Treasury teams must keep abreast of regulations to avoid paying high penalties for compliance breaches. Are debt securities’ continuing obligations being fully met?
This was the initial question Clifford Chance Applied Solutions asked itself when embarking on the creation of its new digital tool, Continuing Obligations: Debt Securities.
Many issuers of debt securities are also issuers of equity securities and, in those situations, often the assumption is made that compliance with ongoing obligations of equity securities satisfies the obligations for debt securities. However, when this isn’t the case a separate check of the obligations for debt securities can avoid sanctions, which can hurt an organisation’s bottom line and reputation.
Generally, for breaches of continuing obligations in the UK for example, the Financial Conduct Authority (FCA) has wide-ranging powers that can include:
- Handing out large fines against the issuer, which can be unlimited, or to a director of the issuer
- Public censure, e.g. by delivering a statement detailing misconduct by the issuer
- Power to discontinue/cancel and suspend the listing – failing to meet continuing obligations is given as a specific reason for doing so
One example of a large fine was the FCA’s £4.65m penalty issued to of Asia Mineral Resource for obligations related to its failure to file financial reports on time (DTR 4.1). Another example was the £2.4m fine handed out to Lamprell, which included a penalty for not maintaining adequate systems and controls.
Filing financial reports on time seems like a simple requirement on the face of it, but issuers of debt securities and structured products need to comply with a wide variety of continuing obligations. These often arise under different regulations, rulebooks and guidelines, making compliance complex, especially where issuers have securities listed on multiple exchanges across different jurisdictions. 
In practice this means many highly skilled people spend far too much time trying to mitigate the risks of failing to comply. This is expensive – both in terms of headcount and the opportunity cost of not having teams doing more interesting and complex work. It is also risky – simply keeping on top of the rules, never mind maintaining effective systems and controls – is a challenge for many teams. Or it’s a gravy train for lawyers providing memorandums on commoditised advice.
Given the size of the markets and complexity of the rules, we were surprised to see that there was nothing available to help treasury teams manage this challenge. Equities, yes, but not on the debt side. So we worked with the treasury community, our capital markets lawyers and our technologists to build from scratch the first tool to deal with this problem efficiently.
Our goal has been to create a solution that is simple to use and keeps all the rules up to date and accessible in one place.
Today we have a digital tool that can help the treasury community navigate the complexities of listings on exchanges in Luxembourg, the UK and Ireland, with more jurisdictions joining soon.
You can find out more about our offering to the treasury community here.
