U.K. regulator the Financial Services Authority has given company directors a brief amnesty to comply with its disclosure rules on shares used as loan security, after admitting the rules had caused “uncertainty.”
In a statement issued to clarify its position, the FSA said a director who wants to use company shares as security has to get approval from the company beforehand. If it gives approval, the company should then disclose the transaction to the market.
The regulator’s action was prompted by the resignation in December of David Ross from the board of listed company Carphone Warehouse. Ross—a cofounder of the business and near-20 percent shareholder—stood down when the company revealed that he had used 136.4m of his shares in the company as security against personal loans without permission. It then emerged that Ross had covertly mortgaged shareholdings in three other listed companies.
The belated Ross disclosures were quickly followed by similar announcements about directors of other public companies, prompting questions about whether lawyers advising directors on their responsibilities understood the FSA’s rules.
Admitting the confusion, the FSA now says it will not take any enforcement action against directors that have broken the rules, as long as they disclose what they have done by Jan. 23.
The FSA blamed European Union regulations for the confusion. Its transaction disclosure rules are derived from the EU Market Abuse Directive which, the FSA said, does not define specifically which transactions fall within its disclosure requirements. It added: “As a result, there are different practices in different European markets in respect of the disclosure of granting of security over shares. We acknowledge that this has led to a degree of uncertainty among market practitioners in London about the exact requirements.”
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