Included in this issue: FCA publishes mission document; Minor amendments to the Takeover Code published; BEIS Select Committee publishes report on Corporate Governance and more...

Equity Capital Markets

FCA publishes mission document 

The Financial Conduct Authority (FCA) has published a mission document, together with its business plan for 2017-2018 and a document entitled: 'Sector Views 2017'.

The mission document aims to provide firms and consumers with greater clarity as to how the FCA prioritises its interventions in financial markets.

The business plan sets out the specific work that the FCA is prioritising for the coming year.

'Sector Views 2017' highlights the issues and developments the FCA sees in the sectors it regulates. In particular, the FCA reiterates its view that improvements need to be made in relation to the IPO share allocation process and availability of information during the IPO process, an issue covered in more detail in our last edition.

Announcements of regulated information to require further information from October 2017

The FCA has set out its response to proposed changes to Chapter 6 of the Disclosure Guidance and Transparency Rules (proposed in CP16/39) as well as publishing final rules. More detail on the proposals, which require the addition an LEI (legal entity identifier) and the use of a classification system when disclosing regulated information, can be found in our Governance & Compliance update published at the time the consultation was launched. The handbook changes will come into force on 1 October 2017.

UKLA guidance notes: Primary Market Bulletin No. 17

The FCA has published its 17th Primary Market Bulletin which sets out feedback received to its call for views on sponsor conflicts in CP14/21. It also contains a consultation on various changes to the UKLA Knowledge Base, including amending an existing technical note relating to shareholder obligations to notify significant holdings under DTR 5.

In relation to sponsor conflicts, the FCA has concluded that while the current rules and guidance are, broadly speaking, operating effectively and are largely fit for purpose, it will continue to monitor sponsor fee structures. Moreover, it has launched a consultation to revise its existing guidance on this issue in various key respects. The consultation closes on 10 May 2017.

The FCA has also confirmed various changes to the UKLA Knowledge Base which were proposed in earlier editions of Primary Market Bulletin, including the:

  • amendment of six procedural notes and 12 technical notes;
  • addition of seven new technical notes; and
  • deletion of three existing technical notes.

Finally, the publication also contains a link to, and guidance on, the new TR-1 form which must be used for the notification of major holdings from 30 June 2017.

Market abuse: Tesco to compensate investors for false or misleading impression

The FCA has issued a Final Notice to Tesco plc and Tesco Stores Limited requiring Tesco to pay compensation to investors who suffered loss as a result of market abuse committed by Tesco in relation to a trading update published in August 2014. This is the first time that the FCA has used its powers under the Financial Services and Markets Act 2000 to require a listed company to pay compensation for market abuse.

Public M&A

Takeover Panel amends Practice Statement No. 20

The Takeover Panel Executive has made certain amendments to Practice Statement No. 20: Rule 2 – Secrecy, possible offer announcements and pre-announcement responsibilities. The changes:

  • clarify that the requirement to consult the Executive before more than a total of six parties is approached about an offer or possible offer continues to apply during an offer period in relation to a possible offer by any potential bidder which has not been publicly identified (see paragraph 8.2); and
  • confirm that, if a shareholder (or other relevant person) is approached before an offer period begins and the meeting relates to a possible offer (or would not be taking place but for the possible offer), the meeting will need to be attended by a financial adviser or corporate broker and may require a written confirmation to be sent to the Takeover Panel as specified by Rule 20.2(c) or Note 1 on Rule 20.2.
Minor amendments to the Takeover Code published

Minor amendments have been made to the Takeover Code (Code). As the Code Committee does not consider the amendments to be material, they have been made without formal consultation.

Instruments 2017/1 and 2017/2 have made the following changes:

  • section 4(a) has been amended to reflect the name change of the National Association of Pension Funds to the Pensions and Lifetime Savings Association;
  • section 8 has been amended to remove any overlap with the Rules of the Takeover Appeal Board;
  • sections 3(a)(i) and (ii) of the Introduction have been amended to clarify that, where a company's securities are or have been admitted to trading on a multilateral trading facility in the United Kingdom, the Code will apply only if the company has approved trading, or requested admission to trading, of its securities on the relevant multilateral trading facility;
  • rules 24.3(a) and 28.5 have been amended to reflect the name change of ISDX Growth Market to NEX Exchange Growth Market; and
  • Appendix 7 has been updated to reflect the abolition of takeovers implemented by cancellation schemes of arrangement, following the amendment of the Companies Act 2006.

