United Kingdom | Publication | July 2020
On July 20, 2020, HM Treasury announced the publication of two consultation documents, one being to increase the oversight of financial promotions issued by unauthorised firms, and the other to bring the promotion of certain types of cryptoassets under Financial Conduct Authority (FCA) regulation for the first time.
A financial promotion is a communication that contains an invitation or inducement to engage in a financial product or service and the UK’s regulatory regime for financial promotions applies to promotions relating to regulated financial services activities (conducted by a firm authorised by the FCA or the PRA) and to certain unregulated activities which can be carried out by unauthorised firms.
This consultation is concerned with financial promotions by unauthorised firms. Such financial promotions can only be promoted if they have been approved by an authorised firm (unless they fall within an exemption in the Financial Promotion Order 2005 (SI 2005/1529)). However, there is no specific process through which an authorised firm must be assessed as suitable and competent before it can approve financial promotions of unauthorised firms and so in the consultation document, the Government proposes that a “regulatory gateway” be established which a firm must pass through before it can approve financial promotions of unauthorised firms. Firms wanting to approve financial promotions of unauthorised firms would need the prior consent of the FCA. The Government believes this change will give the FCA more effective oversight and supervision of firms approving financial promotions of unauthorised firms, provide more effective prevention and intervention if the FCA believes unsuitable firms are approving such financial promotions, ensure approver firms have relevant expertise and improve the due diligence around financial promotions of unauthorised firms, so improving their quality.
The two possible policy options for delivering the gateway are as follows:
The consultation document notes that Option 2 represents more significant change as it would make approval of financial promotions a regulated activity in its own right. On balance, the Government favours Option 1 as it would strengthen the FCA’s ability to ensure authorised firms comply with the FCA’s rules when approving financial promotions of unauthorised firms, without fundamentally altering the regulation of the financial promotions regime.
Responses to the consultation document are requested by October 25, 2020. The Government will analyse responses and set out in due course which policy options it intends to take forward.
The Government proposes adding unregulated cryptoassets to the list of “controlled investments” in Part 2 of Schedule 1 to the Financial Promotion Order so that the financial promotion restriction would apply to any inducement or invitation to exercise any rights conferred by unregulated cryptoassets to acquire, dispose of, underwrite or convert the same (by virtue of Section 21 FSMA). The consultation document sets out a definition of “qualifying cryptosassets, which will be controlled investments (the definition excludes security tokens and eMoney tokens which are already regulated) and it covers only those cryptoassets that are fungible and transferable.
Responses to the consultation document are requested by October 25, 2020.
(HM Treasury, Regulatory Framework for Approval of Financial Promotions: Consultation, 20.07.2020)
(HM Treasury, Cryptoassets Promotion: Consultation, 20.07.2020)
On July 21, 2020, the Financial Reporting Council (FRC) published the results of its first thematic review of company reporting since the onset of the COVID-19 pandemic. The review found that although companies provided sufficient information to enable a user to understand the impact COVID-19 had on their performance, position and future prospects, some, particularly interim reports, would have benefited from more extensive disclosure.
This thematic review builds on the guidance contained in the joint regulators statement published on March 26, 2020, and complements the two Financial Reporting Lab reports published in June 2020, “COVID-19: Going concern, risk and viability” and “COVID-19: Resources, action, the future”. A central theme in that statement and those reports was the importance of providing high quality forward-looking information in the current environment, which is also a theme in this thematic review.
This thematic review results from a review of a sample of March 2020 interim and annual reports and accounts. It includes guidance and better practice examples for companies currently preparing their annual and interim accounts, identifying areas where disclosures affected by COVID-19 can be improved. Areas focused on are: going concern; viability statements in annual accounts; cash, liquidity and covenant compliance; dividends and capital management; strategic report; alternative performance measures; presentation of primary statements; expected credit loss provisioning; significant judgements and estimates; fair value measurements; and impairment of non-financial assets and other impairment issues.
In the accompanying press release, the FRC reminds companies that they should:
(FRC, COVID-19 Thematic Review – Review of financial reporting effects of COVID-19, 21.07.2020)
(FRC, High quality disclosures needed to reflect impact of COVID-19, 21.07.2020)
On July 22, 2020, the Financial Conduct Authority (FCA) published a consultation paper proposing rule changes to delay by one year the mandatory European Single Electronic Format (ESEF) requirements for annual financial reporting under the Transparency Directive.
Under the FCA proposals:
Issuers will, however, be able to publish and file their annual financial reports voluntarily in the new ESEF if they choose to do so.
The FCA are making these proposals now because of the exceptional circumstances caused by the coronavirus (COVID-19) crisis, which has significantly affected a wide range of companies, including many which are issuers of securities.
Comments are requested by August 28, 2020.
(FCA, Delay to the implementation of the European Single Electronic Format, CP 12/20, 22.07.2020)
On July 21, 2020 the Department for Business, Energy and Industrial Strategy (BEIS) published a guidance document (dated June 2020) to accompany the Enterprise Act 2002 (Share of Supply) (Amendment) Order 2020 and the Enterprise Act 2002 (Turnover Test) (Amendment) Order 2020 which came into force on July 21, 2020.
The guidance also consolidates the Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2018 and the Enterprise Act 2002 (Turnover Test) (Amendment) Order 2018.
The guidance seeks to provide clear and practical advice to those affected, or potentially affected, by the amendments to the Enterprise Act 2000, including explaining why the government amended the Act, describing the legal and practical effects of the amendments and offering advice to businesses and others about how they may be affected by the changes.
On July 23, 2020, the Financial reporting Council (FRC) issued two Exposure Drafts proposing amendments to UK and Ireland accounting standards. Both reflect topical issues.
FRED 75 Draft amendments to FRS 104 – Going concern proposes to:
when preparing interim financial statements in accordance with FRS 104.
The FRC notes that as FRS 104 already requires an assessment of the going concern basis of accounting, in order to include a statement that the same accounting policies are applied as compared to the most recent annual financial statements, this element of the proposals will not be a change for companies, and should be applied prior to these proposals being finalised. The disclosure of any related material uncertainties will enhance the information available to users of the interim financial statements.
FRED 76 Draft amendments to FRS 102 and FRS 105 – COVID-19-related rent concessions proposes explicit requirements for accounting for temporary rent concessions for operating leases occurring as a direct consequence of the COVID-19 pandemic, and within a limited timeframe. They shall be recognised over the period the concession is intended to compensate, reflecting the economic substance of the concessions and their temporary nature.
Both comment periods end on September 1, 2020. The proposals in FRED 75 are expected to apply to interim periods beginning on or after January 1, 2021, and the proposals in FRED 76 are expected to apply to accounting periods beginning on or after January 1, 2020. In both cases early application will be permitted.
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