The Swiss Financial Market Supervisory Authority FINMA has revised the disclosure obligation for third parties who are authorised to exercise voting rights associated with equity securities at their own discretion. Going forward, market participants can choose between two alternative ways to fulfil the disclosure obligation. Disclosure filings submitted pursuant to the previous regime have to be filed again in accordance with the new provisions by the end of August at the latest.
What is this about? The disclosure obligation regarding the discretionary exercise of voting rights The Financial Market Infrastructure Act (FMIA), which entered into force on January 1, 2016, introduced a disclosure obligation for third parties who are authorised to exercise voting rights associated with relevant equity securities at their own discretion, but without being the beneficial owners of such securities. This disclosure obligation has, since then, been applicable in addition to the well-established disclosure obligation of the beneficial owners of equity securities. Its purpose is to prevent someone from accumulating voting rights from multiple independent beneficial owners without having to disclose the cumulative stake. VISCHER published a News Alert on this change.
The disclosure obligation regarding the discretionary exercise of voting rights has been amended as of March 1, 2017. While the main features of the regime as set out in the FMIA have remained untouched, the definition of the person subject to the disclosure obligation in FINMA's Financial Market Infrastructure Ordinance (FMIO-FINMA) has been adjusted.
What has changed? The person subject to the disclosure obligation General principle: Under the new regime, the disclosure obligation falls upon the person who actually decides on the exercise of the voting rights (the "original addressee"). This may, but need not, be the person named in the authorisation to exercise the voting rights. The deciding factor is who actually determines how the voting rights are exercised. This can be a natural person or a legal entity. FINMA has previously clarified that, if the exercise of voting rights is delegated to a legal entity, the disclosure obligation falls upon this legal entity and not the natural person who (for instance as member of a corporate body) exercises the voting rights.
The alternative of consolidated disclosure: If the original addressee is under the direct or indirect control of someone else, the disclosure obligation can alternatively be fulfilled by the controlling person on a consolidated basis. For instance, if several subsidiaries independently decide on the exercise of voting rights that is delegated to them (which makes them original addressees), the disclosure can instead be made by the person controlling the group of companies (e.g. the majority shareholder). In this case, all the voting rights that the subsidiaries are authorised to exercise at their own discretion must be disclosed on a consolidated basis. This means that the consolidated disclosure may include voting rights that would not need to be disclosed in the event of a filing on a stand-alone basis because no pertinent threshold is reached at the level of the individual subsidiaries. In the case that the subsidiaries or the controlling person also hold relevant equity securities or derivatives themselves, these positions have to be included in the consolidated disclosure.
Provided that the original addressee is under someone else's control, there is a choice between the two alternatives, i.e. disclosing on a consolidated basis is not mandatory. However, if the disclosure is made on a consolidated basis, this must be pointed out in the filing. In the case of a consolidated disclosure by the controlling person the original addressee is relieved of its disclosure obligation.
The possibility to choose is a notable difference to the previous regime: up until now, the disclosure obligation for legal entities has universally fallen upon the controlling person. The current amendment is FINMA's response to the issues this has caused in practice. In particular, market participants have pointed out to FINMA the considerable effort required from financial institutions which are controlled by natural persons not involved in the group's operational activities.
What needs to be done? The transitory regime The new regime entered into force on March 1, 2017 and is subject to a transitory period of six months. Accordingly, the revised disclosure obligation must be fulfilled by August 31, 2017 at the latest. This means the following:
Authorisations for the discretionary exercise of voting rights disclosed under the previous regime must be disclosed again in accordance with the new regime before the end of the transitory period. Accordingly, filings made pursuant to the previous regime do not remain valid.
Authorisations for the discretionary exercise of voting rights granted during the transitory period can be disclosed either in accordance with the previous or the new regime. However, disclosures made pursuant to the previous regime must be filed again in accordance with the new regime before the end of the transitory period.
Further information The wording of the new provisions and the report on the consultation procedure are available for download on the FINMA website.
For questions and further information the authors are happy to assist.