New recommendation by the FIN-FSA: principles applied in communication with analysts should be addressed in the issuers’ disclosure policy

Lately, issuers’ communication with analysts has been discussed in the media and among market participants, which makes the FIN-FSA’s recommendations for practices very welcome. A similar discussion was previously had in Sweden where the focus was on the aspect that analysts should not be better informed than the rest of the market and that issuers should not endeavour to guide the content of the analysts’ reports. In Finland, the discussion has mainly focused on the equal disclosure of information to the market.

Non-public material information should not be disclosed to analysts

In the Market newsletter, the FIN-FSA points out that an issuer cannot disclose inside information to analysts, i.e. information that has not been made public and is likely to materially affect the value of the issuer’s security. The FIN-FSA deems that this also applies in situations where the issuer communicates its own unpublished conclusions or comments on the views or assessments presented by analysts. It is essential that issuers do not provide analysts with information that has not yet been made available to the public.

Pursuant to the Finnish Securities Markets Act, in their communications, issuers must comply with the requirement of equal treatment, according to which issuers are liable to keep sufficient information on factors that may have a material effect on the value of the issuer’s security equally available to the investors. This being the case, an issuer should not disclose material information in meetings with analysts that it has not made public, as that would not make the material information equally available to all investors. Most of the analysts’ reports are not freely available, so any information disclosed to analysts will only benefit the investors who have access to said information. Disclosing material information to analysts is also likely to muddle communication with investors as the premise of the regulation is that an issuer will always first disclose any information that materially affects the value of the security by a stock exchange release. If material information finds its way to the market in some other manner than a stock exchange release, it may remain unclear whether the issuer deems the information material. Investors also cannot be presumed to follow other sources than stock exchange releases in the same way in order to receive material information.

Addressing communication with analysts in the disclosure policy

In the Market newsletter, the FIN-FSA deems that issuers should add to their disclosure policies the principles according to which they communicate with analysts. The FIN-FSA had not previously taken a position on the matter, so this is a new practice recommended by the FIN-FSA. In the Market newsletter, the FIN-FSA recommends that:

• the issuer provides investors with the materials used in investor and analyst meetings and in publications of financial results on the issuer’s website, as up-to-date as possible;
• the issuer arranges the analyst meetings and the briefings related to publications of financial results via the internet, if possible, in a format that is open to all interested participants;
• the issuer does not comment on its valuation or the performance of its financial instrument when communicating with analysts;
• the issuer does not comment on the analyst’s forecast or the level of result in the consensus forecast;
• the issuer takes a reserved approach to commenting on analyses or reports by analysts and only comments on the correctness of information already published, if the issuer comments on analyses or reports at all.

In addition to the practices recommended by the FIN-FSA above, the issuer should assess the need to add the following factors to the disclosure policy:

• who of the company’s representatives see to the communication with analysts and participate in analyst meetings;
• when analyst meetings are arranged and whether the start of a silent period and/or the preparations for the next publication of financial results poses any restrictions on arranging analyst meetings;
• where the information on the analyst meetings and their dates is announced (in the investor calendar on the website or somewhere else);
• whether information on the analysts following the company and their estimates should be provided on the company website;
• what are the objectives of the analyst meetings and other investor relations communication;
• a note that the analysts’ opinions, estimates and forecasts are their own and do not represent or reflect the opinions, estimates and forecasts of the issuer or its management;
• a principle specifying that the company does not favour any specific analyst or analysts;
• a principle specifying whether the analyst meetings are recorded and whether the recordings are made available on the company website or not.

Practices followed in the communication to analysts should be assessed

Due to this new recommendation by the FIN-FSA, issuers should assess whether all of the best practices for analyst communications have been sufficiently taken into account in their disclosure policy. It is essential to assess whether the issuer has any practices that directly or indirectly create a risk of unintentionally communicating unpublished material information to analysts. This assessment should also consider the dates of analyst meetings and to the level of detail of the company’s unpublished financial information at the time the analyst meetings are arranged. In accordance with the established practice in the market, issuers have either a 30-day or 21-day silent period before publication of financial results. During this time, issuers do not usually arrange analyst meetings or communicate with analysts. It is also advisable for issuers to assess whether the practices related to analyst meetings are currently sufficiently transparent and whether increased transparency could dispel any doubts about the company disclosing material information to analysts.