consider the variety of challenges that combine to make these global shareholder disclosures much more burdensome than the UCITS or 1940 Act Investment Limits.
- The volume and speed of Regulatory changeWhilst, for example, it has taken the Eligible Asset Directive, ESMA Guidelines and Q&A and now UCITS IV to confirm many issues around UCITS, UCITS investment rules are now pretty well established, with little change expected over coming years.
Compare this to the huge volume of developments that we are seeing with the global shareholder disclosures, with monthly changes being made to the regulations concerning short selling, including the recently implemented Singapore Short Selling Rule, new major shareholding forms in Germany and Belgium updating Takeover dealing disclosure rules. - ReportingWith UCITS there are few requirements as regards regulatory reporting. In contrast, with global shareholder disclosure rules, there may be reporting requirements not just whenever a limit is exceeded but also on all days for which the limit excess continues or indeed when thresholds are passed through on the way down following dis-investment. Internationally, there are hundreds of different reporting forms to be used and, in some cases, even when a limit is exceeded, determining whether a report is due can be a very complex tasks â Hong Kong major shareholding reporting being a case in point.
- Aggregation RequirementsUCITS and 1940 Act and other investment rules are relatively straight-forward in typically applying at scheme level (though UCITS rules significant influence and concentration rules apply at Umbrella or Management Company level). In contrast, the global shareholder disclosure rules require aggregations to be made at many different levels, typically as discretionary manager level or controller of voting rights level and also group level.
- Monitoring complexityUCITS are under an obligation to be continuously in compliance with the investment limits, with compliance monitoring generally performed on a post-NAV basis looking at portfolio positions. In contrast, for many of the global Shareholder disclosure rules, the monitoring needs to be performed on a transactional basis and possibly (particularly for short selling rules) on an intra-day basis.
- Data ChallengesFor global investment regulatory disclosures, the key data requirements are for accurate and timely data for issued capital and voting rights. There are also scores of data lists that need to be tracked and acted upon, including: lists of financial stocks subject to short selling prohibition or reporting, lists of stocks concerned with a takeover, official shares in issue figures published monthly on regulatorsâ websites, the quarterly updated list of U.S. âSection 13f securitiesâ and aggregate limits for foreign investment published on Exchangesâ websites.
- PenaltiesUCITS requires compensation for advertent investment breaches. With global Shareholder disclosure rules, there is an array of penalties including fines, administrative sanctions, suspensions of voting rights and obligations to proceed with a takeover. Further, short selling rules are frequently tied to countriesâ Market Abuse provisions.
South Korea demonstrates the tough sanctions which can be imposed for failure to comply with reporting requirements. Under the 5% regime, failure to report an lead to criminal sanctions that include imprisonment of up to three years, or a fine of up to KRW 100 million.
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