Regulators Turn up the Heat on Global Shareholding Disclosure

Perhaps nowhere was this tightening clearer than in a case arising in the Netherlands in the first half of 2023. It saw the first-ever application of simplified settlement of a fineable matter under a then-new Dutch sanctioning system.

Under the Netherland’s Authority for Financial Markets (AFM) rules, when the shareholding of an investor passes a particular threshold, they must immediately notify the AFM. These details get added to the public register of substantial shareholdings and gross short positions. With this information, investors may make a proper assessment of shares involved in a potential transaction, helping foster transparency and market integrity.

The incident in question went back to 2021. The asset manager under scrutiny crept marginally over a threshold in its shareholding of a company listed at Euronext Amsterdam. The infringement? Notifying the AFM a full five months late, after the triggering event took place. Acknowledging its lapse, the firm was hit with a fine of €1.7 million in its settlement with the AFM. 
 

The 2023 settlement, which was the first of its kind, sent a clear message to market participants: failure to report in a timely manner has consequences.

There is an increased regulatory and operational emphasis on factors like intraday risk and counterparty credit risk. As such, businesses need real-time data analytics and other AI-powered risk tooling (including calculations) to optimize their compliance and risk management. Such fintech solutions can enable greater calculation capacity with granularity, frequency and accuracy. This eliminates error-prone manual processes while freeing risk staff to contribute to strategic success in other ways.
 

Based on the European Transparency Directive Act, the AFM rules require immediate disclosure when the percentage held in the issuer reaches, exceeds, or falls below specified thresholds.

"Held” is broad here: it includes not just % of issued nominal share capital but also voting rights and financial instruments which give the entitlement to acquire shares, or which have a similar economic effect as shares (e.g., options, futures, convertible preference/debt security).

Firms should keep a careful eye out for events which may require disclosure. For instance, if the nature of the holding has changed (e.g., an option is exercised and the shareholder receives the underlying equity) or if the issuer alters their total voting rights/issued capital (passive disclosure event), then regulations may require disclosure.

AFM Reporting Thresholds

Reporting requirements mean that investors operating in the Netherlands must stay on their toes when they obtain or lose shares or voting rights in a listed company. The 2023 sanctions serve to illustrate the speed and magnitude of the potential sanctions.

Of course, the Netherlands isn’t the only jurisdiction with its own nuanced shareholding disclosure rules. Other jurisdictions have their own complexities which must be taken into consideration by investors.

Getting clear about which jurisdictions your firm’s holdings fall under is the first step. Next, you must understand how the intricacies of relevant jurisdictions apply to your holdings.
 

As the artificial intelligence wave gains real-world momentum, customers increasingly expect innovative serFactors to consider range from the type of instrument to the capacity in which shares are held, and how holdings aggregate and disaggregate across hierarchies. These are examples of key elements required when assessing whether the holdings are relevant for disclosure under various shareholding regulations (such as Substantial Shareholdings, Net Short Positions, Takeover Panels, Sensitive Industries, and SEC Form 13-F).

Institutions must also be able to efficiently monitor their portfolios against the rules of multiple jurisdictions simultaneously. Here, asset managers may benefit from effective, fully automated mechanisms for completing these assessments across jurisdictions in an accurate and timely manner.

Cross-jurisdictional complexities aside, another core challenge facing firms concerns data. To successfully monitor huge disclosure volumes and withstand regulatory examination, firms must efficiently marshal extensive data on position, market, reference, hierarchy, and legal rules.

Given the urgency, complexity, and sheer variety of regulations surrounding your data, a lack of access to accurate and well-organized information on total shares and voting rights can quickly lead to a host of challenges for institutional investors and asset managers.

Again, firms can benefit from a data management platform that connects to multiple data systems, from internal sources used for accessing position information to external market data providers. A single, consolidated data source can then be used to navigate the myriads of shareholding disclosure regulations in force—at the same time as conducting internal analysis. 
 

The 2023 settlement is one example of how financial regulators around the world are typically becoming stricter in their enforcement of shareholding disclosure requirements. This trend reflects the growing emphasis on market transparency, investor protection, and the prevention of market abuse, driven by several factors, including technological advancements, heightened public scrutiny, and an increase in cross-border investments.

To mitigate operating risk and prepare for future regulatory changes, firms should consider automated, flexible, and intelligent systems capable of handling complex data requirements and the timely filing of submissions worldwide.
 

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