Ashurst Governance & Compliance Update - Issue 59

Narrative Reporting

1. FRC publishes 2024 Annual Review of Corporate Governance Reporting

The Financial Reporting Council has published its Annual Review of Corporate Governance Reporting 2024. This follows its Annual Review of Corporate Reporting which was published in September 2024 (see AGC Update – Issue 56, Item 4).

The purpose of the review is to showcase examples of good reporting and explore areas for improvement as companies prepare to implement and report against the 2024 UK Corporate Governance Code. 

The review emphasises the continued importance of the Code's 'comply or explain' approach, which allows companies to depart from Provisions when circumstances warrant, provided they offer high-quality explanations for their alternative approach. While companies are making good use of this flexibility, the FRC notes that the quality of explanations for departures could still be improved. Nevertheless, it urges investors, proxy advisors and service providers to support those companies that provide cogent explanations that demonstrate good governance.

With the revised 2024 Code taking effect from January 2025, the FRC state that they are pleased to see companies preparing for those changes that affect their company’s circumstances. In particular, the FRC was encouraged to see several companies already outlining their preparation work for the new Provision 29 requirements which come into effect in 2026. However, the review also highlights areas in need of attention as the detailed analysis of 130 companies found that 25 failed to report, or report clearly, on the effectiveness their internal controls.

Our detailed briefing on the review and its key recommendations is here.

Stewardship 

2. FRC launches public consultation on the Stewardship Code

The Financial Reporting Council has published a consultation on proposed changes to the UK Stewardship Code 2020. Its principal aims in doing so are to streamline reporting requirements and reduce burdens for signatories, ensuring a clearer focus on the purpose of stewardship and the outcomes that it delivers. For an FRC podcast discussing the launch of the consultation, click here.

By way of reminder, the Code is a non-binding code of practice that sets benchmarks to promote effective stewardship of companies. It contains 12 principles which work on an 'apply and explain' basis for asset owners and managers and six principles aimed at service providers. In order to achieve signatory status, an organisation must submit an annual report demonstrating how it has applied the Code in the previous 12 months. The review of the Code was first launched in February 2024 (see AGC Update, Issue 49, Item 4) which was followed by various interim changes in July 2024 to reduce the reporting burden on existing signatories (see AGC Update, Issue 55, Item 8).

Key consultation proposals include:

• Stewardship definition – amending and enhancing the definition of 'stewardship' to support more transparent conversations between stakeholders in the investment chain about their investment beliefs and objectives.
• Reporting – streamlining the reporting process, separating policy and activity disclosures to reduce reporting burdens.
• Service provider principles – tailoring the service provider principles for the first time to include one focused on proxy advisors.
• New guidance – 'targeted' guidance is proposed to accompany the Code and assist in the transition to the new reporting requirements.

Responses to the consultation should be submitted by 19 February 2025. The updated Code is expected to be published in H1 2025, with an effective date of 1 January 2026. 

AGMs in 2025

3. Pre-Emption Group publishes second monitoring report

The Pre-Emption Group has published its second annual report which monitors the use of its 2022 Statement of Principles in disapplying shareholder pre-emption rights. For PEG's first monitoring report, see AGC Update – Issue 50, Item 1, and for an overview of the 2022 Statements of Principles, see AGC Update – Issue 28, Item 3.

The report examines the implementation of the Principles by FTSE 350 companies at AGMs taking place between 1 August 2023 to 31 July 2024. Highlights from the report include: 

