Read on for the latest news and updates in company law, corporate governance, equity capital markets, audit and narrative reporting.
Law Commission review and report on electronic signatures
In response to the perception that the law on electronic signatures is unclear, The Law Commission has published a report on its findings, together with a useful summary. The Commission’s statement of the law applies both where there is and is not a statutory requirement for a signature and is not restricted to commercial and consumer documents. The Commission has also recommended:
that the Government should convene an industry working group with the aim of providing practical guidance on the use of electronic signatures in commercial transactions;
that group should also consider practical solutions for witnessing by video link; and
that the law on deeds should be reviewed more generally.
Equity Capital Markets
FCA publishes proposals for action on climate change and green finance
The Financial Conduct Authority (FCA) has published a Feedback Statement (FS19/6) summarising the responses to its Discussion Paper (DP18/8) which sought views on potential FCA action on climate change and green finance.
- consulting in early 2020 on new disclosure rules for certain listed issuers aligned with the Task Force on Climate-related Financial Disclosures' (TCFD) recommendations, as well as clarifying existing disclosure obligations relating to climate change risks. This aligns with the Government’s expectation in its Green Finance Strategy that all listed issuers disclose in line with the TCFD’s recommendations by 2022;
- publishing a response to its joint Discussion Paper (DP19/1) with the Financial Reporting Council (FRC) on stewardship which will set out actions to help address some of the most significant barriers to effective stewardship; and
- challenging firms where the FCA sees potential "greenwashing" – i.e. where financial products are marketed as sustainable but which are not, in fact, materially different to products that do not have such a label – and issuing guidance and taking action to prevent consumers being misled.
The FCA will provide an update on its work in this area as part of the report it will submit to the Department for Environment, Food and Rural Affairs in 2021.
NEX Exchange publishes revised Growth Market Rules and Corporate Adviser Handbook
NEX Exchange has published an update to the Growth Market Rules for Issuers (Issuer Rules) and to the Corporate Adviser Handbook (Handbook) – both are now in force. Marked-up versions of the Issuer Rules and of the Handbook have also been published.
The revised Issuer Rules:
- incorporate the early suitability review process previously set out in the NEX Exchange Practice Note;
- introduce a revised procedure for the submission of application documentation; and
- set out a process by which the NEX Exchange will make a pre-admission announcement on a RIS on behalf of an applicant.
FRC thematic reviews
FRC publishes thematic reviews of Impairment of Non-financial Assets disclosures
The FRC believes that companies have responded positively to the newly introduced reporting requirements for revenue recognition and financial instruments but there is still considerable scope for them to improve the quality of their annual report disclosures. The findings relate to three thematic reviews analysing companies' disclosures to meet the new requirements as well as existing requirements on the Impairment of Non-financial Assets, specifically:
- IFRS 9 – "Financial Instruments"
- IFRS 15 - "Revenue from contacts with customers"; and
- Impairment of Non-financial Assets.
FCA proposes changes to its Handbook
The FCA has published a Quarterly Consultation (CP19/27) proposing various amendments to its Handbook including:
- to the FCA Handbook generally, to update references to the UK Corporate Governance Code; and
- to the Disclosure Guidance and Transparency Rules sourcebook, to implement the European Single Electronic Format – a further update on which can be found in AG's Governance & Compliance update - Issue 143.
Responses to the consultation are requested by 1 November 2019.
Market Abuse Regulation
FCA's Market Watch focuses on insider lists and access to inside information
The FCA has published the 60th edition of its Market Watch magazine where it considers insider lists and the control of access to inside information as required by Article 18 of the Market Abuse Regulation (MAR) and in light of the conviction for insider dealing of a former compliance officer at a major investment bank.
The FCA uses the publication to issue a reminder that it is crucial for it to be able to establish who had access to inside information at a particular point in time. Nevertheless, it frequently encounters insider lists omitting the names of people who were provided with or who had access to inside information as well as evidence of individuals not named on relevant insider lists accessing inside information. It views such an inability to respond accurately to a regulatory request as an indication of underlying weaknesses in systems, procedures and policies.
