Included in this issue: Duty to report on payment practices and performance; Final gender pay gap reporting rules unveiled; Implementation of the Non-financial Reporting Directive and more...

Company Law

Duty to report on payment practices and performance

The Department of Business, Energy and Industrial Strategy (BEIS) has published the government's response to its consultation paper seeking views on the duty to report on payment practices and performance. As part of its response, BEIS has also published the draft regulations for companies and LLPs. The regulations differ significantly from those previously published and will apply to financial years of qualifying businesses which commence on or after 6 April 2017.

Among other things:

  • the revised draft regulations apply to large companies and large LLPs only;
  • the required information must be published through a website / portal provided by the government to ensure that it is readily accessible by third parties – therefore disclosure on company websites is not mandatory;
  • businesses in scope will be required to publish reports twice yearly rather than, as originally proposed, quarterly and within 30 days of the end of each qualifying six month period; and
  • failure to report or reporting falsely will be a criminal offence with businesses and directors potentially liable to a fine. All directors will be liable unless they can show they took all reasonable steps to ensure the requirement would be met.

For more detail, please read our Governance & Compliance update.

Final gender pay gap reporting rules unveiled

The government has published the final draft of The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (Regulations), together with an Explanatory Memorandum. Supporting non-statutory guidance for employers will be published after the Regulations have been approved by Parliament. The intention is that the Regulations will come into force on 6 April 2017. For more detail, including a link to the Regulations, please read our Employment update.

Financial Reporting

Implementation of the Non-financial Reporting Directive

The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016, which implement part of the EU Non-Financial Reporting Directive have been made by Parliament and apply to the financial years of relevant companies and qualifying partnerships beginning on or after 1 January 2017.

There have been no substantive changes from the draft published earlier in the month. For more detail, please read our Governance & Compliance update issued on the publication of the previous iteration of the regulations.

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FRS 101 and FRS 102: amendments to notification of shareholders requirements

The Financial Reporting Council (FRC) has published amendments to FRS 101 (Reduced Disclosure Framework) and FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland). The amendments remove the requirement for a qualifying entity to notify its shareholders in writing that it intends to take advantage of the disclosure exemptions in FRS 101 and FRS 102. The amendments apply for accounting periods beginning on or after 1 January 2016.

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FRC Reporting Lab report on policy and practice of dividend disclosure

The Reporting Lab of the FRC has published a report which examines how companies have responded to investor calls for better disclosure of dividends and in light of the Reporting Lab's "Disclosure of dividends – policy and practice" report of November 2015. For more detail, please read out Governance & Compliance update.

Presenting performance: The journey to greater clarity

From adjusted EBIT, to like-for-like sales, non-GAAP alternative performance measures (APMs) can provide valuable information on a company’s performance. This year, new requirements put the focus on transparency of APM reporting. A KPMG survey of half-yearly reports suggests companies are responding – there is a direction of travel – but the FRC has highlighted concerns that, for some companies, there may still be a way to go. Reproduced with KPMG's kind permission.

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Equity Capital Markets

AIM Regulation statement: Social media and disclosure obligations

AIM Regulation has published an Inside AIM update on how social media (such as "twitter", a company's website and other non-regulatory news feeds) interacts with the disclosure obligations under the AIM Rules, clarifying that these forms of communication are subject to the same rules regarding disclosure of regulatory information. For more detail, please read our Governance & Compliance update.

AIM company censured and fined for breach of AIM Rule 31

The London Stock Exchange (LSE) has announced that an AIM company has been privately censured and fined £75,000 for breaching Rule 31 (AIM company and directors' responsibility for compliance with rules). The disciplinary notice states that the AIM company failed to:

  • provide its nomad with information reasonably required to carry out the nomad’s responsibilities owed to the LSE;
  • seek its nomad’s advice regarding compliance with the AIM Rules when it was appropriate to do so; and
  • inform its nomad and seek advice regarding a series of business developments. The AIM Disciplinary Committee held that it was not appropriate for the company to decide whether or not the business developments were disclosable based solely on its own assessment of its obligations under the AIM Rules, without reference to its nomad.

For more detail, please read our Corporate Finance News update.

DTR 6 to require publication of certain details when filing all regulated information with the FCA

The Financial Conduct Authority (FCA) has published a consultation paper which will require all issuers to supply a legal identifier number and a classification for all regulated information filed with the FCA after 1 January 2017. This is to enable the EU wide regulatory information portal (known as the European Electronic Access Point) to be able to work as envisaged when it comes on-line on 1 January 2018. In short, Chapter 6 of the Disclosure Guidance and Transparency Rules (DTRs) will be augmented with the new requirements in early 2017 but the FCA will enable issuers to comply with effect from 1 January 2017 (it would appear without any obligation on them to do so). More detail can be found in our Governance & Compliance update.