• 67.1 per cent of companies sought an 'enhanced disapplication authority' - that is an authority which exceeds the authority previously allowed under the 2015 Statement of Principles. This compares with 55.7 per cent last year.
• 64.1 per cent of companies tabling a resolution seeking authority to disapply pre-emption rights requested it for a specified capital investment. When doing so, 26.6 per cent included the six-month time limit 'look back period' which was superseded by a 12 month period in the 2022 Principles. This compared with 42.6 per cent last year.
• 13.2 per cent of companies (down from 25.3 per cent last year) continue to refer to the outdated limit on issuing shares non-pre-emptively – i.e. that they will not issue more than 7.5 per cent of ordinary share capital non pre-emptively for cash in any rolling three-year period. By way of reminder, the 2022 Principles contain different shareholder protections and safeguards which should be referred to instead.
• Of 334 resolutions put to shareholders, only two failed. 75.4 per cent of resolutions seeking disapplication authority for general corporate purposes, and 49.5 per cent of those seeking disapplication for a specified capital investment, passed with less than 5 per cent of votes against.
• Twelve companies did not follow the 2022 Principles, including one that failed to note a specific percentage of disapplication authority. Nine sought a 20 per cent disapplication authority for general corporate purposes and three sought a disapplication authority for both general corporate purposes and specified capital investments via a single resolution.
• PEG encourages investors to contact it if they become aware of companies misusing disapplication authorities, including using cash box structures to raise funds in excess of the disapplication authority granted at a company's most recent AGM.

4. Glass Lewis publishes 2025 proxy voting policy guidelines

Glass Lewis has published its 2025 proxy voting policy guidelines for the UK.

Amendments to the 2024 guidelines include:

• Director tenure: The rationale for extending the tenure of a board chair beyond nine years will now be considered on a case-by-case basis. Previously, Glass Lewis generally recommended voting against re-election of the nomination committee chair where the board chair's tenure exceeded nine years and a defined succession plan was not disclosed.
• Gender diversity: For main market companies, Glass Lewis will recommend against re-electing the chair of the nomination committee where the board has failed to appoint at least two gender diverse directors or given a clear and compelling explanation for having failed to do so. The benchmark policy continues to expect FTSE 350 boards to achieve gender diversity of 33 per cent.
• Ethnic diversity: Reflecting the Parker Review targets, Glass Lewis will recommend voting against re-electing the chair of the nomination committee in a FTSE 350 board where that board has not appointed at least one ethnically diverse director or given a clear and compelling reason for having failed to do so. This extends the policy that previously applied to the FTSE 100.
• Board oversight of AI: A new section of the guidelines sets out an expectation that boards be cognisant of, and take steps to mitigate, material risks arising from their use or development of AI. Glass Lewis believes that companies which use or develop AI technologies should adopt strong internal frameworks that include ethical considerations and ensure effective oversight of AI. It also believes that clear disclosure on how boards are overseeing AI and expanding their collective expertise and understanding in this area is likely to be of value to shareholders.
  
  In instances of insufficient oversight or management of AI resulting in harm to shareholders, Glass Lewis may recommend voting against re-electing accountable directors.
• Pension contributions: Noting that the Investment Association deadline for executive pension contributions to be aligned with the majority of the workforce has passed, Glass Lewis will generally recommend against a relevant remuneration proposal where that is not the case.
• Hybrid incentive plans: A new section has been introduced dealing with 'hybrid incentive plans' in executive remuneration policies. These will be assessed on a case-by-case basis. Companies will be expected to provide prescribed explanations and confirmations where a hybrid plan is proposed.
• Dilution limits: Reflecting changes to the Investment Association's Principles of Remuneration (see AGC Update - Issue 57, Item 1), potential dilution of over 5 per cent over in a ten-year period in relation to executive (discretionary) schemes will no longer lead to a recommendation to oppose equity awards.

The revised guidelines include new sections on multi-class or dual-class share structures and special purpose acquisition vehicles and clarify existing policies relating to virtual shareholder meetings, restricted share plans, annual bonus deferrals, salaries, remuneration committee engagement, the overall approach to executive remuneration, proxy voting results and conflicts of interest. 

The guidelines have also been updated to reflect the 2024 version of the UK Corporate Governance Code - Glass Lewis expects to see widespread compliance and/or reporting against it during 2026 while noting that it will assess compliance by relevant companies, including investment companies, against the 2018 iteration of the Code in 2025. By contrast, it expects 'widespread compliance and/or reporting' by relevant companies in relation to the 2023 iteration of the QCA Corporate Governance Code in 2025 – i.e. in the next reporting season.

5. ISS announces 2025 benchmark voting consultation 

Institutional Shareholder Services has published a consultation which seeks feedback on proposed changes to its international voting policies for use in the 2025 AGM season. 