These and other minor amendments will take effect on 2 May 2017.

Takeover Appeal Board takes further action in relation to Rangers International Football Club Plc

The background to this issue was set out in the previous edition of CF News. In short, the Takeover Panel Appeal board ordered Mr David King to make a mandatory offer under Rule 9 of the Code in relation to Rangers International Football Club Plc (Rangers) by 12 April 2017. On 13 April 2017, the Panel announced that it was to commence legal proceedings to require Mr King to comply with the ruling.

Corporate Governance and Compliance

BEIS Select Committee publishes report on Corporate Governance

The Select Committee of the Department of Business, Energy and Industrial Strategy has published its report on Corporate Governance having launched an inquiry in September 2016 following the high-profile governance failings in BHS and Sports Direct and in light of the Prime Minister's commitment to bring forward measures to tackle corporate irresponsibility. The Financial Reporting Council (FRC) has welcomed the report, as has the Institute of Directors (IoD). Once the Government has responded to it, the FRC intend to commence a review of the UK Corporate Governance Code to "simplify and shorten it and set it on its course for the next 25 years". It remains to be seen the extent to which the government decide to take forward the proposals.

For a full summary of the report - click here

McGregor-Smith Review on race in the workplace

The McGregor-Smith Review on race in the workplace and the government's response to it have been published. The review makes a number of recommendations to improve diversity, including:

  • listed companies and businesses with more than 50 employees should publish five-year aspirational targets and report against them annually. They should also publish a breakdown of employees by race and by pay band both on their website and in their annual report;
  • the government should legislate to ensure that workforce data broken down by race and pay band is published and work with organisations such as the CBI and IoD to ensure that free, online unconscious bias training is available; and
  • businesses with more than 50 employees should identify a board-level sponsor for all diversity issues, including race, who should be held to account for the overall delivery of aspirational targets. To ensure this happens, Chairs, CEOs and CFOs should reference what steps they are taking to improve diversity in the annual report.

In its response, the government states that it believes that a non-legislative solution is the right approach for the time being but that it will monitor progress. It notes that companies are already required to use the strategic report to document information about their employees and social and community issues and that companies can choose to report information such as diversity of their employees as part of this. Alternatively, investors could ask for diversity information to be included or ask for it to be provided at the AGM.

ICAEW update realised and distributable profits guidance

The Institute of Chartered Accountants in England and Wales and the Institute of Chartered Accountants of Scotland has published TECH 02/17, containing updated guidance on realised and distributable profits under the Companies Act 2006 and all relevant secondary legislation. The ICAEW has also published marked-up versions of the guidance to show the changes made.

Payment Practices

The Small Business Commissioner – Payment complaints scheme established

As previously reported, new regulations on payment practices for companies and LLPs came into force in April 2017. For further detail, please read our overview. Small businesses (those with fewer than 50 employees) also have the ability to complain to the UK’s Small Business Commissioner (SBC) about the payment practices of larger businesses.

Although the SBC does not have the ability to impose a binding judgment, it does have the ability to “name and shame” those businesses which are the subject of complaints. The aim of the SBC is to help small suppliers and customers work through their payment issues. If large customers take a positive approach in dealing with the SBC, then this will help to avoid the reputational damage of being named by the SBC in a report.

For a summary of the key points relating to the SBC regime – click here

Financial Reporting

Investors reminded of developments in financial reporting

The FRC has written to institutional investors ahead of the 2017 shareholder meeting season in order to highlight recent developments in narrative and financial reporting. In particular, the letter focuses on issues relating to:

  • the strategic report;
  • governance reporting;
  • audit committee reports; and
  • financial statement disclosures.