Corporate Law Update: 15 - 21 July 2023

21 July 2023

This week:

FCA publishes further engagement papers covering junior market prospectuses and crowdfunding platforms

The Financial Conduct Authority (FCA) has published two further engagement papers setting out how it proposes to use its rule-making powers under the UK’s new regime for public offers of securities.

Engagement Paper 5 seeks views on how the FCA would approach rules for Public Offer Platforms, the proposed model for smaller offers, including crowdfunding and issues of so-called “minibonds”.

Engagement Paper 6 seeks views on how the FCA would use its powers to regulate the contents of a securities prospectus when admitting securities to a “primary MTF”, such as the London Stock Exchange’s AIM market or the AQSE Growth Market.

Read our separate in-depth piece for more information.

The papers follow the first four engagement papers, published in May this year, which cover admissions to regulated markets (such as the London Stock Exchange’s Main Market) and issue of non-equity securities. For more information on those papers, read our previous in-depth piece on Engagement Papers 1 to 4.

Read FCA Engagement Paper 5.

Read FCA Engagement Paper 6.

Draft legislation would require new annual report disclosures for 750:750 companies

The Government has published draft legislation that, if passed, will introduce additional disclosures into the annual reports of so-called “750:750 entities”.

The legislation is intended to deliver on the outcomes of the Government’s project on restoring trust in audit and corporate governance.

The new requirements would apply for financial years of a company beginning on or after 1 January 2025 if, during the financial year in question, the company had 750 or more employees and turnover of £750 million or more. If the company is a parent undertaking, the thresholds would apply on a group-wide basis. There would be some exemptions for subsidiary undertakings.

A company that exceeds those thresholds would need to publish the following new disclosures.

  • In the notes to its accounts, the amount of its distributable profits at the beginning and at the end of the financial year and changes to those profits during the financial year.
  • In its strategic report, a resilience statement summarising its strategic approach to managing risk and building or maintaining resilience over the short, medium and long terms. (The legislation sets out specific items that must be included in the resilience statement.
  • In its directors’ report, an audit and assurance policy statement describing its internal audit and assurance arrangements and any external assurance it has sought (including in relation to the company’s resilience statement and its internal financial reporting controls).
  • Also in its directors’ report, a material fraud statement summarising the risk of material fraud to its business operations and the main measures in place to prevent and detect material fraud.
  • Finally, and again in its directors’ report, a distribution policy statement describing the directors’ approach to capital allocation and their policy towards dividends and share buy-backs.

The audit and assurance policy statement would need to be published every three years, with each other new disclosure appearing annually.

The legislation is currently in draft. We will report in more detail on the new requirements once the legislation is final.

Read the draft legislation introducing changes to annual reports.

See materials on the Government’s project on restoring trust in audit and governance.

Government will not make ethnicity pay gap reporting mandatory at this stage

The UK Government has confirmed again that it does not intend to introduce mandatory ethnicity pay-gap reporting for the time being.

Currently, gender pay-gap reporting is mandatory in the UK. An organisation with 250 or more employees must report certain specified metrics on pay disparity between its male and female employees. However, ethnicity pay-gap reporting remains voluntary.

The Government consulted in 2018 on introducing mandatory ethnicity pay-gap reporting but has since confirmed on several occasions that it does not intend to do so at this stage.

It has now published its official response to the 2018 consultation setting out its reasons in more detail.

In April 2023, the Government published guidance for organisations that wish to report ethnicity pay-gap information on a voluntary basis. For more information, see our previous Corporate Law Update.

Read the Government’s official response to its consultation on ethnicity pay-gap reporting.

Read the Government’s guidance for organisations on voluntary ethnicity pay-gap reporting.

Takeover Panel publishes annual report

The Takeover Panel has published its annual report for 2022/2023.

Among other things, the report acknowledges the decline of the UK’s equity markets, a topic that has spawned numerous reviews on which we have been reporting over the last few years.

The Panel chair’s statement that, although the Panel does not play an explicit role in the UK’s capital markets, a well-regulated market for corporate control is a key part of the financial eco-system. The chair therefore believes that the Panel can act as a “pragmatic regulator” in this context, maintaining strong working relationships with other regulators.

The report also outlines takeover activity, noting a decrease in takeover activity in 2022/2023 compared with 2021/2022, a fact that has led to the Panel recording its first deficit in several years. It also summarises recent Takeover Code changes implemented by the Code Committee, as well as the Panel’s project of producing a digitised version of the Code.

Read the Takeover Panel’s annual report for 2022/2023.

FCA to require Russia and Belarus sanctions confirmations before processing issuer applications

The Financial Conduct Authority (FCA) has published an announcement stating that it will not begin work on vetting, guidance or listing application unless the application is accompanied by a sanctions confirmation.

The issuer will be required to confirm that its submissions to the FCA do not fall within various restricted activities under sanctions relating to Russia and Belarus. These include making funds available to or for the benefit of a sanctioned person, as well as dealing in securities issue by certain entities connected with Russia or Belarus.

The confirmation must be provided in a prescribed form, using specific wording, for each and every individual transaction.

Read the FCA’s announcement on Russia and Belarus sanctions confirmations.

New foreign activities and foreign influence registration schemes become law

The National Security Act 2023 has received Royal Assent, introducing new registration requirements for persons carrying on “foreign activity arrangements” or “foreign influence arrangements” in the UK.

Under the foreign activities regime (FAR), a person who agrees to carry on activities in the UK on behalf of a specified foreign power will be required to register that arrangement with the UK Government. The Government will be able to apply the regime either to specific activities or to all activities connected with a particular foreign power.

Under the foreign influence regime (FIR), a person who agrees to carry on “political influence activity” in the UK on behalf of any foreign power will be required to register that arrangement with the UK Government. This is separate from any registration required under the FAR (although registration should not be required under the FIR if the activities also fall within the FAR).

“Political influence activity” includes communications and payments designed to influence UK elections, UK government officials and members of the UK’s various legislative bodies.

In both cases, carrying on activities without registering first will be a criminal offence.

There are exemptions from both regimes, including for the provision of legal activities by lawyers. In addition, broadly speaking, the FIR will not apply to certain news broadcasters.

The regimes will come into force on a day to be specified by the Government.

Read the new National Security Act 2023.

FRC seeks evidence on new UK sustainability disclosure standards

The Financial Reporting Council (FRC) has launched a call for evidence seeking views on whether the first two IFRS Sustainability Standards should be adopted (in technical terms, endorsed) in the UK.

The International Sustainability Standards Board (ISSB) published IFRS S1 and IFRS S2 in June 2023. (For more information, see our previous Corporate Law Update.) Those standards do not take effect in the UK unless specifically adopted.

The FRC has asked for responses by 11 October 2023.

Read the call for evidence.