FCA consults on DTR 2.5 changes in relation to delaying disclosure

Further proposed amendments to the DTRs have been set out for consultation in CP 16/38. The FCA believes that the changes are required to ensure compliance with the guidelines issued by the European Securities and Markets Authority (ESMA) on delay in the disclosure of inside information under the Market Abuse Regulation. The consultation is open until 6 January 2017. For more detail, please read our Governance & Compliance update.

ESMA revises MAR Q&A in relation to PDMR transactions and investment recommendations

The ESMA has published a revised version of its Q&A relating to the EU Market Abuse Regulation No. 596/2014 (MAR). New Q&As deal with, among other matters:

  • the fact that the transactions of PDMR and those "closely associated" with them should not be aggregated for the purposes of triggering the threshold for notification in Article 19(1) of MAR. However, prevailing market practice is to ignore the threshold and disclose all transactions of PDMR and those closely associated with them;
  • how to calculate the price of gifts, donations and inheritance for the purposes of Article 19(1); and
  • where shares are received by a PDMR as part of a remuneration package only upon the occurrence of certain conditions, notification in accordance with Article 19(1) is required upon the occurrence of the conditions and the execution of the transaction, as opposed to on entering into the remuneration agreement itself.

Further new Q&As also deal with the various aspects of the MAR investment recommendation regime.

Executive Remuneration

Investment Association: principles of remuneration 2017

The Investment Association (IA) has published its 2017 principles of remuneration (the principles) which include significant changes, mostly made in response to the working group's final report and to acknowledge the need for increased flexibility of remuneration structures. These include:

  • new guidance on restricted share awards;
  • updated guidance on the level of remuneration;
  • amended guidance on remuneration structures. Previously, there had been a recommendation to have an annual bonus plan and one long-term incentive plan – this has been replaced by guidance that the remuneration committee should select a remuneration structure which is most appropriate for the specific business, and efficient and cost effective in delivering its longer-term strategy;
  • a new requirement for remuneration committees to consider requiring directors to continue to hold shares after they leave the company; and
  • a new requirement that remuneration committees should respond to a significant vote against their remuneration report (more than 20% of votes against) and seek to understand the reasons for the dissent and publish its explanation including an outline of what is being done to address the dissent.

In a covering letter to remuneration committee chairmen, the IA, as well as summarising the main changes to the principles, lists a number of issues to consider for 2017 AGMs. These include that:

  • the levels of remuneration awarded to executive directors continues to be an area of particular concern for members;
  • full retrospective disclosure of bonus targets and the failure to disclose these fully will be highlighted by the IA's corporate governance research service as a "red top" issue; and
  • there has been a lack of progress on pensions, and where pension contribution rates for executives and the general workforce differ, the differences should be clearly justified.


First director disqualification secured by CMA under the Company Directors Disqualification Act for beach of competition law

Under the Company Directors Disqualification Act, the Competition and Markets Authority (CMA) has the power to seek to disqualify a director of a company that has breached competition law. Whilst the CMA has had the ability to apply for such a competition director disqualification order (CDDO) since 2003, this is the first time it has used the power. In this case, the director in question offered a disqualification undertaking to the CMA (for a 5 year period) which the CMA are able to accept in place of bringing proceedings. A disqualification undertaking will usually involve a shorter disqualification period from the maximum period under a CDDO of 15 years. This is a clear message from the CMA that they are prepared to take a hard line with individuals and companies for a breach of competition law. Further details can be found in the CMA's press release.

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. 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. The deadline for responding to the Green Paper is 17 February 2017.

Simple language and clear reporting essential for companies

UHY Hacker Young and the Quoted Companies Alliance (QCA) have published their ‘Corporate Governance Behaviour Review 2016’, which advises small and mid-sized quoted companies to use plain language and clear reporting in their annual reports in order to build trust among investors, and potentially lower cost of capital.

The review benchmarks the corporate governance disclosures made from a random selection of 100 small and mid-sized quoted companies against the minimum disclosures set out in the QCA’s standard corporate governance code.

Key Contacts

Nicky Higginbottom

Nicky Higginbottom

Principal Knowledge Lawyer, Corporate
Leeds, UK

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