Included in this issue: BEIS consults on further reforms to PSC regime; Autumn Statement 2016; Market trends in SPA consideration mechanisms and more...

Company Law

BEIS consults on further reforms to PSC regime

The Department for Business, Energy and Industrial Strategy (BEIS) is seeking views on its discussion paper outlining possible approaches to the transposition of the Fourth Money Laundering Directive requirement for EU member states to maintain a central register of beneficial ownership information of corporate and other legal entities. The deadline for responses is 16 December 2016.

The UK's current regime relating to the disclosure of persons with significant control (PSC regime) is already consistent with many of the Directive's requirements, but some amendments will be required. For example, BEIS is proposing to extend the current PSC regime to all entities that are incorporated in the UK and are constitutionally capable of having a beneficial owner. This would capture, amongst others: Scottish partnerships and limited partnerships, unregistered companies, building societies, friendly societies and open ended investment companies.

BEIS are also considering bringing AIM and ISDX companies within the PSC regime – i.e. requiring them to create and maintain a PSC register. While the Directive allows an exemption for companies listed on regulated markets, it does not expressly exclude companies quoted on prescribed markets, notwithstanding that they are subject to the same disclosure obligations in chapter 5 of the Disclosure Guidance and Transparency Rules.

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Budget

Autumn Statement 2016

The Chancellor has delivered this year's Autumn Statement. We have produced various updates including in relation to:

• tax; and
• employment.

M&A Trends

Market trends in SPA consideration mechanisms

Grant Thornton have produced a report, based on the views of more than 150 deal participants, which finds that there is currently a lack of common ground about what constitutes generally accepted market practice when agreeing equity value adjustments and how they are reflected in share purchase agreements.

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ECM – Delaying the disclosure of inside information

Delaying the disclosure of inside information - FCA publishes consultation

In October 2016, the European Securities and Markets Authority (ESMA) published final guidelines (Guidelines) setting out a non-exhaustive list of the legitimate interests of issuers that are likely to be prejudiced by the immediate disclosure of inside information and situations in which the delay of disclosure is likely to mislead the public in accordance with Article 17(11) of the EU Market Abuse Regulation (No.596/2014) (MAR). The Financial Conduct Authority (FCA) has now published a consultation containing proposals to amend Chapter 2.5 of the Disclosure Guidance and Transparency Rules (DTR) to ensure that its Handbook is consistent with the Guidelines. For more details, please read our Governance & Compliance update.

Corporate Governance

Corporate Governance reform - BEIS publishes Green Paper

BEIS has published a Green Paper which builds upon the inquiry into corporate governance and pay published in September 2016. The aim of the Green Paper is to consider what changes might be appropriate in the corporate governance regime to help deliver on the government's stated aim that the UK has an economy that "works for everyone". In doing so, it considers three specific aspects of corporate governance where there is scope to "build on and enhance the current framework":

• executive pay;
• strengthening the employee, customer and supplier "voice"; and
• corporate governance in the UK's largest privately held businesses.

The Paper also endorses Matthew Taylor's review of employment practices in the modern economy and the Hampton – Alexander and Parker reports on diversity (see below). For more details, please read our Governance & Compliance update. The Financial Reporting Council has indicated that it is likely to consult on changes to the UK Corporate Governance Code and associated guidance during 2017.

Narrative Financial Reporting

Non-financial Reporting Directive implementation

For an overview of the implementation and requirements of this Directive and the impact it will have on the Companies Act 2006 and the FCA Handbook, please read our Governance & Compliance update. Note that the requirements apply, with certain exceptions, to companies with, on average, over 500 employees which are either traded companies (i.e. have securities admitted to a regulated market such as the main market of the London Stock Exchange), banking companies or companies involved in the insurance sector. Relevant companies must comply with the requirements in relation to their financial years which commence on or after 1 January 2017.

