Essential Corporate News: Week ending January 08, 2021

FCA: Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations – Policy Statement 20/17

On December 21, 2020, the Financial Conduct Authority (FCA) published Policy Statement PS20/17 summarising feedback to the consultation paper it published in March 2020 (CP20/3) on proposals to introduce a new rule and guidance in the Listing Rules concerning climate-related disclosures. PS20/17 sets out the final rules and guidance as well as a new Technical Note which clarifies existing disclosure obligations. 

Changes to the Listing Rules

The FCA is introducing a new rule in LR 9.8 requiring that commercial companies with a UK premium listing (including sovereign-controlled commercial companies) include a statement in their annual financial report setting out: 

• Whether they have made disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD’s recommendations) and recommended disclosures in their annual financial report. 
• Where they have not made disclosures consistent with some or all of the TCFD’s recommendations and/or recommended disclosures, an explanation of why, and a description of any steps they are taking or plan to take to be able to make consistent disclosures in the future – including relevant timeframes for being able to make those disclosures. 
• Where they have included some, or all, of their disclosures in a document other than their annual financial report, an explanation of why. 
• Where in their annual financial report (or other relevant document) the various disclosures can be found. 

The rule is accompanied by guidance to help listed companies determine whether their disclosures are consistent with the TCFD’s recommendations and recommended disclosures. The guidance also clarifies the limited circumstances in which the FCA would expect in-scope companies to explain rather than disclose.

The new rule applies for accounting periods beginning on or after January 1, 2021 and so the first annual reports subject to it will be published in spring 2022. The FCA notes that a listed company which is directly impacted by the new Listing Rule requirement should familiarise itself with the details of the rule and associated guidance, and consider what arrangements it needs to put in place to ensure that it is able to meet the requirements of the rule.

New Technical Note – Disclosures in relation to ESG matters, including climate change

This new Technical Note applies with immediate effect. It applies to a wider scope of listed issuers than the new rule in LR 9.8 as listed issuers, other issuers with securities admitted to trading on regulated markets and other entities in scope of requirements under the Market Abuse Regulation (MAR) and the Prospectus Regulation (PR) (as onshored in the UK from 11 pm on December 31, 2020) are subject to a range of disclosure requirements.

The Technical Note discusses specific FCA Handbook requirements and obligations set out in EU legislation (which will continue to apply in the UK after the end of the transition period) and how they apply in respect of ESG issues. The examples of relevant provisions provided are not intended to be exhaustive but cover the Listing Rules, PR, Disclosure Guidance and Transparency Rules (DTRs) and MAR.

Next steps

In PS20/17 the FCA confirms the following:

• It will issue a follow-up consultation paper in the first half of 2021 on proposals to extend the application of the new Listing Rule requirement to a wider scope of listed issuers (the proposal is likely to include all issuers of standard listed shares (excluding listed funds)), and consider strengthening the compliance basis.
• Also in the first half of 2021, the FCA will consult on potential TCFD-aligned disclosures by UK-authorised asset managers, life insurers and FCA-regulated pension providers designed to better inform their clients and end investors.
• While the FCA decided against introducing a requirement for third-party assurance in relation to the compliance statement (not being convinced that this would add enough value to justify the cost to issuers), it does see significant value in third-party assurance of listed companies’ TCFD-aligned disclosures in the longer term. As a result, the FCA will work with government departments and the Financial Reporting Council to coordinate an appropriate UK policy response in due course. In the meantime, the FCA confirms that issuers may choose to obtain third-party verification or assurance on a voluntary basis and the FCA will also keep its position under review as an international corporate reporting standard for sustainability emerges.
• As part of the work required by LR 8.2 and LR 8.4, a sponsor will need to consider whether companies have established procedures to enable them to comply with the new Listing Rule requirement. The FCA states that it will consider whether it can provide further guidance on its expectations of sponsors’ work in this area to complement the existing guidance set out in Technical Notes 708.3 and 719.1.

