The CNMV publishes Q&A on related party disclosure requirements for listed companies

On November 15, the Spanish Securities and Exchange Commission (“CNMV”) published a set of interpretative guidelines on the requirements applicable to the disclosure of related party transactions for listed companies.

These guidelines have a Q&A format and are aimed at clarifying doubts about the application of the new related party disclosure requirements. These requirements have been in force since July 3, as a result of the amendments to the Corporate Enterprises Act (“LSC”) implemented by Act 5/2021, of April 12.

The CNMV considers important that the information disclosed by listed companies be comparable, so shareholders and investors can appropriately assess (i) the securities issuers’ financial situation and performance; and (ii) any risks attached to related party transactions.

The Q&A document discusses criteria regarding: (i) the transitional application of the new regime; (ii) the aggregate of transactions; (iii) parties related to directors; (iv) individual disclosure thresholds; (v) the relevant amounts of related party transactions; (vi) the time of disclosure; (vii) the mandatory audit committee report; and (viii) the rules on dividend distribution and other refunds of contributions. Below we highlight some of the issues discussed by the CNMV:

• Transitional application regime. The 12-month time period for aggregating the transactions to determine if the disclosure thresholds are met starts on July 3, 2021.
• Transactions entered into with the “same counterparty” (Article 529 tervicies LSC). The wording “same counterparty” includes (i) the party, whether a natural person or entity, related to the listed company; (ii) any other entity controlled by the listed company; and, regarding natural persons, (iii) “close relatives.” All transactions entered into with the same counterparty over a 12-month period which, in aggregate, exceed the applicable thresholds, must be disclosed simultaneously. The disclosure should include the audit committee reports and the information on each individual transaction.
•  Interpretation of the wording “conclusion of the agreement” (Article 529 unvicies LSC). If the agreement includes all its terms and conditions, the date of the agreement will qualify as the date of the transaction’s approval by the shareholders’ meeting or the board of directors, as appropriate, with no need to wait for its execution.
• Parties related to the directors (Article 529 unvicies LSC). For disclosure purposes, the only applicable definition of related parties should be that of Article 529 vicies LSC (which expressly refers to IAS 24) and not that of Article 231 LSC.
• Relevant thresholds for related party transactions (Article 529 unvicies LSC). The two thresholds provided in this article generally reflect the transaction’s level of significance for disclosure purposes. However, the CNMV warns that they should not be the only factors to be taken into account, and that potential financial impacts of the transaction should be considered. In particular, the Q&A document provides specific criteria that should apply to certain individual transactions (sale and purchase of assets, loans, collateral, financial derivatives, multi-year contracts and contracts with an undetermined amount).
• Audit committee report (Article 529 unvicies LSC). The board of directors may decide not to disclose certain information contained in the audit report if it considers that it can cause serious damage to the company. However, the disclosure must be in sufficient detail to enable shareholders to assess whether the transaction is fair and reasonable. In these situations, the disclosure must state that certain information has been left out due to the above reasons.

Finally, the CNMV warns that the Q&A document (i) is non-binding; and (ii) will be updated based on future consultations, the experience of supervisory authorities, regulatory or case law changes, or the stances of EU bodies.