Proposed key policy changes to the UK voting guidelines include:

• Remuneration: ISS proposes to update its policies to reflect the IAs Principles of Remuneration. In doing so it will adjust references to dilution limits (see previous item).
• Remuneration for smaller quoted companies: ISS intends to clarify voting considerations when assessing remuneration report resolutions, in line with the increased focus on executive pay in the 2023 iteration of the QCA Corporate Governance Code and particularly the recommendation that remuneration policies and directors' remuneration reports be put to shareholders for an advisory vote.
• Board diversity: ISS is proposing changes to reflect the requirements of the UK Listing Rules to report against specific gender and ethnic diversity targets on a 'comply or explain' basis, as opposed to actually meeting them.
• Remuneration at financial institutions: Following the removal of the variable-to-fixed remuneration cap for dual-regulated firms from 31 October 2023, ISS proposes deleting this section given the extremely limited number of UK companies still subject to the 'banker's bonus cap'.

ISS expects to announce the final 2025 benchmark voting policy changes later in December. The updated policies will be effective for shareholder meetings held on or after 1 February 2025.

Sustainability

6. IFRS and FSB publish progress reports on corporate climate-related disclosures 

The International Financial Reporting Standards Foundation (IFRS) has published a report on progress on corporate climate-related disclosures, which considers companies’ adoption of standards issued by the International Sustainability Standards Board in 2023 and the ISSB's progress in achieving interoperability between its standards and other standards and frameworks. 

Following the Task Force on Climate-related Financial Disclosures completion of its remit in 2023, the IFRS report sets out alignment of company disclosures with the TCFD recommendations. The report also provides information on how companies in the 30 jurisdictions that are adopting ISSB Standards are transitioning between disclosures using the TCFD recommendations to using ISSB standards.

The report notes that:

• Over 1,000 companies have referenced the ISSB in their reports.
• 82 per cent of companies disclosed information in line with at least one of the 11 TCFD recommendations.
• Less than 3 per cent of these companies reported in line with all TCFD recommended disclosures. The IFRS believes this means investors are not currently receiving some material information needed to assess and price climate-related risks and opportunities (CROs).
• The most commonly reported TCFD recommendations were those on climate-related metrics and targets and board oversight.
• The least commonly reported disclosures were the resilience of the company’s strategy under different climate-related scenarios and the integration of CROs into overall risk management.
• Many asset managers and asset owners want or expect portfolio companies to transition to making disclosures prepared using ISSB Standards.
• Companies using disclosures prepared using ISSB Standards (rather than the TCFD recommendations) should also provide sustainability-related financial information as part of their general financial reports.

In addition, the IFRS Foundation has published an analysis of 30 jurisdictions' adoption frameworks. Key findings include:

• 29 jurisdictions with final or published proposals have included disclosure requirements relating to Scope 3 green-house gas emissions.
• 28 jurisdictions have included or are considering requirements for industry-specific disclosures.
• 90 per cent of jurisdictions have included or are considering requirements for disclosure of sustainability-related risks and opportunities over time although notable exceptions are Australia and Singapore, which are initially focusing only on climate-related disclosures.

Relatedly, the Financial Stability Board (FSB) has published its 2024 progress report which describes progress in the last year by the 24 FSB member jurisdictions, standard-setters and international organisations towards achieving globally consistent comparable climate-related disclosures. 

The FSB report finds that the number of public companies disclosing TCFD-aligned information continues to grow, but that more progress is necessary. In particular, there is a lack of information in company disclosures concerning the effect of climate change on company strategy and financial planning. 

The FSB report notes that several jurisdictions have taken concrete steps towards assurance requirements for sustainability reporting often with an explicit gradual transition from limited assurance to reasonable assurance. It notes that several jurisdictions are considering the upcoming global assurance standards in developing their own assurance framework.

7. HM Treasury consults on UK Green Taxonomy

HM Treasury has published a consultation on the UK Green Taxonomy.

