Ashurst Governance & Compliance Update – Issue 55
22 August 2024
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The Financial Conduct Authority has published two consultation papers on its proposals for the new Public Offers and Admissions to Trading Regulations (POATR) regime:
In conjunction with the POATR, the FCA’s final rules in these areas will replace the current UK Prospectus Regulation in due course. The consultation period closes on 18 October 2024.
For our more detailed overview of the proposals, click here.
The FCA has indicated that it will undertake a follow-up consultation later this year in respect of, amongst other things, certain transitional provisions and minor changes to make the applications process for further issuances more efficient.
It is envisaged that the rules for the overall regime will be finalised by the end of H1 2025, subject to feedback and the approval of the FCA Board. The FCA has also signalled that there will be a further period before the new rules take effect.
The FCA has published a consultation focused on enhancing the operation of the National Storage Mechanism (NSM). By way of reminder, the NSM is the FCA's free-to-use online archive of company information which enables users to access and download information about issuers.
The FCA is consulting on changes the NSM’s data requirements for ‘regulated information’ – i.e. information disclosed by regulated market issuers in accordance with the Disclosure Guidance and Transparency Rules, Listing Rules, and parts of the Market Abuse Regulation. It also proposes to standardise the way in which Primary Information Providers – those firms approved to disseminate regulated information on behalf of issuers – submit information to the NSM.
Responses to the consultation should be submitted by 27 September 2024.
The FCA has published Policy Statement 24/9: Payment optionality for investment research (PS 24/9), in order to afford asset managers greater freedom in how they pay for investment research, by allowing the ‘bundling’ of payments for research and trade execution. PS29/9 aims to improve competition in the market for the benefit of investors and the new payment optionality is stated as being compatible with rules in other jurisdictions, making it easier for asset managers to buy research across borders. For more detail on PS 24/9, click here.
The new rules, which took effect on 1 August 2024, implement a key recommendation of the Investment Research Review (for our overview, click here) which itself derives from the 2022 Edinburgh Reforms (for our overview, click here).
The British Private Equity and Venture Capital Association (BVCA) and the Private Equity Reporting Group (PERG) have published a consultation to review and update the Walker Guidelines on Disclosure and Transparency in Private Equity (Walker Guidelines).
By way of reminder, the Walker Guidelines are the voluntary code containing enhanced disclosure and reporting requirements for private equity firms and their largest portfolio companies. It was last updated in 2014.
The latest review is intended to ensure the original objectives of the Walker Guidelines are still being achieved, namely to:
The review therefore covers both the scope and specific requirements of the Walker Guidelines, seeking to ensure that the scope appropriately captures large private equity investment activity in the UK and that portfolio companies and private equity firms disclose information that is clear, accessible and valuable. The review also aims to ensure that narrative reporting for in-scope companies evolves in line with good practice seen amongst constituents of the FTSE 250 (deemed to be the most appropriate benchmark) and is calibrated to the current reporting environment. Specifically, the changes contemplate greater disclosure around board composition, ownership structures and management activity as well as risk management, internal controls and ESG matters.
The consultation also takes into account proposals for reform included in the draft Audit Reform and Corporate Governance Bill announced in the King's Speech in July 2024 (see AGC Update, Issue 54).
The consultation closes on 30 September 2024. PERG and the BVCA will publish a feedback statement summarising responses to the consultation later this year. Revised Walker Guidelines will be published in January 2025 alongside PERG's 17th annual report on compliance.
The Financial Reporting Council has published a consultation on revisions to its 2016 Guidance: Going Concern Basis of Accounting and Related Reporting, including Solvency and Liquidity Risks. The Guidance is being updated to reflect recent developments in the corporate reporting framework and evolving practice in response to economic and operational uncertainties such as the COVID-19 pandemic and geopolitical conflicts, as well as high-profile UK corporate failures.
The draft Guidance is intended to help companies prepare high-quality, company-specific disclosures about their going concern conclusions and how they were reached. In turn, this should allow investors to understand a company’s exposure to and plans to navigate solvency and liquidity risks and provide them with the confidence to allocate capital and support the growth of UK companies.
As before, the updated Guidance will be non-mandatory for those companies within its scope, which includes companies that apply the UK Corporate Governance Code, but excludes small companies and micro-entities. The Guidance includes a revised range of factors and techniques directors might consider when performing going concern assessments.
The Guidance brings together the requirements or provisions of company law, accounting standards, auditing standards, the Listing Rules, the UK Corporate Governance Code and other relevant regulation.
The consultation closes on 28 October 2024. The FRC expects to publish the final Guidance in early 2025.
The FRC has published a second report on the quality of corporate governance reporting by private companies which apply the Wates Corporate Governance Principles for Large Private Companies.
By way of reminder, the Wates Principles were published to accompany the package of governance reforms implemented through The Miscellaneous Reporting Regulations 2018 which included a requirement for large companies to report on their governance arrangements in their annual report and accounts. Large companies for this purpose are those which have more than 2000 employees and/or both a turnover of more than £200m and a balance sheet total of £2bn. The Principles operate on an 'apply and explain' basis.
