Beneficial ownership transparency and listed companies
Case A: Declarations by listed companies
An exemption from BO disclosure based on listed status alone is not recommended because stock exchanges have variable levels of transparency over the ownership of the companies that are listed. Where transparency requirements are weak, stock exchange filings may not be a source of timely and accurate information on ownership and control.
Exemptions should be based on the stock exchange(s) on which the company is listed. Exchanges should be judged based on whether they have adequate ownership disclosure requirements for listed companies. It may be useful to consider both a stock exchange and a segment of that stock exchange, if different disclosure requirements can apply (as on the LSE).
Although a company's articles or by-laws may specify stricter disclosure requirements than those of the exchanges on which it is listed, this is not recommended as the basis for exemptions. This is due to the monitoring burden that is placed on the agency responsible for maintaining the BO register.
Creating excluded or allowed lists of stock exchanges
Exemptions based solely on the jurisdiction in which a stock exchange is based are not recommended, as a single jurisdiction can have multiple stock exchanges with different regulatory and transparency requirements. In the UK, for example, the LSE Main Market and AIM exchanges are covered by different sets of disclosure regimes. Related to this, exemptions should not be granted to companies because they are based in jurisdictions that are members of international organizations, such as the OECD.
The simplest approach to defining which listed companies are exempt may be to create a list of excluded stock exchanges that do not have adequate ownership disclosure policies. An excluded list can be built iteratively and based on the most obvious challenges (starting with an assessment of domestic stock exchanges). The list should be publicly available and reviewed regularly, and may benefit from collaboration in regional or international fora.
Defining adequate ownership disclosure requirements for a stock exchange
Disclosure requirements for publicly listed companies should be aligned with the spirit and purpose of existing requirements for private companies.
OO recommends that publicly-listed companies are granted an exemption from declaring their beneficial owners only if listed on a stock exchange with disclosure requirements relating to the acquisition and disposal of significant shareholdings and voting rights. For example, UK companies with shares traded on a regulated market in the UK or the European Economic Area are exempt from declarations to the UK beneficial ownership register.
These disclosure requirements should be based on a robust definition of ownership and control that results in comprehensive coverage of listed companies on the relevant exchange that is available to all interested parties.
In assessing the robustness of the definition of ownership and control in an exchange's disclosure requirements, consideration should be given to whether companies must provide:
- timely notification on the acquisition and disposal of significant voting rights;
- notifications on the basis of aggregated holdings and interests used jointly via an agreement;
- notifications of ownership and control arrangements via financial instruments that have a similar effect to owning shares or controlling votes;
- notifications that contain information on the means through which major shareholding or voting rights are exercised (e.g. the chain of ownership);
- notifications of interests held by company officers.
In assessing the coverage of an exchange’s disclosure requirements, consideration should be given to understand:
- whether all listed companies are subject to the same disclosure requirements (for example, if an exchange is segmented).
In assessing the availability of ownership and control information, consideration should be given to understand:
- who has access to filings made to stock exchanges under disclosure requirements and policies for storing filings, and if there are any conditions placed on the use of filing information.
For all such assessments, it should be noted that the totality of disclosure requirements a listed company is subject to may not come from a single regulation or set of rules.
Examples of market disclosure regulations
For comparative purposes, consideration could be given to standards set out in the relevant sections of the EU's Transparency Directive Amending Directive (e.g. section 5.1 of the UK's Disclosure Guidance and Transparency Rules and section 9.8.6 of the Listing Rules).
Data collection and business process
It should always be possible to connect a listed company to relevant stock market filings using information available from the BO declaration or related entry in the company registry. To do so, accurate and sufficient information needs to be collected as part of any BO declaration. Therefore, listed companies should be required to provide:
- information about the stock exchanges on which the company has equity listed;
- identifying information for the listed equity securities;
- information about the listed company itself;
- confirmation on whether or not (1) makes the company eligible for exemptions from BO disclosure requirements.
The agency responsible for maintaining the BO register should have the capacity to:
- check and, if necessary, reject claims for exemptions based on the stock exchanges on which the company is listed;
- record the fact that an exemption has been granted on the basis that the declaring entity is a listed company on an exchange with adequate ownership disclosure requirements.
Listed companies should be subject to the same periodic declaration update requirements as non-listed companies. In addition, consideration should be given to requiring an update of their exemption statement if stock is listed on a new stock exchange or delisted from an existing exchange, as this may result in a reassessment of the exemption.
Collecting information on companies and their stock exchange listings
A declaring company may be listed on more than one stock exchange. It can be delisted from one whilst remaining listed on another. Listed companies should therefore be required to provide information for all stock exchanges on which they are listed and required to disclose information to.
The information that should be collected is set out in Appendix I.
Publishing and updating information on exempt companies
It should be possible to distinguish an exemption from a missing disclosure and to understand the reason for any exemptions. Declaring listed companies should be required to explicitly declare that they are exempt from disclosure requirements because of their listed status. This information should be available on any central or public register, and such declarations should be renewed on a periodic basis in line with BO disclosure rules.
Next page: Case B: Collecting information about listed up-chain companies