ESMA consultation on MAR
The European Securities and Markets Authority (ESMA) has published a consultation on MAR in which it calls for views on various issues including:
- Inside information – How easy (or otherwise) is it for issuers to determine whether inside information exists? Is the definition of inside information "sufficient for combatting market abuse"?;
- Delaying disclosure – Do the conditions for delaying disclosure function properly? Should issuers be required to have in place systems and controls for identifying, handling and disclosing inside information?;
- Insider lists – Should insider lists be limited to those who have accessed inside information as opposed to those who have access to it? Should the insider list regime be expanded to include any person with access to inside information, irrespective of whether they act on behalf or on account of the issuer – such as auditors? What value is the list of permanent insiders?
- PDMR transactions – Should the closed period regime prohibiting transactions be extended to issuers and the closely associated persons of PDMR? Should further exemptions to the closed period prohibition on dealing be introduced?
- Market soundings / buy-back programmes – Questions are raised here as regards the scope and potential simplification of both regimes.
Feedback is requested by 29 November 2019. Whether any resultant changes to MAR are of application in the UK depend on Brexit and the nature of any such departure from the EU.
AG publishes latest Governance & Compliance updates
We have recently published two further updates focused on Governance & Compliance. Issues of note not set out in the body of this edition of Corporate News include in Issue 143:
- the Quoted Companies Alliance report on the role of non-executives in growth companies and updated guidance for audit committees;
- the creation of the "Men as Change Agents Board" focused on diversity;
- the Investment Association's new guidelines on executive pension contributions;
- the FRC Lab's report on cash disclosures for investors; and
- the FRC's letter to audit committee chairs and FDs in relation to a "no-deal" Brexit.
And in Issue 144:
- proposed changes to ISS's voting policy to increase gender diversity and Rem Com disclosure;
- the FCA providing an update on the European single electronic format for annual financial statements through the publication of Primary Market Bulletin - Issue 24 in which it also provides a reminder of the Brexit-related changes that issuers and advisers should be aware of if the UK leaves the EU without a transitional arrangement; and
- the London Stock Exchange launching its "Green Economy Mark".
FRC issues revised standard on going concern
The FRC has published a revised going concern statement – the 'International Standard on Auditing (ISA) (UK) 570' – in response to recent enforcement cases and corporate failures where the auditor's report failed to highlight concerns about the prospects of entities which collapsed shortly after. The revised standard therefore increases the work auditors are expected to do when assessing whether an entity is a going concern. The FRC believe that this means UK auditors will follow significantly stronger requirements than those required by current international standards.
The revised standard requires:
- greater work on the part of the auditor to more robustly challenge management's assessment of going concern, thoroughly test the adequacy of the supporting evidence, evaluate the risk of management bias, and make greater use of the viability statement;
- improved transparency with a new reporting requirement for the auditor of public interest entities, listed and large private companies to provide a clear and positive conclusion on whether management's assessment is appropriate, and to set out the work they have done in this respect; and
- a stand back requirement to consider all of the evidence obtained, whether corroborative or contradictory, when the auditor draws their conclusions on going concern.
The standard is effective for audits of financial statements for periods commencing on or after 15 December 2019. Earlier adoption is permitted.
Narrative & Financial Reporting
A rough guide to the "new" Miscellaneous Reporting Regulations 2018
In response to a number of questions, we have published a rough guide to the scope of the Companies (Miscellaneous Reporting) Regulations 2018 (2018 Regulations). This is designed to assist in the initial analysis of which companies are required to enhance their disclosures in accordance with the 2018 Regulations, including the need to produce a section 172(1) statement and, for "very large" companies, publish a statement of governance arrangements. By way of reminder, the 2018 Regulations apply to financial periods beginning on or after 1 January 2019. Additional guidance can be found in the BEIS Q&A on the 2018 Regulations, which was last updated in November 2018.