The primary purpose of the consultation is to establish whether a UK Green Taxonomy would be additional and complementary to existing policies in meeting the objectives of mitigating greenwashing and channelling capital in support of the government's sustainability objectives.

The government is also seeking feedback on how to maximise the usability of a UK Green Taxonomy. A taxonomy is a classification tool that provides its users with a common framework to define which economic activities support climate, environmental or wider sustainability objectives.

Chapter 2 of the consultation seeks feedback on the use cases and how a UK Green Taxonomy could sit in the wider context of the UK’s sustainable finance framework and climate and environment policy. In particular, the government seeks views on whether a UK Green Taxonomy is a suitable tool for supporting the mobilisation of transition finance.

Chapter 3 seeks feedback on specific design challenges that will impact the overall usability of a UK Green Taxonomy. These cover international operability, environmental objectives and sectoral scope, the 'Do No Significant Harm' principle (to ensure that progress against one environmental objective does not cause significant harm to other environmental objectives), business practice safeguards, how to update the taxonomy and the desired level of governance and oversight. 

The consultation is open until 6 February 2025. 

8. The regulation of ESG ratings providers moves forward

The government has published a response to its consultation (see our briefing here) on a regulatory regime for ESG ratings providers. It has also published for comment a draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No 2) Order 2024.

The government has made some changes to its original proposals, confirming that providing an ESG rating will be a specified activity under the regulated activities regime in FSMA where that rating is:

• produced using an established methodology and a defined ranking system of rating categories;
• made available by an ESG rating provider; and
• likely to influence a decision to make a specified investment.

The regime captures ratings made available to UK users, both by providers located in the UK as well as providers based overseas.

Definitions such as "ESG rating” and "ESG opinion" have also been provided to add clarity.

The regime will also include a number of exclusions. These include the regulated products and services exclusion for firms creating an ESG rating as part of the development and delivery of another regulated activity. They will also include the ancillary non-commercial exclusion for ESG ratings produced as an integral part of journalistic, academic, or registered charitable activity.

The deadline for comments on the draft legislation is 14 January 2025.

9. Government publishes analysis of responses on Scope 3 emissions consultation

The UK government has published a summary of the responses to its October 2023 call for evidence on the benefits, costs, and practicalities of Scope 3 greenhouse gas (GHG) emissions reporting and the current Streamlined Energy and Carbon Report (SECR) regime (see AGC Update - Issue 43, Item 8). The government held the call for evidence to inform the development of the UK sustainability reporting standards (UK SRS), a consultation on which is expected in Q1 2025.

The report finds that almost all (95 per cent) of the respondents to the call for evidence agreed with the ISSB assessment of the value of Scope 3 emissions reporting as crucial for investors to assess climate-related risks and opportunities in relation to a company. The benefits of Scope 3 reporting identified by respondents include improved transparency and reputational benefits, using the data to identify emission hotspots and adopt targeted emission reduction approaches and benchmarking against competitors. Respondents also noted that the fact that Scope 3 often represented a significant majority of emissions was an important driver for reporting them. Notwithstanding those benefits, the cost of reporting Scope 3 emissions is an issue and key drivers of those costs include: internal staff time, data collection costs and IT costs, and external audit and verification costs. Respondents also noted that data challenges associated with reporting Scope 3 emissions included data access, data consistency and quality, data estimation, and expertise.

Over half (56 per cent) of respondents agreed with the approach to Scope 3 emissions reporting set out in the IFRS for Climate Related Disclosures (IFRS S2) and noted the benefits of common metrics for those using frameworks such as CDP and the Science Based Targets initiative. However, respondents also noted the need to consider interoperability with other reporting frameworks such as the EU’s Corporate Reporting Sustainability Directive. 80 per cent of respondents supported the use of the GHG protocol for the purposes of Scope 3 reporting.

Respondents were divided on the extent to which the SECR regime had met its original objectives, particularly given the changes in the reporting landscape since it was introduced. Just under two-thirds (65 per cent) of respondents to the question as to whether SECR had led to a reduction in energy use or emissions in their organisation said it had not. The most cited benefit of SECR was raising awareness of carbon accounting and emissions within organisations, which was particularly the case as SECR reporting is located in the annual report. Noting the costs of compliance with SECR (which varied depending on the size, structure, and complexity of the business), respondents suggested several options to streamline the regime including in relation to the role of IT and data collection, digitalisation of SECR reports, and avoiding overlaps with existing and planned policies. 

