Noerr Compliance Day – Spotlight on capital markets compliance

In the light of the new capital market rules, awareness for compliance-related subjects is growing among those active on the capital markets. “The new rules and tougher sanctions in the area of issuer-related capital markets law are prompting many market participants to take a critical look at their internal processes and documents and to train up their employees,” says Dr Michael Brellochs. The capital markets expert and partner at Noerr is one of the speakers at today’s “Noerr Compliance Day”, an established event attended by practitioners from Germany and other countries. Other top subjects of the twelfth Compliance Day include the EU-US Privacy Shield, employment law related compliance when using outside staff, and internal investigations.

New rules and tough sanctions

Together with Dr Gerald Reger, partner at Noerr and co-head of the Capital Markets practice group, Michael Brellochs will be explaining the new compliance requirements for listed companies and their shareholders. The motivation for this is two equally significant new laws setting out new rules for a large part of the legislation on capital markets: the German Act implementing the Transparency Amendment Directive, which has already come into force, and the Market Abuse Regulation, which will become law on 3 July.

“The common factor between these two laws is that they will both be accompanied by much tougher sanctions,” points out Brellochs. Breaches will now be punished by much higher fines and the penalties imposed will be immediately published (“naming and shaming”). The legislator’s message is clear, as Gerald Reger warns: “Breaches of capital markets rules are not a trivial matter.”

While the implementation of the Transparency Amendment Directive relates to disclosures of corporate ownership, the Market Abuse Regulation raises compliance requirements in connection with insider trading, ad-hoc disclosure, directors’ dealings and market manipulation. The Regulation replaces the corresponding parts of the German Securities Trading Act and for the first time also covers the OTC market if securities were included on this market at the issuer’s initiative. “Although the substantive content of the individual provisions partly remains the same, caution is needed from a compliance point of view,” says Brellochs. Internal processes and documentation have to be adapted to the new legal situation. In this context Reger points out a new provision: “The adaption of the processes and documentation in connection with market exploration before entering into capital markets transactions is especially relevance in practice.”

Corporate culture as a basis of compliance

“The legislator is allowing itself to be closely guided by antitrust law while creating a new, more effective punishment regime in capital markets law,” stresses Dr Torsten Fett, who is head of Noerr’s practice group Compliance & Internal Investigations and will be chairing the Compliance Day together with Noerr partner Prof. Thomas Klindt. “The new sanctioning options will also accelerate the establishment of effective compliance structures in this sector.” At the same time, Fett warns that only stricter controls can protect against breaches of rules in the capital markets sector. “The prerequisite for effective compliance has always been, and still is, a corporate culture based on ethical behaviour which those in executive positions promote and actually live by themselves.” Dr Wolfgang Herb, Chief Compliance Officer at Daimler AG, also makes clear that compliance has to be more than just a pure control instrument in his presentation “From Compliance to Integrity”.

HR compliance challenge for personnel experts

Noerr partners Daniel Happ and Dr Lars Kutzner point out the increasing significance of compliance in the HR sector in their presentation on pseudo self-employment and the use of external staff. “A particularly drastic example is the radical staff restructuring in many companies – moving away from freelancers who they work with on a regular basis and towards permanent employees,” says Kutzner. The background of this is the increasingly strict checks carried out by the social security and customs authorities on whether journalists are really freelancers or are seemingly freelancers who are in fact working for their contractors as employees. “If the customs authorities identify social security fraud, the penalties are tough. Those responsible will then be at risk of serious sanctions,” says Kutzner and stresses that “Those responsible for HR compliance have to keep an eye on the employment-law status of freelancers from the start.”

But there are also serious liability pitfalls as far as the day-to-day use of outside staff is concerned. “Frequently underestimated risks exist for example if the actual work carried out by the outside staff differs to what has been agreed in the contract,” says Daniel Happ. “This can happen very quickly in large companies if one hand doesn’t know what the other is doing.” The reforms to be introduced by the German Ministry of Employment in 2017 are also threatening to lead to a stricter legal environment. Happ adds: “The changes in the legal framework for deploying outside personnel are to be accompanied by negative consequence in the event of breaches.” The time remaining until the draft bill is adopted and the new rules come into force should be used to analyse ongoing projects and cooperative ventures. “In this way the necessary changes can still be implemented in time,” points out Happ.