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Essential Corporate News – Week ending July 1, 2022
United Kingdom | Publication | July 2022
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FCA: ESG integration in UK capital markets
On June 29, 2022 the Financial Conduct Authority (FCA) published a Feedback Statement (FS22/4) summarising feedback to the discussion chapter (in CP21/18) on environmental, social and governance (ESG) integration in UK capital markets and setting out the FCA’s potential next steps. With this, the FCA published Primary Market Bulletin No 41 which elaborates on the FCA’s response to feedback received to that discussion chapter.
Feedback Statement
In the discussion chapter in CP21/18, the FCA asked for feedback on potential harms that may require policy intervention and on actions it could take to enhance market effectiveness and promote a sound ESG data ecosystem. The FCA sought views on:
- issues related to green, social, sustainability and sustainability-linked debt instruments (ESG-labelled debt instruments), including prospectus and ‘use of proceeds’ (UoP) bond frameworks and the role of verifiers and second party opinion (SPO) providers; and
- ESG data and rating providers.
The Feedback Statement brings together respondents’ views and sets out the FCA’s policy response and potential next steps.
The following are the key policy actions:
- Advertisements, bond frameworks and prospectuses. PMB 41 reminds issuers, their advisers and other relevant market participants of their existing obligation to ensure any advertisement issued in relation to an offer to the public or admission to trading on a regulated market is not inaccurate or misleading, and is consistent with the information contained in the prospectus. Where advertisements do not meet the FCA’s expectations, the FCA will consider the case for market oversight or enforcement actions.
- Voluntary adoption of existing industry standards. Also in PMB 41, the FCA encourages issuers and their advisers to consider relevant industry standards, such as the ICMA Principles and Guidelines for green, social, and sustainability bonds, when issuing ESG labelled debt instruments.
- Oversight of verifiers and SPO providers. Similarly, the FCA encourages issuers to consider relevant industry standards – such as the ICMA Guidelines for Green, Social, Sustainability and Sustainability Linked Bonds External Reviews, when selecting their SPO providers and verifiers. The FCA also encourages verifiers and SPO providers themselves to consider voluntarily applying these guidelines. In particular, the ICMA Guidelines encourage such providers to consider (where relevant ) using recognised standards and codes, including those developed by the International Audit and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA).
- ESG data and rating providers. Consistent with the feedback received and the position in IOSCO’s recommendations, the FCA sees a clear rationale for regulatory oversight of certain ESG data and rating providers and will continue to work with the Treasury, who are considering bringing ESG data and rating providers within the FCA’s regulatory perimeter.
In terms of future potential direction, the FCA notes the following:
- Bond frameworks and prospectuses, and bond standards. The FCA notes that the Treasury has published the outcome of its Prospectus Regime Review, setting out proposals to reform the UK’s regime for public offers of securities and admissions to trading on capital markets. When implemented, these would give the FCA additional responsibility to set out the detail of the new regime through Handbook rules. While this is a multi year review, it could potentially provide an opportunity to reconsider prospectus disclosure requirements. In addition, the FCA may reassess in the future, with the Treasury, the case to develop an appropriate standard for UoP bonds.
- Oversight of verifiers and SPO providers. The FCA may also consider further, with the Treasury, the case for regulatory oversight of these service providers in the future.
- Climate related disclosures for listed issuers of debt and debt like securities. Elsewhere in CP21/18, the FCA asked whether it might be desirable to extend climate related disclosure requirements to issuers of listed debt and debt like securities. The FCA received generally supportive responses and provided high level feedback in Policy Statement (PS21/23). The FCA will consider the best way to strengthen and promote transparency on sustainability representations by debt issuers, including in the context of the Treasury’s Prospectus Regime Review.
- ESG data and rating providers. If the Treasury extends the FCA’s regulatory perimeter, the FCA will take the necessary steps to develop and consult on a proportionate and effective regulatory regime, with a focus on outcomes in areas highlighted in IOSCO’s recommendations. These include transparency, good governance, management of conflicts of interest, and systems and controls. Given the potential lead time before any such regime could come into force, the FCA would, in the interim, work with the Treasury to convene, support and encourage industry participants to develop and follow a voluntary Code of Conduct addressing matters similar to those listed above. Such a voluntary Code could potentially continue to apply for ESG data and rating providers that fall outside the scope of any future regulatory regime.
