Corporate Law Update

• The UK Government provides a glimpse of the possible future prospectus regime for the UK
• The Takeover Panel will proceed with changes to the meaning of “acting in concert”
• The FCA provides guidance to listed companies on the intersection of the UK’s national security and market abuse regimes
• The FCA reminds listed companies of their climate-related reporting obligations
• The FCA fines a listed company and its CEO and CFO for publishing misleading financial information
• The FCA fines three interdealer brokers for not having adequate systems to detect market abuse
• The FRC publishes a report on how to construct a good annual report and accounts
• The European Commission publishes its proposed package of reforms for the EU capital markets
• New EU board gender diversity requirements become law

Government provides glimpse of possible future UK prospectus regime

The Government has published an “illustrative statutory instrument”, which demonstrates how the Government is likely to deliver changes to the UK’s prospectus regime when the UK Prospectus Regulation (derived from the EU Prospectus Regulation) is repealed.

The Financial Services and Markets Act 2000 (Public Offers and Admissions to Trading) Regulations would be made under the Financial Services and Markets Act 2000 (FSMA) once the Financial Services and Markets Bill, which is currently making its way through Parliament, has been enacted.

The draft instrument is not final and may change and develop before becoming law.

For more information on the draft statutory instrument, see our separate in-depth piece.

Takeover Panel proceeds with changes to meaning of “acting in concert”

In May 2022, the Takeover Panel consulted on changes to provisions of the Takeover Code (the Code) that address when parties are “presumed” to be acting in concert.

For more information on the Panel’s original proposals, see our previous Corporate Law Update.

The Panel has now published a response to that consultation. Broadly, the Panel has decided to proceed with the changes it proposed in its consultation, with some minor modifications.

The response statement also provides useful clarity on when the Panel is likely to disapply (or “rebut”) the presumption that parties are acting in concert in the context of (among other things) joint ventures, private equity portfolios, sovereign wealth funds and government-owned entities. However, any rebuttal would remain ultimately at the Panel’s discretion.

The changes are very technical in nature. If you require more information on any of these, please speak to a member of our Public Takeovers and Mergers team.

The changes will take effect on Monday 20 February 2023.

FCA provides guidance on interplay of national security and market abuse

The Financial Conduct Authority (FCA) has published Primary Market Bulletin 42, in which it has provided guidance on the relationship between the UK’s national security screening regime, its market abuse regime and the FCA’s Listing Rules.

The UK’s national security screening regime is set out in the National Security and Investment Act 2021 (the NSIA) and has been in operation since January 2022. The UK’s market abuse regime is set out in the UK version of the Market Abuse Regulation (UK MAR).

The FCA notes the following:

• The Government will not publish interim or final orders made under the NSIA (although it will publish the fact of a final order). However, issuers must nonetheless consider whether they are required to disclose interim or final orders under UK MAR if they amount to inside information.
• Issuers should contact the Department for Business, Energy and Industrial Strategy (BEIS) and the FCA at an early stage if an order might amount to inside information or if BEIS is considering requiring the issuer not to disclose information in the order on grounds of national security.
• Issuers must also consider whether the fact that a transaction may be void under the NSIA (because it was notifiable and was completed without clearance from BEIS) amounts to inside information that needs to be disclosed under UK MAR.

FCA reminds issuers of need for effective climate disclosures

The (FCA) has also, in Primary Market Bulletin 42 (see above),in which it has reminded listed companies of the need to produce effective climate-related disclosures.

Premium-listed companies have been required to report against the recommendations of the Taskforce on Climate-related Financial Disclosures (the TCFD Recommendations) for financial years beginning on or after 1 January 2021. Standard-listed companies will need to do so for financial years beginning on or after 1 January 2022.

The reminder notes the following in particular.

• Companies should assess their disclosures against the TCFD’s Guidance for All Sectors and (where relevant) its Supplemental Guidance for the Financial Sector and Non-Financial Groups. They should also consider Sustainability Accounting Standards Board (SASB) metrics.
• Some companies in the TCFD Non-Financial Groups did not identify climate change as a material risk, or they did so but did not make disclosures consistent with the TCFD’s Supplemental Guidance for Non-Financial Groups. The FCA has singled out Strategy disclosure (c) and Metrics and Targets disclosure (a) as examples.
• Net zero commitments and transition planning are relevant when making climate-related disclosures. Companies should consider the TCFD’s Guidance on Metrics, Targets and Transition Plans for future reporting.

The FCA will continue to monitor TCFD reporting and intends to build on its existing measures in line with “domestic and international developments”. It also intends to consult on strengthening disclosure expectations for transition plans (drawing on the outputs of the TPT, once finalised).

