Corporate Law Update

• Draft legislation is published to update the UK’s criminal insider trading regime
• The ICGN issues a statement of its expectations of AGMs after the Covid-19 pandemic
• The Government publishes new guidance on ethnicity pay-gap reporting

Draft legislation published to align UK’s civil and criminal insider trading regimes

The Government has published draft legislation which, if it becomes law, will align the scope of the UK’s civil and criminal insider trading regimes.

The UK’s civil insider trading restrictions are set out in the UK version of the Market Abuse Regulation, inherited from EU law when the UK left the European Union. Its criminal insider trading regime is set out in the Criminal Justice Act 1993 and secondary legislation.

The civil regime is much wider than the criminal regime, covering a wider range of financial instruments and almost any type of securities exchange within the UK or the EU. The criminal regime, by contrast, applies only to specific types of security and securities exchange specified by HM Treasury.

In addition, the current list of markets for the purposes of the criminal regime (set out in a schedule to secondary legislation) is out of date, with several of the markets on the list having merged, changed their name or simply ceased to exist.

The accompanying explanatory memorandum notes that the new legislation would update the criminal regime to bring it in line with the civil regime. In particular, under the new legislation, the criminal regime would apply to securities trading on:

• a UK, EU or Gibraltar regulated market (such as the London Stock Exchange Main Market or the Frankfurt Stock Exchange);
• a UK, EU or Gibraltar multilateral trading facility (MTF) (such as the London Stock Exchange’s AIM market);
• a UK, EU or Gibraltar organised trading facility (OTF) (generally, private trading venues); and
• any market established by NASDAQ, SIX Swiss Exchange or the New York Stock Exchange (NYSE).

As with the current civil regime, the updated criminal range would apply to a wide range of financial instruments, including equity and debt securities, money-market instruments, options, futures, swaps, forwards, contracts for difference and emissions allowances.

The new legislation would come into effect 21 days after it is made.

ICGN publishes expectations of post-Covid AGMs

The International Corporate Governance Network (ICGN) has published a statement of its expectations for annual general meeting (AGM) practices and shareholder rights following the Covid-19 pandemic.

The statement makes the following points:

• The ICGN recognised the need for virtual-only AGMs during Covid-19 and the continued use of virtual meetings in “emergency situations”.
• Outside of these circumstances, the ICGN states that hybrid meetings are the optimal format and virtual-only AGMs should be held only in extreme circumstances and with a prior explanation by the board.
• It says investors are likely to vote against proposals to change constitutional documents and/or to appoint directors if companies do not ensure an “effective and inclusive AGM experience”.
• The statement reiterates the relevant recommendations for AGMs set out in the ICGN’s Global Governance Principles.
• Finally, the ICGN calls on regulators to discourage the practice of holding virtual-only AGMs and to require companies to provide for hybrid AGMs.

New guidance on ethnicity pay-gap reporting published

The Government has published new guidance for organisations looking to measure and publish their ethnicity pay gap.

Currently, gender pay-gap reporting is mandatory in the UK. An organisation with 250 or more employees on its “snapshot date” must report certain specified metrics on pay disparity between its male and female employees. For commercial organisations, the “snapshot date” is 5 April in each year.

However, ethnicity pay-gap reporting remains voluntary. As such, there is no regime setting out which organisations may wish to report pay-gap data, which data they should report.

The new guidance is designed to assist employers who wish to publish ethnicity pay-gap information and to develop a “consistent, methodological approach to ethnicity pay reporting”. It is heavily based on the Government’s existing gender pay-gap reporting guidance. This is intentional to avoid employers needing to run two separate process of data collection.

The guidance notes that ethnicity pay-gap reporting is more complex than gender pay-gap reporting because, whilst gender pay analysis involves comparing two groups (male and female), ethnicity pay analysis may involve many more ethnic groups. It suggests that employers decide how best to combine different ethnic groups to ensure data are reliable and to protect confidentiality.

The guidance contains useful information on how employers might measure ethnicity pay-gap (including the calculations they might make) and collect ethnicity data. It also encourages employers to take care when explaining results and provide a supporting narrative.