10. IFRS publishes guidance on sustainability disclosure standard S1

The IFRS has published guidance to support the implementation of its sustainability disclosures standard S1, which relates to disclosure of sustainability-related risks and opportunities (SROs). 

The guidance assists companies to identify material information about SROs that could reasonably be expected to affect their cash flows, their access to finance or cost of capital over the short, medium or long term. Under the ISSB standards, information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions of primary users such as investors, lenders and other creditors. (For more information about the ISSB standards, see Disclosures required under the IFRS's Sustainability Disclosure Standards (ISSB S1 and S2).)

The guidance explains that a company's dependencies and impacts on its resources and relationships can give rise to SROs that may affect its prospects. S1 explains that a company both depends on resources and relationships—such as human, intellectual, financial, natural, manufactured and social—throughout its value chain, and also affects those resources and relationships. This can contribute to the preservation, regeneration and development, or to the degradation and depletion of these resources and relationships. The guidance suggests a process for companies to follow that is closely aligned to the International Accounting Standards Board’s IFRS Practice Statement 2: Making Materiality Judgements, which companies already applying IFRS Accounting Standards will already use.

The guidance also sets out some of the considerations a company might make to drive connectivity between sustainability-related financial disclosures and a company’s financial statements as well as interoperability considerations for those applying the ISSB standards alongside other standards such as the European Sustainability Reporting Standards or Global Reporting Initiative Standards. In particular, the guidance states that the definition of 'material information’ in ISSB standards is aligned with the corresponding definition used in ESRS related to ‘financial materiality’.

11. European Commission publishes FAQs on sustainability reporting 

The European Commission has published a set of frequently asked questions on sustainability reporting under the Corporate Sustainability Reporting Directive and the Sustainable Finance Disclosure Regulation.

The FAQs are intended to clarify the interpretation of certain provisions on sustainability reporting introduced by CSRD and certain provisions of the SFDR. Through the FAQs, the Commission seeks to facilitate the compliance of stakeholders with the regulatory requirements in a cost-effective way and to ensure the usability and comparability of the reported information on sustainability.

In relation to sustainability reporting introduced by the CSRD, the FAQs include:

• An overview of the sustainability reporting requirements.
• Specific guidance on sustainability information to be reported under Articles 19a, 29a and 40a of the Accounting Directive (2013/34/EU).
• Guidance on assurance of sustainability statements and reports.
• Reporting guidance on key intangible resources, including that this information does not have to be included in the sustainability statement and may be provided in a different section of the management report.
• Requirements for third-country undertakings, including for third-country undertakings that are not required to comply with EU sustainability reporting requirements and want to exempt their EU subsidiaries from sustainability reporting under Articles 19a and 29a of the Accounting Directive.

The FAQs section on the SFDR confirms that financial market participants may assume that if an investee undertaking subject to CSRD reports an indicator as non-material, it does not contribute to the corresponding indicator of principal adverse impacts in the context of SFDR disclosures.

12. The EU Regulation on Deforestation-Free Products remains in limbo

After months of pressure from industry representatives and several third countries (including the United States, India and Brazil), the European Parliament has voted in favour of the European Commission's proposal to delay the EU Regulation on Deforestation-Free Products ((EU) 2023/1115) (EUDR) implementation timeline by one year. Additionally, eight amendments on key provisions, presented only one week before the plenary by the European People's Party have been adopted. The legislation will now be subject to inter-institutional negotiations and must be approved by the Council and Parliament before it can be enacted. However, if there is no agreement before the original implementation date, operators must comply with the regulations from 30 December 2024 until a resolution is reached.

By way of reminder, the EUDR, which entered into force on 29 June 2023, will prevent products and commodities from being placed or made available on the EU market or exported unless they are 'deforestation-free', have been produced in accordance with the legislation of the country of production and are covered by a due diligence statement. For further background, see our December 2023 update.