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Alternative Performance Measures require clear definition

Since July 2016, guidelines issued by the European Securities and Markets Authority on the use of Alternative Performance Measures (APMs) in company reporting have applied to various communications made by listed companies. According to the FRC, while reporting which uses APMs has improved, its thematic review suggests that further improvements are required.

Financial reporting: FRC report on companies' tax reporting

The FRC has published a report following its review of certain aspects of tax reporting by large companies. For more detail, please read our Governance and Compliance update.

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IA guidelines on viability statements

The Investment Association (IA) has published new guidelines setting out the expectations of institutional investors in relation to viability statements prepared by companies under provision C.2.2 of the UK Corporate Governance Code. The guidelines include a number of recommendations concerning the period of the viability assessment, the prospects and risks considered when assessing viability and transparency around stress testing and qualifications and assumptions. For more detail, please read our Governance and Compliance update.

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IA public position statement on quarterly reporting

The Investment Association has also issued a public position statement setting out its views on interim management statements, in which it calls for companies to cease reporting quarterly. For more detail, please read our Governance and Compliance update.

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Diversity

FCA amends DTRs to require disclosure of diversity policy

The FCA has amended the DTRs to introduce a new rule, DTR 7.2.8A, to implement a further aspect of the Non-Financial Reporting Directive (see the first item under Narrative Financial Reporting above). This requires certain issuers to disclose their diversity policy in the corporate governance statement in their Annual Report. For more detail, please read our Governance & Compliance update. The new rule applies to relevant issuers with financial years beginning on or after 1 January 2017.

Government backs call for greater female representation in executive positions

The government and the FRC have welcomed a report - the Hampton-Alexander Report - which calls for FTSE 100 companies to set a voluntary target of at least 33% representation of women in executive pipeline positions by 2020. For more detail, please read our Governance & Compliance update.

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Ethnicity under-represented in the boardroom

The Parker Review, led by Sir John Parker, has found that directors of colour are vastly under-represented on the boards of the UK’s leading companies. The review committee believes that there are clear business reasons for increasing ethnic diversity on boards, and wants to see an end to ‘all-white’ boards of FTSE 100 companies by 2021. For more detail, please read our Governance & Compliance update.

Executive Remuneration

IA calls for disclosure on executive pay

An open letter from the Investment Association to all FTSE 350 companies sets out new shareholder expectations on executive pay. The open letter follows recommendations of the industry-led independent Executive Remuneration Working Group, which looked to address the issue of complexity surrounding executive pay. The IA’s Principles of Remuneration have been updated to pave the way for greater simplicity and flexibility of pay structures.

Shareholder Engagement

ISS 2017 Proxy Voting Guidelines updates

Institutional Shareholder Services has published an update to its UK benchmark proxy voting policies for 2017 which includes changes to the following policies:

• Overboarding: ISS's policy has been amended to clarify potentially ambiguous language as to the acceptable number of directorships, in particular, the total number of directorships viewed as acceptable for an individual holding one or more roles as a chair. The policy has also been amended to provide that an adverse vote recommendation in relation to a chair will not be generally applied at the company where the individual is chair;
• Remuneration: companies that seek to implement certain pay structures (for example non-performance related restricted shares) which sit outside of the typical UK model and which provide a greater level of certainty of reward should ensure that they are matched by lower award levels; and
• Breaches of remuneration good practice: ISS may recommend a vote against the chair of the remuneration committee (or, where relevant, another member of the remuneration committee) where a serious breach of good practice is identified, and typically where issues have been raised over a number of years.

The policies will apply to shareholder meetings taking place on or after 1 February 2017.

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FRC tiering of signatories to the Stewardship Code

The FRC has published its assessment of signatories’ reporting against the Stewardship Code, which categorises signatories into tiers based on the quality of their Code statements. The tiering exercise, which was announced in December 2015, was undertaken with the aim of improving the quality of reporting against, and maintaining the credibility of, the Stewardship Code, and encouraging greater transparency in the market. For more detail, please read our Governance and Compliance update.