Included in this update: FCA relaxation regarding timing of Interim results; CLBILS scheme extended but with restrictions and more...


The Financial Conduct Authority (FCA) has published its 28th Primary Market Bulletin which deals with the following headline issues:

  • Additional time to produce half-yearly financial reports – The FCA has confirmed that listed companies now have an additional month to publish half-yearly financial statements. Therefore, relevant companies now have four months within which to do so under DTR 4.2.2 before enforcement action will be taken against them, as opposed to three. The duration of this "forbearance" will be kept under review and the FCA will announce in due course how it will curtail the policy in a "fair, orderly and transparent" manner.
  • Market practice on going concern assessments – The FCA recognises the concern of issuers as to how to address COVID-19-related uncertainties in their "going concern" statements, and in relation to potentially negative market reaction when they or their auditor feels it necessary to include additional disclosures on the subject. The FCA reiterates the substance of its March joint statement with the Financial Reporting Council (FRC) and Prudential Regulation Authority that such additional disclosures are vital to ensure that investors are properly informed and that it is equally important that investors and intermediaries understand what these disclosures and any change to reporting calendars mean and react accordingly. 
  • Shareholder engagement – The FCA states that shareholders are likely to find it helpful if issuers are open about the implications of COVID-19 on their business, including through formal disclosures to the market in financial reports and trading updates. As regards alternative means of engagement, issuers should consider ways for shareholders to ask questions of management and exercise voting rights in virtual general meetings where they have the ability to do so. 
  • Capital raisings - The FCA also encourages issuers to contribute to delivering "soft pre-emption rights" by exercising their right to be consulted on, and to direct, bookrunners' allocation policies. 

FCA Market Watch No. 63 - market disclosure and discipline underlined

The FCA has published Market Watch Issue No.63 in which it sets out its expectations of market conduct in the context of an increased number of capital raising events and alternative working arrangements – such as working from home - due to COVID-19. In short, the FCA expects all market participants, including issuers, advisors and anyone handling inside information to continue to act in a manner that supports the integrity and orderly functioning of financial markets which includes complying with all obligations under the EU Market Abuse Regulation (MAR).

During the pandemic, the FCA is encouraging a particular focus by all market participants on:

  • ensuring inside information continues to be appropriately identified and handled by all persons involved in the information chain, particularly in the context of new capital raisings, so that it is not misused for insider dealing or for commercial advantage. Specifically, the FCA highlights:
    • the issue of adequate procedures, systems and controls to comply with MAR disclosure obligations;
    • the identification of inside information, highlighting that COVID-19 and public policy responses to it may alter the nature of information that is material to a business's prospects, and that is material in the context of any recapitalisation. The FCA states that issuers should carefully judge what information a reasonable investor would now be likely to use as part of an investment decision, such as detail on future financial performance and access to finance and funding and an ability to continue or resume business. Issuers should also carefully monitor whether any new information is materially different from previous forecasts, guidance, or signals announced publicly and which would now be likely to be misleading to investors, such as missing previous forecast earnings, revenue, or related KPIs. If so, issuers should consider whether the new information is inside information and whether they must disclose it as soon as possible;
    • insider lists and the need to consider issuing reminders of, and run training on, what it means to be included on one;
    • the need to disclose inside information as soon as possible (subject to instances where it can be delayed) even where additional flexibilities have been used in relation to the reporting of financial information – i.e. the additional time permitted by the FCA for issuers to produce annual and half yearly reports;
    • the prudence of keeping contemporaneous records of decisions and actions justifying the timings of disclosure: and
    • the need to satisfy all MAR Article 17(4) conditions in order to be able to delay disclosure of inside information and the fact that where an issuer has made previous statements or given signals that have created market expectation, it would be likely to mislead the public if the disclosure the issuer intends to delay is materially different from those statements or in contrast to those expectations. Issuers should also consider whether new working patterns mean extra arrangements are needed to ensure the confidentiality of inside information and the fact that market uncertainties and changes to working arrangements require extra vigilance about possible leaks and rumours.
  • maintaining robust market surveillance and suspicious transaction and order reporting; and
  • identifying and managing conflicts of interest by market participants that may arise in relation to capital raising events, and thereby reiterating the content of the Dear CEO letter sent in April in response to concerns that certain banks were leveraging relationships to secure further mandates.