The FRC report notes that of 1,815 in-scope private companies, 547 (approximately 30 per cent) applied the Wates Principles. Of those that followed the Wates Principles, the research found slight improvements in most of the disclosure scores for each Principle. For example, more companies reported on how their purpose aligned with their business practices and on the connection between their strategy and purpose/culture. More information was also included about company Chairs, how the board understands the company’s business needs and stakeholder interests, and the rationale for remuneration structures.
Nevertheless, the report highlights that companies continue to struggle to provide meaningful disclosures in key areas and provides suggestions for improvement, including in relation to:
The report also suggests there is an over reliance on boilerplate disclosure given the high levels of similarity between the corporate governance statements of different companies, as well as between reports by the same company in different years.
As part of a cross-regulatory group comprising the FCA, Companies House, HMRC and the Charity Commission, the FRC has published a discussion paper on opportunities for the future UK digital reporting. The paper also addresses changes in the post-Brexit regulatory landscape and considers the impact of the Economic Crime and Corporate Transparency Act 2023.
Key topics covered in the discussion paper include:
Responses should be submitted to XBRL@frc.org.uk by 1 November 2024.
As promised in its 2023 Policy Statement, and now that the revised UK Corporate Governance Code has been published, the FRC is undertaking a fundamental review of the UK Stewardship Code 2020 (Code) to ensure that it 'supports growth and the UK’s competitiveness' and is being used to drive 'better stewardship outcomes from engagement with issuers across all asset classes'.
To that end, the FRC has announced significant revisions to the Code application process and committed to focus on five themes in the new phase of the Code’s development:
Pending the full review of the Code being finalised and implemented, the FRC has also made various interim changes (and has published associated FAQs) to reduce the reporting burden on existing signatories pending the full review of the Code. These changes:
The interim changes apply to the next signatory application window (31 October 2024) and the FRC will be writing to signatories individually to inform them of how the changes impact them.
The FRC will launch a formal public consultation on the Code later in 2025.
Companies House has published its business plan 2024 to 2025 which includes an outline of what it plans to deliver in relation to the Economic Crime and Corporate Transparency Act 2023 over the coming months. For our overview of the legislation, see New economic crime and corporate transparency law: Key implications for UK businesses (10/11/23) and AGC Update, Issue 47 (see Item 1).
The business plan indicates that Companies House plans to undertake the following:
GC100, the association of general counsel and company secretaries working in FTSE 100 companies, is conducting a poll about the use of AI and legal technology to support the minute-taking process among listed and larger private companies.
The poll focuses on the approach of companies to minute-taking, including format, approval processes, the extent to which AI assists with these processes, and the issues associated with the use of AI and third-party suppliers of legal technology.
Responses should be submitted by 6 September 2024. A summary of the responses will be circulated to respondents.
The FRC has published its sixth Annual Enforcement Review, setting out its enforcement activity during the year ended 31 March 2024. This year's review identifies key themes and lessons emerging from enforcement cases which concluded during the year, including the audit investigations launched following the corporate failures of Carillion plc in 2018 and London Capital & Finance plc in 2019.
The government has updated its Webpage: Dormant Assets Scheme and published a 'Dormant Assets Scheme: Participant pack' for use by companies with publicly traded securities wishing to participate in the UK dormant assets scheme in relation to 'gone-away' shareholders – i.e. those shareholders with whom the company has lost contact. The pack of materials contains:
The templates are intended to be used as a starting point for companies to adapt to their individual circumstances as required.
The FRC has published minor Amendments to FRS 101 Reduced Disclosure Framework following the 2023/24 annual review cycle. The associated Feedback Statement and Impact Assessment can be found by clicking here.
Changes include a disclosure exemption from presenting certain comparative information, and a conditional exemption for qualifying entities in respect of certain disclosures about supplier finance arrangements required by IAS 7 Statement of Cash Flows.
Amendments were also made to Appendix II Note on Legal Requirements for consistency with IAS 1 Presentation of Financial Statements.
The European Commission has published an FAQs document to support companies reporting under the Corporate Sustainability Reporting Directive 2022 ((EU) 2022/2464).
The FAQs clarify the interpretation of certain sustainability reporting requirements introduced by the CSRD into the Accounting Directive (2013/34/EU), the Audit Directive (2006/43/EC), the Audit Regulation ((EU) No 537/2014), and the Transparency Directive (2004/109/EC) as well as clarifying certain provisions of the Sustainable Finance Disclosures Regulation ((EU) 2019/2088) (SFDR). The FAQs also clarify provisions in the European Sustainability Reporting Standards, which set out the detail of the reporting required under the CSRD (see First European Sustainability Reporting Standards (ESRS) apply from 1 January 2024 (ashurst.com)).
The FAQs cover issues such as the scope of the rules, application dates, exemptions, language requirements, formats and digital tagging, and use of estimated data in substitution for collecting value chain information from suppliers or business partners. There is also a section on requirements for non-EU companies.
By way of reminder, the first in-scope companies to report under CSRD will do so in 2025 for financial years beginning on or after 1 January 2024.
Authors: Will Chalk, Partner; Rob Hanley, Partner; Marianna Kennedy, Senior Associate, Vanessa Marrison, Senior Associate; Becky Clissman, Counsel
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.
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