Capital market compliance

Violations of insider trading regulations can quickly result in significant fines. With comprehensive preparation and support from our experts, you can protect your company against the risks and manage potential emergencies.

Deviations from communicated figures, sudden personnel changes, large transactions, problems in production: unexpected developments in the company pose operational challenges for company management in particular.

It is often overlooked or realised too late that when new internal developments become known, this could be insider information. This adds a further risk to the operational problem.

Insider law in focus: We explain how to set up the system successfully.

Capital market compliance is highly relevant due to various factors: The range of fines is considerable, and violations are regularly taken up. Persons in organisational management are also affected - whether in the case of their own violations due to forgotten reports after transactions or in the case of disputes with the company following an identified violation due to alleged breaches of organisational duties. BaFin can also publicise certain violations and fines imposed. There is a risk of considerable reputational damage for the company and the managers concerned.

A functioning capital market compliance system is the most effective way to minimise these risks. Risk avoidance starts in two places: in the preparation of a capital market compliance system tailored to the company and in the reaction in the event of an emergency.

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Development of a capital market compliance system

Regardless of the size of the company, a capital market compliance system should reflect the following factors in order to minimise the risk of a breach:

Raising awareness/sensitisation among managers, including below board level: insider information can arise anywhere in the company, but experience has shown that it often relates to deviations from forecasts, M&A transactions, business interruptions and justiciable incidents such as cyber fraud and other types of cybercrime
In-depth knowledge of board members about their own duties in relation to capital market compliance, but also in relation to the fundamental importance of the topic
Clear assignment of responsibilities and creation of structures to be able to react in an emergency ("ad hoc committee" or at least clarity with regard to cooperation between relevant persons and departments)
Guidelines and, in particular, procedural instructions tailored to the company and its circumstances that provide employees with assistance in specific cases
Implementation of the system within the company, including technical training for responsible employees

Reaction in the event of ad hoc information

It is important to react quickly in the event of an emergency, as BaFin only allows a short time for the internal audit and violations are prosecuted:

Early identification of the relevant issues by employees as well as contactability and availability of the responsible persons
Create capacity for a complex issue if the underlying incident already poses an operational challenge
Plan for emergency capacities: backup and "workarounds" are required, as it is not enough for a single employee to be familiarised with the systems and processes (failures due to illness, for example, should be taken into account)
Careful documentation of all decisions and process steps

Analysing the reasons for the ad hoc information

A good capital market compliance system does not stop at reacting to an emergency, but learns as it goes along:

After an ad hoc announcement, an analysis should be carried out to determine whether systematic reasons may have prompted the need for such an announcement.
This can be seen, for example, in the case of deviations in forecast business figures.
Review the financial/accounting processes: For what reason did deviations in figures occur unexpectedly? Why were these not reflected in the previous reports to management?
Examination of IR work and links to analysts: Would earlier communication have made an ad hoc announcement superfluous because the market would have already been expecting the new figures?
Examination of the planning processes: Why did the deviation from the guidance arise and are there any improvements to be made to the planning process?

Compliance with all obligations outside of insider information

Bafin also investigates breaches of reporting obligations in the case of directors' dealings and breaches of administrative obligations (focus on insider lists).

Our expertise

The susceptibility to errors in companies is high due to several factors: Firstly, many companies are not confronted with issues relevant to capital market law on a daily basis. Secondly, board members and employees are under considerable stress in most situations relevant to capital market law. Comprehensive preparation for an acute emergency is therefore crucial for successful management. Our experienced experts help to avoid additional problems in challenging situations that can arise due to complex detailed regulations and bifurcations in insider law.

The following questions need to be answered:

Is the company planning an IPO in the near future? If so, it is essential to set up a capital market compliance system.
Is the company already listed on the stock exchange? Then systems should be regularly reviewed for their effectiveness and adapted to current legal developments.
Insider law can also become relevant for non-listed companies in some cases, for example in transactions where business partners or target companies are listed. If there has been no previous contact with insider law issues, there is a particularly high risk of overlooking relevant topics.

Insider law covers not only shares listed on the stock exchange, but also certain facets of corporate bonds listed on stock exchanges and other markets, as well as over-the-counter issuers. Companies should also be prepared for these cases.

What makes KPMG's advice special

We rely on a close-knit network of legal advice*, process expertise (particularly in connection with IPOs) and experience with the workings of finance departments. This enables us to build systems that are effective and efficient.

Our co-operation partner KPMG Law Rechtsanwaltsgesellschaft mbH can provide you with further information on the topic of compliance.*