Corporate Law Update: 18 - 24 March 2023

24 March 2023

In this week's update:

FCA reminds listed companies of gender and ethnicity disclosure requirements

The Financial Conduct Authority (FCA) has published Primary Market Bulletin 44, in which it reminds listed companies of their obligation under the Listing Rules (LRs) to disclosure certain information on the gender and ethnic breakdown of their boards and senior management.

Under LR 9.8.6R(9), a company with a premium listing of equity shares must disclose:

  • its progress towards gender and ethnic diversity targets for its board (broadly, those set by the FTSE 350 Women Leaders Review and the Parker Review); and
  • a breakdown of its board, senior management and “big four” positions (i.e. CEO, CFO, Chair and Senior Independent Director) by ethnicity and by gender identity or sex.

LR 14.3.33R(1) imposes a similar obligation on companies with a standard listing of equity securities.

Where directors or executive managers are situated overseas and data protection laws in that place prevent the company from collecting or publishing the required information, the company can instead explain the extent to which it is unable to make the relevant disclosures.

The obligations do not apply to open-ended investment funds and shell companies, nor to companies that have listed only debt securities.

The FCA has confirmed that it intends to conduct periodic reviews to determine whether companies are complying with these requirements. If a company appears not to be complying, the FCA may request corrective action. It will take non-compliance seriously and use its full suite of powers, as well as sanctions, where appropriate.

The FCA recognises that many listed companies will be applying the requirements for the first time and so aims to identify areas of concern and disseminate examples of good practice.

Finally, the FCA has reminded issuers of their obligation under Listing Principle 1, which requires a listed company to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable them to comply with their obligations.

This extends to establishing and embedding diversity and inclusion (D&I) reporting procedures, systems and controls so as to meet ethnicity and gender reporting requirements. The FCA expects listed companies to take the following steps in this respect:

Review governance arrangements for oversight of D&I targets and reporting, including the roles of the board, sub-committees, and senior management.

  1. Know their compliance framework, including both new and existing rules and regulations.
  2. Assess their existing public narrative reporting of D&I.
  3. Establish or enhance their procedures, systems and controls over data collection and reporting, including for choosing an appropriate reference date for data collected.
  4. If it appears that the company may not meet the targets or have the relevant data, ensure it can provide clear and meaningful explanations why and consider reviewing the effectiveness of existing board succession and recruitment plans.
  5. Identify any legal restrictions which may prevent collection or publication of the required data.

FCA abandons technical note on mix-and-match schemes of arrangement

Also in Primary Market Bulletin 44, the Financial Conduct Authority (FCA) has confirmed that it will not be proceeding with the Technical Note TN/606.1 it previously proposed in Primary Market Bulletin 30.

Through that note, the FCA had proposed to formalise its view that, where a takeover is structured as a scheme of arrangement and the target company’s shareholders are given a choice to accept either cash or securities issued by the bidder in exchange for their shares in the target company (a so-called “mix and match facility”), there is an offer and the bidder must publish a prospectus.

For more information on Primary Market Bulletin 30, see our previous Corporate Law Update.

The FCA has not changed its view on the matter. However, it recognises that this is ultimately a question of law for the courts and that, in any case, under proposed reforms to the UK’s prospectus regime, no issue of securities under a scheme of arrangement would amount to a public offer.

For more information on the proposed reforms to the UK’s prospectus regime, see our separate in-depth article.

In light of this, the FCA is not proceeding with its proposed Technical Note TN/606.1 at this time.

New regulations published to allow disclosure of overseas entity ownership information

New regulations have been published that extend the range of entities to which Companies House may disclose information contained on the UK’s Register of Overseas Entities (ROE).

Under the ROE regime, non-UK companies that hold certain interests in UK land are required to register with Companies House and provide details of their beneficial owners. In some cases, the entity must also provide details of its managing officers and of any trusts sitting within its ownership structure.

Currently, Companies House does not make an individual’s residential address or full date of birth publicly available. Similarly, Companies House does not make information on trusts available to the public and is currently able to provide that information only to HM Revenue & Customs.

Under the new regulations, Companies House will be able to provide residential address, full date of birth and trust information to a wider range of authorities.

As well as law enforcement authorities and security services, the list includes various regulators and government authorities, such as the Competition and Markets Authority (CMA), the Financial Conduct Authority (FCA), the Health and Safety Executive, the Information Commissioner’s Office (ICO), the Pensions Regulator, the Prudential Regulation Authority (PRA) and the Takeover Panel.

The list also includes any UK local authority or an insolvency practitioner.

The list is similar to the list of authorities to which Companies House is permitted to disclose sensitive information on persons with significant control and company directors.

The new provisions come into effect on 11 April 2023.