Primary Market Bulletin No 41
In light of the Feedback Statement, Primary Market Bulletin No 41 (PMB41) covers a number of issues related to ESG-labelled debt instruments. In it, the FCA:
- encourages issuers of ESG-labelled Use of Proceeds (UoP) debt instruments to consider voluntarily applying or adopting relevant industry standards, such as the Principles and Guidelines that the International Capital Market Association (ICMA) has developed for green, social, and sustainability bonds;
- reminds issuers, their advisers and other relevant market participants of their existing obligation to ensure any advertisement is not inaccurate or misleading, and is consistent with the information contained in the prospectus; and
- encourages issuers and their advisers to consider verifiers’ and assurance providers’ expertise and professional standards, and to engage with second party opinion (SPO) providers and verifiers who adhere to appropriate standards of professional conduct, such as ICMA’s Guidelines for External Reviewers.
BEIS: The Register of Overseas Entities Verification and Provision of Information Regulations 2022
On June 30, 2022 The Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 were published. These were made on June 29, 2022 and laid before Parliament on June 30, 2022. They have been made pursuant to the powers conferred by sections 16, 43(2) and 67(2) of the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA 2022). They relate to requirements concerning the verification of registrable beneficial owners and managing officers of overseas entities subject to the ECTEA 2022, and to requirements for certain unregistered overseas entities to deliver information to the Registrar of Companies (Registrar) during the transitional period as set out in the ECTEA 2022, relating to relevant dispositions of land between February 28, 2022 and the end of the transitional period.
Verification of registrable beneficial owners and managing officers
Part 2 of the Regulations (see Regulation 6) states that an overseas entity may only undertake a “relevant activity” after a “relevant person” has verified the relevant information.
Regulation 3 sets out who a “relevant person” is for the purposes of the Regulations (i.e. who can verify information). Relevant persons are UK based credit institutions, financial institutions, auditors, insolvency practitioners, external accountants and tax advisers, independent legal professionals, trust or company service providers, estate agents and letting agents.
Regulation 4 sets out the meaning of a “relevant activity”, which is an activity undertaken by an overseas entity which means information must be verified. This includes making an application to be entered in the register of overseas entities under section 4 ECTEA 2022, complying with the updating duty in section 7 ECTEA 2022, applying to be removed from the register of overseas entities under section 9 ECTEA 2022 and providing information to the Registrar where an unregistered overseas entity has made a relevant disposition of land between February 28, 2022 and the end of the transitional period (section 42 ECTEA 2022).
Regulation 5 sets out the meaning of “relevant information”. This is the information that must be verified in relation to each relevant activity. For example, where an overseas entity is applying to be registered in the register of overseas entities under section 4 ECTEA 2022, certain information about its registrable beneficial owners and managing officers must be verified.
Regulation 6 sets out further detail, such as when verification should occur, the time period for the validity of the verification and the content of the statement the relevant person who has verified the information must provide to the Registrar.
Regulation 7 sets out that where a relevant person seeks to verify information relating to an individual, the relevant person must not be a family member or known close associate of the individual, or be the same individual, i.e. an individual cannot verify their own information.
Regulation 8 provides that the relevant person who conducts the verification must keep copies of the material provided to them for or on behalf of an overseas entity for verification purposes for the period of five years beginning with the day on which that relevant person verifies the information.
Provision of information under section 42(1)(c) ECTEA 2022
Part 3 of the Regulations details the provision of information by “unregistered overseas entities” during the transitional period. These entities must provide details of any relevant disposals of land between February 28, 2022 and the end of the transitional period, as well as statements and information regarding who their beneficial owners and/or managing officers were immediately before the disposals.
Regulation 9 sets out that the information must be provided by email, unless information has been “protected” such that it is not to be publicly displayed. Regulation 10 provides that information provided must be publicly displayed for at least two years before being transferred to the Public Records Office. This does not apply to “material unavailable for public inspection”, such as usual residential addresses and required information about trusts. Regulations 11 to 13 outline how certain provisions from the ECTEA 2022 about the Registrar’s annotation, administrative and court ordered removal of information apply in respect to this information
Guidance and Companies House blog
The Explanatory Memorandum published with the Regulations states that guidance will be made available for overseas entities, professional service providers and any interested parties. The guidance will explain who is required to register, how and when they should register, information to be provided and verified and how to update the information on the register of overseas entities.
A Companies House blog which refers to the Regulations, states that supervised agents (those relevant persons able to verify information for the purposes of the Regulations) will need to contact Companies House to get an assurance code before they can verify or file on the overseas entity’s behalf. They state that the assurance code is the equivalent of a signature and Companies House will provide more information on how to obtain an assurance code very soon. The blog also states that the commencement order confirming the start date for the register of overseas entities is expected to be laid soon.
Global Head of Corporate M&A and Securities
Email
raj.karia@nortonrosefulbright.com
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