MAR stipulates a general requirement to keep lists concerning insiders, whereas there is no similar requirement for lists under IAS 24. Even so, certain EU countries, e.g. Finland, have already installed certain requirements which effectively translates into requirements for lists. Logwise consequently receives certain questions from clients related to such definitions and differences.
MAR stipulates certain important obligations, related to insider lists, disclosures etc. for the issuers, its “persons discharging managerial responsibilities” (“PDMRs”) and the PDMR “persons closely associated” (“PCAs”). PCAs can be either individuals or legal entities. Logwise has elaborated the PCA entity scope in a separate article.
IAS 24:9 similarly basically defines certain disclosures concerning transactions with an issuer’s “related parties”. IAS 24:9 basically contains two different categories of “related parties”:
(a) a person or a “close member” of that person’s family related to the issuer;
(b) an “entity related” to the issuer.
IAS 24 “entity related” is an isolated and quite complex topic to interpret, whereby it can be recommended for persons who wish to immerse themselves to read a pedagogic article.
Now, setting the MAR and IAS 24 legal entities relations aside, the focus is hereby instead to attempt to hammer out the differences (MAR vs IAS 24) concerning individuals, i.e. natural persons.
Logwise has elaborated the PDMR scope in a separate article. The consensus view is that all MAR PDMRs should also count as IAS 24 “related parties”. While a PDMR is basically a management person, the IAS 24 “related party” also includes controllers and significant influencers of the entity.
A MAR (3:25) PDMR is:
(a) a member of the administrative, management or supervisory body of that entity; or
(b) a senior executive who is not a member of the bodies referred to in point (a), who has regular access to inside information relating directly or indirectly to that entity and power to take managerial decisions affecting the future developments and business prospects of that entity”.
An IAS 24:9 “related party” is:
A person or a close member of that person’s family is related to a reporting entity if that person:
(i) has control or joint control over the reporting entity;
(ii) has significant influence over the reporting entity; or
(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
It is not 100% clear who shall be deemed a MAR PCA and/or an IAS 24 “close member” (natural person) respective an IAS 24. MAR lists 3 classes of natural persons as PCAs:
(1) a spouse, or a partner considered to be equivalent to a spouse in accordance with national law;
(2) a dependent child, in accordance with national law;
(3) a relative who has shared the same household for at least one year on the date of the transaction concerned”.
(1) MAR language considers a PCA: “a spouse, or a partner considered to be equivalent to a spouse in accordance with national law”. Thereby coming down to the EU member states level it starts to become complex. The “equivalent” term would generally include any “registered partnership” or “civil union” (i.e. basically in those countries where same-sex marriage does not apply). Certain countries however also provide reasonably strong special legal status for certain types of “domestic partners” and/or “cohabs”. One such example is Sweden, where the FSA favoured the liberal position that cohabitation under Swedish law would indeed be deemed in scope.
(2) A dependent child, in accordance with national law, typically does not leave much room for interpretation.
(3) A ‟relative” reasonably entails a genetic connection (as opposed to spouse). An adult child or parent would hence be in scope. Even adoptive relationships are arguably in scope.
IAS 24:9 “close members” are defined as follows:
“Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:
(a) that person’s children and spouse or domestic partner;
(b) children of that person’s spouse or domestic partner; and
(c) dependents of that person or that person’s spouse or domestic partner.”
IAS 24 definitions above are hence at least as wide as the MAR PCA categories 1 (partner) and 2 (child). IAS 24 explicit language above does however not include the MAR PCA category 3 (relative sharing household). A MAR PCA category 3 person is therefore not automatically in scope of IAS 24 – but could naturally still, for similar reasons as his MAR PCA categorization in class 3, occasionally be deemed a IAS 24:9 “close member”. An example might be an influential parent living in the same household, as the PDMR adult child.
IFRS Interpretations Committee has in a Final agenda decision defended the IAS 24:9 “close member” definition as indeed being clear enough:
“Interpretations Committee agreed that the family members mentioned in
paragraphs 9 (a)–(c) of IAS 24 would always be classified as close members of a family of a person.”
…
“The Interpretations Committee observed that the definition of close members of the family of a person in paragraph 9 of IAS 24 is expressed in a principle-based manner and involves assessing whether a family member is expected to influence or be influenced by a person. This assessment involves the use of judgement to determine whether members of the family of a person (including that person’s parents) are related parties or not. The Interpretations Committee also noted that the list of close members of the family of a person given in paragraphs 9(a)–(c) of IAS 24 specifies members that would be considered close members of the family of a person. Moreover it noted that this list is non-exhaustive and does not preclude other family members from being considered close members of the family. Consequently, the Interpretations Committee thought that other family members, including parents or grandparents, could qualify as close members of the family depending on the assessment of specific facts and circumstances.”
Finally, there is the relation between the MAR PCA legal entity scope vs the IAS 24 “related entities” scope. The factual texts differ substantially.
In short (per MAR Art. 3(1)(26)(d)), a PCA entity exists when the issuer’s PDMR (or a natural person PCA, to such PDMR):
(A) directly or indirectly controls the entity;
(B) has had the entity set up for his benefit;
(C) has substantially equivalent economic interests to the entity;
(D) takes part in or influences the entity, to transact in the issuer’s instruments.
IAS 24:9 “related entities” is very long. The first part ((i)-(v)) basically merely relates exclusively of entity vs entity relations, effectively similar to certain corporate law corporate group definitions. The second part ((vi)-(viii)) however is the part relating back to the 3 classes of related natural persons in IAS 24:9(a) of the reporting entity (the issuer), aiming also at the situation when such a “related entity” provides the issuer with high level consultants (“key management personnel services”):
“(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity”.
It is quite clear that the MAR requisite A class above would always also be included under this IAS 24 classification. Thereafter, the stories become somewhat different. MAR requisites B (set up for his benefit) and C (substantially equivalent economic interests) basically aims at the beneficiary of a trust/foundation-like entity and possibly synthetic participations, profit sharing arrangements etc. Finally, there is what might be defined as MAR requisite D. It does not aim at mere cross-directorships. This requisite D MAR PCA language is not really explicit in the sense that it basically seeks to catch when a PDMR or natural person PCA takes part in or “influences” a PCA entity, to transact in the issuer’s instruments.
IAS 24 rather aims at “significant influence”. It is therefore possible to establish situations where MAR PCA entity requisites B or C are fulfilled (e.g. a natural person has had a foundation set up for his benefit) – but without being in scope of IAS 24 “related entity (i.e. not having “significant influence” over such entity).
The bottom line remains: MAR PCAs do not always equal IAS 24 “related parties” and a professional legal assessment needs to be made in cases of doubt.