For more detail on the latest developments, including key takeaways and actions for in-scope companies, you can find our update here.

Equity Capital Markets

13. FCA publishes Primary Market Bulletin 52 focused on UK MAR

The FCA has published Primary Market Bulletin 52, which focuses on certain issuer obligations under the UK Market Abuse Regulation.

In PMB 52, the FCA:

• Highlights some recent observations from its live market monitoring concerning issuers' ability to identify and make public information that constitutes inside information under MAR.
  
  The FCA addresses three common scenarios where it has seen differing approaches by issuers: (i) offer processes, (ii) the preparation of periodic financial information and (iii) CEO resignations and appointments.
  
  The FCA also suggests steps that issuers can consider taking to ensure they are well prepared to correctly identify inside information in the highlighted scenarios and more widely. These include, amongst others: establishing a disclosure committee whose role is to determine and advise when information meets the threshold for inside information and determine the timing and content of announcements; training relevant employees, including those in the finance function, to enable them to recognise when inside information meets the threshold; and ensuring that information classified as inside information is promptly controlled and managed appropriately, including the timely creation and updating of insider lists.
• Considers the dissemination of information by issuers during shareholder calls and meetings, in particular the use of communication apps (such as WhatsApp or LinkedIn) to interact with groups of smaller private shareholders.
  
  The FCA reminds issuers of the application of MAR in this context and sets out steps issuers can take to limit the risk of unlawful disclosure of inside information or market manipulation through misleading statements where issuers do communicate privately with shareholder groups. These include, amongst others: avoiding scheduled calls or making communications during closed periods where information involved with the preparation of financial reports could constitute inside information; and ensuring that communications take place shortly after an issuer has published a financial report or update to the market so that management can closely align its messaging with those statements.
• Discusses the dissemination of regulatory information by issuers during interruptions to Primary Information Provider (PIP) services (also referred to as a Regulatory Information Service) and includes actions for issuers to consider so they can be prepared in the event of a PIP outage, such as setting up a second PIP account.

For more detail, please access our update here.

14. Government publishes outcome of PISCES consultation 

As part of the Chancellor’s Mansion House announcements, the government has published its response to the outcome of the Private Intermittent Securities and Capital Exchange System (PISCES) consultation. By way of reminder, the PISCES consultation, which was published under the previous government in March 2024, put forward proposals for a new type of regulated trading platform to allow private companies to trade their securities in a controlled environment and on an intermittent basis. PISCES is billed as an important part of the government's strategy to reinvigorate UK capital markets – allowing private companies to scale up and grow and supporting the pipeline of future IPOs. The government's response follows the Chancellor’s announcement in the Autumn Budget that PISCES transactions will be exempt from Stamp Duty and Stamp Duty Reserve Tax. 

The PISCES model

The government has confirmed that it intends to largely proceed with the approach originally set out in the consultation, but with a significant update relating to the proposed PISCES market abuse regime. Following feedback, instead of the public market style market abuse regime originally proposed, the PISCES regime will rely on a set of core disclosures, which will be detailed in FCA rules. It is intended that these disclosures will provide some level of standardised information to investors, without imposing disproportionate costs on companies and other market participants.

Key features of the PISCES model include the following:

• PISCES will operate as a secondary market, facilitating the trading of existing shares in intermittent trading windows (for example, ad hoc, quarterly, biannually, annually etc.). PISCES will not facilitate capital raising through the issuance of new shares.
• Only shares in companies whose shares are not admitted to trading on a public market, either in the UK or abroad, can be traded on PISCES. This includes UK private and public limited companies and overseas companies. PISCES operators will determine any admission requirements for their markets, including any minimum corporate governance requirements.
• Only institutional investors, employees of participating companies and investors who meet the definition of high net-worth individuals and self-certified or certified sophisticated investors under the Financial Promotion Order (FPO) will be able to buy shares on PISCES.
• A new FPO exemption will be introduced to cover PISCES disclosures, based on the exemptions available for promotions included in mandated public market disclosures.
• Companies will not be able to carry out buybacks on PISCES, though the Government will explore whether to allow this optionality at a later stage.