Treasury extends CLBILS maximum loan size to £200m

HM Treasury has announced an extension to the maximum loan size available through the Coronavirus Large Business Interruption Loan Scheme (CLBILS). The extension is designed to help large businesses with cashflow issues but which do not qualify for the Bank of England COVID Corporate Financing Facility or "CCFF".

Under the expanded CLBILS regime, borrowers will be able to borrow up to 25% of turnover up to a maximum of £200m (increased from £50m). Companies borrowing more than £50m will be subject to the following restrictions:

  • Dividends: Borrowers cannot make any dividend payments other than those that have already been declared;
  • Share buybacks: Borrowers must agree not to make any share buybacks; and
  • Executive pay: Borrowers cannot pay any cash bonuses, or award any pay rises to senior management (including the board) except where they: (a) were declared before the CLBILS loan was taken out; (b) are in keeping with similar payments made in the preceding 12 months; and (c) do not have a material negative impact on the borrower’s ability to repay the loan.

QCA publishes its fourth NED survey

The Quoted Companies Alliance (QCA) has published its fourth NED survey which covers numerous issues including salaries, time commitment, independence, board evaluations and recruitment. 

Notable findings from the report include:

  • An apparent disparity in perceived independence of NEDs between corporates and their advisors. Whereas companies strongly believe in the independence of their NEDs, their advisory firms tend to be a lot more questioning.
  • The average age of a small/mid-sized company NED is 60 years old, with 81% being male. 
  • Cyber/IT are the most lacked skills on small and mid-cap boards. The survey raises the question of whether there is a link between this and the findings on age demographics. 
  • An increased recognition of the need for, and benefits of, external board evaluations.

FRC updates implementation guidance on its revised Ethical Standard

We reported in Issue 153 that the FRC had published implementation guidance in relation to its Ethical Standard. This has now been revised to include transitional provisions for "other entities of public interest" (OEPIs), and states:

  • The requirements for OEPIs come into effect for the audit of financial periods beginning on or after 15 December 2020. Engagements for non-audit services, where both a letter of engagement has been entered into and work has started before that date may be completed on the original terms. Firms should not enter into new non-audit services engagements which would not be permitted under the requirements after that date, even where that service would be provided between 15 December 2020 and the start of the entity's next financial period. This is on the basis that an "objective, reasonable and informed third party" might conclude that it is probable that the auditor's independence would be compromised as a result.
  • OEPIs are not required to tender and rotate their auditors. As part of the transitional arrangements, the FRC reminds audit firms and OEPIs that they should avoid creating the need for companies to tender for the provision of audit services during the current COVID-19 outbreak.

CGI publishes revised guidance on risk committee terms of reference

The Chartered Governance Institute (CGI) has published a revised guidance note dealing with terms of reference for risk committees. The guidance reflects the 2018 UK Corporate Governance Code and related FRC Guidance on Risk Management, Internal Controls and Related Financial and Business Reporting (published in September 2014).

ICAEW publishes an introductory guide to dividends

The Institute of Chartered Accountants in England and Wales (ICAEW) has published an Introduction to the law on dividends. The note provides an overview of the law to consider before making distributions; the general principles to consider in relation to the realisation of profits and losses; and an overview of TECH 02/17BL (joint guidance issued by the ICAEW and Institute of Chartered Accountants in Scotland on realised and distributable profits under the Companies Act 2006). 

Key Contacts

Richard Preston

Richard Preston

Managing Associate, Governance and Compliance
London, UK

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Neville Moore

Neville Moore

Legal Director, Corporate Finance
Leeds

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