Transparency II and Interim Management Statements - Implementation in Italy and Issuers’ Voluntary Disclosure Guidelines Published by Assonime

This post comes to us from Valentina Allotti and Marcello Bianchi of Assonime.

Transparency II (Directive 2013/50/UE) abolished the obligation to publish interim management reports for listed companies in Europe. However, by way of derogation, additional periodic financial information may be required by individual Member States where that additional information does not constitute a disproportionate financial burden, particularly for SMEs, and its content is proportionate to the factors that contribute to investment decisions by the investors.

The Impact Assessment of the European Commission clearly pointed out the two main reasons supporting the policy decision to abolish the requirement to publish interim management reports: first, such an obligation represents a particularly important burden for many SMEs whose securities are admitted to trading on regulated markets, without that being necessary for investor protection; and, second, it encourages short-term performance and discourages long-term investment.

When implementing Transparency II, most European countries decided not to require the publication of additional periodic financial information for listed companies, fully endorsing the policy option and the goals pursued by the directive. The UK, Germany, France, The Netherlands, Belgium, Luxembourg, Sweden, Ireland, Czech Republic, Latvia, Lithuania, Estonia, and Malta all abolished the obligation to publish interim financial reports. In France, the AMF published a Recommendation to give guidelines to issuers willing to publish additional information on a voluntary basis. At present, only Poland and Spain have decided to maintain mandatory disclosure of quarterly reporting.

Italy has also abolished the obligation to publish interim financial reports, giving the Market Authority (CONSOB) a discretional power to order issuers to periodically disclose additional financial information (Art. 154-ter, 5-6, Consolidated Law on Finance). Therefore, at the moment, there is no legal requirement for issuers to publish interim management statements or other additional periodical financial information. A regulatory initiative by CONSOB cannot be undertaken before the drafting of the impact assessment. On 14 April 2016, CONSOB launched a preliminary public consultation in order to collect data and any other relevant information regarding the costs and burdens related to the mandatory disclosure of quarterly reporting, in order to carry out the impact assessment requested by the law before undertaking any regulatory initiative.

Given the current legal framework, issuers are free to decide whether to publish any additional periodic financial information and, if they do so, what to publish and how to publish it. This is subject to the exception of those listed in the STAR segment of the Borsa Italiana, ie the segment dedicated to midsize companies with a capitalization of less than 1 billion euros, for which such an obligation is still required by the Stock Exchange Rules.

Assonime, the Italian Association of Joint-Stocks Companies, has published a comment (Circolare n. 12/15 April 2016) in order to provide guidance to listed companies who decide to voluntarily disclose additional periodic financial information.

As a general principle, Assonime recommends issuers to adopt an internal policy on the voluntary disclosure of additional financial information in order to define its content, timing and manner of publication, thus ensuring the regularity and consistency of disclosures. Such a policy should be adopted by the board of directors and disclosed to the public. Assonime suggests that issuers clearly disclose the reason for their choices, which may depend on various factors, such as companies’ business models, the practice followed by competitors, and specific reporting requirements in the case of dual listing.

As to the content, Assonime explains that issuers may freely decide what kind of information to publish. In this respect, it is important to underline that, under the Transparency directive, the interim management statement was designed to be primarily a narrative document, and was implemented as an alternative to requiring quarterly financial statements: therefore it is for the issuer to decide whether and how to use financial data (see ESMA – Q&A Transparency Directive 2012). However, issuers that choose to describe their financial position should be careful that they are consistent in the information they employ.

As regards the manner of publication, Assonime recalls that interim management statements (or any other additional financial information) published on a voluntary basis are not to be considered as regulated information; therefore there is no formal requirement in this respect. However, issuers may take the opportunity to continue to disseminate them to the market according to the rules provided for regulated information in the Transparency directive.

As the Impact Assessment clearly pointed out, the new regime of Transparency II does not affect the application of the Market Abuse Regulation (and Directive), which require issuers to disclose inside information that is likely to have a significant effect on the prices of financial instruments listed on regulated markets. The AMF Recommendation, as well as the UK FCA Policy Statement of November 2014, recalls that the removal of the requirement to publish interim management statements does not impact on the need for issuers to consider the disclosure of price-sensitive information. In this respect, Assonime considers that periodic accounting data (as distinct from that concerning the annual report and the half-yearly report) is not necessarily and in itself ‘price sensitive’ information to be disclosed to the market.