Listed company and two individuals fined for publishing misleading information

The Financial Conduct Authority (FCA) has fined a listed company just over £10m for publishing misleading information in breach of Listing Rule 1.3.3R.

The FCA also fined the company’s CEO just over £223,000 and fined its CFO over £134,000 in connection with the breach.

The company in question had published inaccurate information concerning a figure for risk-weighted assets (RWAs) in its third quarter (Q3) trading update in 2018. That figure was based on an incorrect application of risk weights to certain commercial loan portfolios. The company had applied a risk weighting of 50%, whereas it should have applied a weighting of 100%.

The company was aware that the RWA figure was incorrect when it published the trading update. But, despite this, it did not disclose in the update that it had applied an incorrect risk weighting of 50%, that it was carrying out an ongoing review to correct the figure, and that the correction would be substantial.

Moreover, and despite an investor querying the level of the RWA figure, the company did not publish the corrected figure until Q1 2019, once its internal review had concluded. Publication of the corrected figure precipitated a substantial drop in the company’s share price.

The FCA concluded that the company had failed to consider properly whether it was appropriate to include the misleading figure in the trading update or to seek legal advice. In addition, its CEO and CFO had failed to ensure that the company’s board and audit committee considered the matter.

FCA fines firms for inadequate market abuse detection procedures

The Financial Conduct Authority (FCA) has fined three related interdealer broker firms for failing to maintain effective systems to prevent market abuse.

Under article 16(2) of the UK Market Abuse Regulation, a firm that professionally arranges or executes transactions must establish and maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions. This is designed to combat market manipulation.

The firms in question failed to comply with article 16(2) in various respects. Specifically, the firms’ monitoring systems did not cover all of the asset classes which are subject to the Market Abuse Regulation and in which the firms undertook business. The systems also employed only sample-focussed surveillance of voice brokerage communications, which was not always implemented.

The firms were also in breach of Principle 3 of the FCA’s Principles for Businesses, which requires an authorised firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

FRC publishes report on effective annual reports and accounts

The Financial Reporting Council (FRC) has published a new report on what makes a good annual report and accounts.

The report identifies and provides examples of particular characteristics of high-quality annual reports. In doing so, the FRC has adopted a principles-based framework that identifies corporate reporting and effective communication principles.

These include that reporting should be accurate, connected and consistent, complete, on time, unbiased, navigable and transparent, and that communication should be company-specific, clear, concise and understandable, clutter-free and relevant, and comparable.

The report will be useful for companies of all sizes, whether or not publicly traded.

Alongside this, the FCA has also published a separate report on what makes a good environment for auditor scepticism and challenge, as well as a separate report on what makes a good audit.

EU publishes capital markets reform package

The European Commission has published details of a package of measures designed to reform the European Union’s capital markets union.

Among other things, the proposals are designed to alleviate the administrative burden on companies of all sizes (particularly small and medium-size enterprises (SMEs)) so they can gain better access to public funding through securities exchanges.

Proposed measures include exempting SMEs, as well as issuers that repeatedly raise capital, from drawing up a complete prospectus when conducting a standard raise, provided they satisfy certain conditions. The Commission is also proposing to introduce “more proportionate” sanctions for SMEs under its market abuse regime.

The changes will not affect the UK markets, but they will be relevant to any UK businesses that issue equity or debt securities on EU markets.

EU board gender diversity requirements become law

A new law that requires listed European Union companies to ensure gender balance on their boards has been published and will come into force shortly.

Directive (EU) 2022/2381 requires EU Member States to enact domestic laws requiring listed EU companies to reach the following objectives by 30 June 2026:

• 40% of non-executive director positions held by members of the underrepresented sex; and
• 33% of all director positions (both executive and non-executive) held by members of the underrepresented sex.

Although the term “underrepresented sex” is neutral (and, therefore, able to adapt to future circumstances), given the current complexion of listed company boards, it will invariably refer to underrepresentation of women. The Directive explicitly acknowledges this in its recitals.

The Directive applies to companies that have their registered office in an EU Member State and whose shares are admitted to trading on an EU regulated market. Member States must implement the Directive by 28 December 2024.

The Directive is also similar to requirements for companies listed in the UK, which must ensure that 40% of board positions and at least one of the four main board positions (CEO, CFO, Senior Independent Director and Chair) are occupied by women or explain why they have not done so.

The Directive does not directly affect UK companies. However, UK companies with shares admitted to an EU regulated market may wish to work towards the Directive’s requirements on a voluntary basis.