Included in this issue: FCA policy statement on prohibition of restrictive contractual clauses; Changes to the PSC regime made in a hurry; Takeover Panel issues statement dealing with collective shareholder action and more... 

Equity Capital Markets

FCA policy statement on prohibition of restrictive contractual clauses

The Financial Conduct Authority (FCA) has published a policy statement (PS17/13) as well as final rules which will prohibit the use of certain clauses by investment banks / corporate finance advisers which seek to restrict a client's choice of future providers of primary market services (such as debt capital market, equity capital market and M&A services). This follows the FCA's October 2016 report which found that some practices of primary market providers could hinder competition (for more detail, see our update published at the time).

The ban applies to written agreements for unspecified and uncertain future services only, and excludes future service restrictions in bridging loans. It also applies irrespective of the size of the client company.

Specifically, the FCA is seeking to prohibit "Rights of first refusal" – the contractual right for an adviser to be given the opportunity to enter into a business transaction with a company before anyone else can; thus, the client company is prevented from accepting offers to act from third parties. The FCA has determined that "Rights to match" clauses are acceptable to the extent that they only create a right for the advisory firm to be approached following a third-party offer in order to be able to match that offer, with the client company ultimately deciding which firm to select to provide the services.

The new rules, which accompany the policy statement, come in to force on 3 January 2018 and will apply to all agreements entered into after that date. 

ESMA reports that prospectus approvals continue to decrease

The European Securities and Markets Authority (ESMA) has published its annual report on prospectus activity for 2016, noting that prospectus approvals across the EEA fell by approx..8.5% from 2015 to 2016, continuing the overall decreasing trend since the start of the financial crisis.

From the prospectuses approved, 40% were in the form of base prospectuses and 91% were drawn up as single documents as opposed to tripartite prospectuses. Almost 75% of approved prospectuses related to non-equity securities, with the most frequent security type being debt securities with a denomination of at least €100,000.

The amount of prospectuses passported to one or more host countries declined by around 11% from 2015 to 2016, with Germany and Luxembourg accounting for the majority of prospectuses passported to other EEA countries in 2016. Against this background, it might be argued that the reforms mentioned in the next item, are not before time.

Aspects of the Prospectus Regulation in force on 20 July 2017

The final text of the new Prospectus Regulation (No.2017/1129) has been published. As reported in previous editions, the Regulation will govern the need to produce a prospectus as well as the content requirements and approval process for such documents. Its primary intent is deregulatory; as part of the EU's Capital Markets Union Action Plan, it seeks to facilitate access to capital markets, particularly by SMEs, by reducing the cost and administrative burden the current regime places on them.

Most of its provisions will apply from 21 July 2019, although there are some notable exceptions including:

  • as from 20 July 2017, the threshold below which issues of shares of the same class which are to be admitted to trading on a regulated market (e.g. the main market) in a 12 month period which will be exempt from the need to issue a prospectus will be increased from 10 to 20%; and
  • as from 21 July 2018, it will be permissible to exempt certain offers to the public which do not exceed €8m in a 12 month period. If adopted, this would raise the current threshold from €5m.

The EU needs to produce a significant number of implementing standards before a complete picture of the extent of the other changes will emerge. And, of course, by 21 July 2019, the UK will have left the EU although it is anticipated that equivalent rules will be put in place.

CLLS and Law Society updates MAR Q&A

The City of London Law Society and Law Society Company Law Committees' Joint Working Parties (JWP) on Market Abuse, Share Plans and Takeovers Code has revised its Q&A which deals with aspects of the EU Market Abuse Regulation (MAR). 

The updated version includes a new Part C which deals with contractual arrangements in relation to a subscription for shares (for example, an issue of consideration shares in connection with an acquisition, an undertaking to subscribe for shares under a firm placing or signing an irrevocable undertaking in connection with a takeover) and the disclosure of inside information. 

Specifically, Part C deals with:

  • the ability of an issuer to selectively disclose inside information to a counterparty, which the JWP believes would typically be permitted;
  • the ability of an issuer to delay its disclosure to the market, which the JWP believes would also be permitted provided that each of the conditions in MAR (Article 17(4)) have been satisfied; and
  • the fact that the JWP would not typically expect the issuer to be required to disclose such inside information to the market before entering into the relevant contractual arrangements with the counterparty.

Naturally, the JWP highlight the need to consider facts on a case by case basis.

Public M&A/Takeover Code

Takeover Panel issues statement dealing with collective shareholder action 

The Takeover Panel has published a statement on the Panel Executive's ruling regarding the proposed appointment of new directors to the board of Petropavlovsk plc as proposed by certain shareholders of Petropavlovsk. The Executive was asked by Petropavlovsk to determine whether these shareholders and the proposed new directors would be acting in concert under Note 2 on Rule 9.1 of the Takeover Code (Code) and, if this was the case, whether any such persons had acquired any interests in the shares of Petropavlovsk triggering an obligation for a mandatory offer to be made under Rule 9.1 of the Code. 

Narrative Financial Reporting 

Commission sets guidelines on disclosure of non-financial information

The European Commission has adopted non-binding guidelines on the disclosure of non-financial information by relevant companies (for the most part, companies on regulated markets, banking and insurance companies with more than 500 employees), and published a set of FAQs. The aim is to help companies fulfil the requirement to disclose relevant and useful information on environmental and social matters in a consistent and more comparable way. For more detail on the regime – click here

Company Law

Changes to the PSC regime made in a hurry

To comply with the requirements of Article 30 (Beneficial ownership) of the Fourth Money Laundering Directive, changes were required to be made to the persons with significant control (PSC) regime. These changes came into force on 26 June 2017 and included amendments to the timing requirements for updating PSC registers, and extending the scope of the regime to pull in previously exempt companies, such as those on AIM, and also including other entities such as certain Scottish partnerships. Due to the General Election, the changes were made in a hurry. For an overview of the changes and the immediate actions to take click here. To access an updated version of our detailed PSC guide (originally published in February 2016) click here.


Pensions Regulator's BHS Report signals more interventionist approach

The Pensions Regulator's recent report on its involvement in the BHS affair signals an intention to be more proactive in the use of its regulatory powers in future.

Key Contacts

Giles Distin

Giles Distin

Partner, Corporate Finance
London, UK

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