(FCA, Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations – Policy Statement 20/17, 21.12.20)

FRC: Guidance for companies preparing IAS accounts for accounting periods straddling IP completion day

On December 23, 2020, the Financial Reporting Council (FRC) published guidance for preparers using IFRS, and their auditors, to explain the basis of accounts preparation, where an entity has a financial period which straddles the end of the Brexit transition period, being 11 pm on December 31, 2020, known as “IP completion day”.

This includes proposed wording to explain the basis of accounts preparation in such circumstances to ensure consistent understanding and application of requirements in the Companies Act 2006. Such companies preparing IAS accounts must use existing IFRS adopted by the European Commission as at IP completion day, which will be “frozen” as at that time, although they will also have the option to use any standards which have been adopted for use within the UK in addition to the frozen EU-adopted IFRS. For subsequent financial years, companies must use UK-adopted international accounting standards.

(FRC, Transitional provision guidance, 21.12.20)

House of Commons: International Trade Committee inquiry into foreign inward direct investment

On December 18, 2020, the International Trade Committee in the House of Commons launched an inquiry into inward foreign direct investment (FDI) whereby overseas investors acquire ownership of, or a controlling stake in, UK businesses. It has asked for responses to its call for evidence to assist with the inquiry. 

Questions raised in the call for evidence are as follows:

• How can the Office for Investment most effectively fulfil its remit to “support the landing of high value investment opportunities into the UK”, while “ensuring high and rigorous standards of scrutiny and security”?
• How does the Government’s Investment Strategy relate to its Industrial Strategy, its regional policy and the “levelling up” agenda?
• What advice, support and assistance should the Government be providing to inward investors – and how can it most effectively communicate with investors?
• What effects would the provisions of the National Security and Investment Bill have on UK inward investment – and how well does it balance national security against promoting and facilitating inward investment?
• What role do Sovereign Wealth Funds play in UK inward investment – and how might that role develop?
• What particular issues do Sovereign Wealth Funds pose in respect of UK national security – and how can these most effectively be addressed?

Responses to the call for evidence are requested by February 26, 2021.

(Parliament, International Trade Committee inquiry into foreign inward direct investment, 18.12.20)

Takeover Panel: Publication of revised Takeover Code – Panel Statement 2021/1

On January 4, 2021, the Takeover Panel published Panel Statement 2021/1 announcing that a revised version of the Takeover Code has been published on the Takeover Panel’s website, reflecting the amendments made by Instrument 2019/3 (The United Kingdom’s withdrawal from the European Union), Instrument 2020/1 (Document charges) and Instrument 2020/2 (Minor amendments to the Takeover Code). The amendments took effect at 11 pm on December 31, 2020. 

In addition, Practice Statement No 18 (Cross-Border Mergers) has been withdrawn following the revocation of The Companies (Cross-Border Mergers) Regulations 2007

(Takeover Panel, Publication of revised Takeover Code – Panel Statement 2021/1, 04.01.21)

(Takeover Panel, Takeover Code)

FRC: UKEB website launched

On January 6, 2021, the Financial Reporting Council announced the launch of the UK Endorsement Board (UKEB) website which can be accessed here. The UKEB is being set up as the body responsible for influencing the development and subsequently endorsing and adopting new or amended international accounting standards, issued by the International Accounting Standards Board (IASB), for use by UK companies, from January 1,  2021. 

For financial years beginning on or after January 1, 2021, UK-registered listed companies are required to use UK-adopted international accounting standards when preparing their consolidated financial statements. These comprise:

• EU adopted international accounting standards at the end of Transition Period; and 
• The international accounting standards adopted by the Secretary of State for the Department of Department for Business, Energy and Industrial Strategy (BEIS) (before delegation of adoption powers to the UKEB). 

The UKEB website includes a link to the consolidated text of all UK-adopted international accounting standards.

(FRC, UKEB website launched, 06.01.2021)