Increased focus on the disclosure obligations of Hungarian issuers

Thu, 30/06/2016

More stringent requirements to increase the attractiveness of the capital market. By Gabriella Kopházi-Tóth, Senior Relationship Manager, GSS Hungary              

The Central Bank of Hungary recently issued a circular on the reworked guidelines of its supervisory activities on issuers. To contribute to the fair and transparent operation of the local capital market and to increase its attractiveness to investors, the Central Bank monitors continuously whether the local issuers of publicly traded securities meet their information disclosure obligations properly.

In the framework of these activities, the Central Bank started requesting information from the issuers on their activities more frequently, conducted on-site audits and attended general meetings. As a result, in the first quarter of 2016 the Central Bank imposed to issuers total fines of HUF 43.5 million (EUR 137,440) for violating their disclosure obligations and securities of six issuers are currently suspended from trading.

As violation of the disclosure obligations might result in unequal treatment of investors and lead to market manipulations such as insider trading, in line with its newly introduced practices the Central Bank will seek in such cases immediate suspension from on-exchange trading with the given securities. Such measures will remain in place until the respective issuer fulfils its obligations and the necessary information is made available to all investors. The suspension of on-exchange trading is also accompanied by an announcement published on the website of the Central Bank. The Central Bank considers these steps as preventive measures and intends to change the "last resort" nature of suspending a security from trading.

Having received broader authorisation lately, the Central Bank places now a greater emphasis on its co-operation with auditors as well. As of 1 January 2016, the auditor appointed by an issuer is entitled to consult the Central Bank and also the Central Bank is entitled to request information directly from the auditor. Simultaneously with the advice given to the issuer, the auditor is also obliged to inform the Central Bank of any facts, on the basis of which the issuance of a qualified or adverse audit opinion may ensue or if the auditor detects any signs that the issuer breached the legislation as well as if the auditor  is of the opinion that the issuer will not be able to meet its obligations.

Achieving the objectives of the new issuer surveillance concept presumes closer co-operation between the issuers and the Central Bank as compared to the one that has existed so far. It is expected to foster behaviour which encourages the issuers to fulfil their disclosure obligations adequately, in a voluntary way.

The Central Bank has also highlighted the importance of investors actively using their rights (e.g. voting rights, rights to participate in general meetings, rights to receive information, etc.), which will contribute to the development of the Hungarian capital market.