This consultation response is published alongside a draft Statutory Instrument that will establish the PISCES Sandbox and set the regulatory requirements for PISCES, alongside FCA rules once finalised. An accompanying policy note seeks to illustrate how the Government intends to legislate to set up the PISCES Sandbox. 

The government welcomes technical comments on the draft legislation by 9 January 2025. Subject to technical feedback, the PISCES legislation is expected to be introduced by May 2025. The FCA will publish a consultation on its proposed rules for PISCES in due course. 

Regulation in practice – Market Abuse

15. Senior executive fined for share dealing during closed period and failing to notify transactions

The Financial Conduct Authority has published a Final Notice and announced that it has fined a former senior manager, Andras Sebok, at Wizz Air Holdings plc £123,500 for trading in the company's shares on multiple occasions during closed periods before the announcement of financial results, in breach of Article 19(11) Market Abuse Regulation (EU) No 596/2014 (EU MAR). He also failed to notify personal trades in breach of Article 19(1). Mr Sebok was Chief Supply Chain Officer at Wizz Air Holdings, with his reporting line one step removed from the Chief Executive Officer.

The sanction constitutes the first fine for a person discharging managerial responsibilities (PDMR) for breaching Article 19(11) and only the second time a PDMR has been fined for failing to disclose personal trades under Article 19(1) (for the Final Notice in relation to the first such fine of £45,000 for Kevin Gorman, click here).

Relevant facts

Mr Sebok was found to have breached Article 19(11) by trading in Wizz Air shares on 18 separate occasions between April 2019 and November 2020 during several closed periods prior to announcement of the company's interim and year-end financial reports. By way of reminder, EU MAR (like its UK equivalent) restricts PDMR from dealing in an issuer's securities during a period of 30 days before the announcement of an issuer's annual or half-yearly financial reports other than in exceptional circumstances and with authorisation from the issuer. 

Between April 2019 and November 2020, Mr Sebok also failed to notify Wizz Air and the FCA of 115 transactions in Wizz Air shares within three working days, or at all. By way of reminder, Article 19(1) requires PDMRs and persons closely associated with them to notify the company and the FCA of all transactions conducted on their own account relating to the company's shares and other securities within prescribed time limits. The executive's failure to notify Wizz Air of these trades meant that the company was unable to announce the transactions to the market in a timely fashion in accordance with Article 19(3). In addition, the executive failed to seek prior authorisation from Wizz Air as required by its internal share dealing code, which resulted in the company not being given the opportunity to approve or reject his personal account dealing.

Issues of wider significance

Relevant issues of wider significance to issuers include:

• The executive had received, on multiple occasions over an 18 month period, emails which reminded him of his obligations as a PDMR, referred to the company's share dealing code and which reminded him of the commencement of closed periods.
• The emails attached, as part of the company's share dealing code, the company's rules on share dealing, an acknowledgement form for the share dealing code, a clearance to deal from and a notification of dealing form.
• The executive's contract of employment contained a section entitled 'Dealing in securities' which required adherence to MAR as implemented by the company's share dealing code.
• The FCA felt it was reasonable to expect Mr Sebok to understand the emails and pay close attention to them and to read important documents such as his contract of employment setting out his regulatory obligations. As such, the FCA considered the Mr Sebok was 'properly informed' of his PDMR obligations. Notably, he was not provided with any individual training.
• It was the FCA which informed the company of the relevant trading. On investigation by the company, Mr Sebok failed to provide an explanation for his conduct and was dismissed. The company then announced his trades to the market.
• The FCA did not identify any personal financial benefit to Mr Sebok derived from the breach.
• The fine imposed on Mr Sebok was discounted by 30 per cent, reflecting early agreed settlement with the FCA.

Authors: Will Chalk, Partner; Rob Hanley, Partner; Becky Clissman, Counsel, Marianna Kennedy, Senior Associate;, Vanessa Marrison, Expertise Counsel, Shan Shori, Expertise Counsel