Essential Corporate News – Week ending May 5, 2023

FCA: Primary Markets Effectiveness Review - Feedback to DP22/2 and proposed equity listing rule reforms (CP23/10)

On May 3, 2023 the FCA published its long-awaited consultation setting out the proposed approach to reform of the London listing regime, focusing on equity shares of commercial companies (ESCC), with the aim of attracting a more diverse range of companies and bolstering the competitiveness of the UK markets whilst maintaining high standards of disclosure and transparency. 

The changes go further than the discussion paper published by the FCA in Spring 2022 in a number of respects and represent a radical overhaul of the current listing regime, in particular a marked shift towards a more disclosure-based framework.

Although the consultation sets out the FCA’s blueprint for reform, it does not include detailed proposed rule changes (which will be included in a further consultation to be published in Autumn 2023). However, the FCA is aiming to achieve an accelerated timetable, with substantial progress by the end of the year. The current consultation closes on June 28, 2023.

In this briefing, A blueprint for radical London listing regime reform, we set out an overview of the key features of the new ESCC listing category and our thoughts on the proposed reforms.

Cabinet Office: National Security and Investment – Market Guidance April 2023

On April 28, 2023 the Government published updated Market Guidance on the National Security and Investment Act 2021 (NSI Act).

The updated Market Guidance includes new or amended guidance on a number of matters, including the following:

• Acquisitions involving parties who are suffering material financial distress, including advice on what evidence parties should provide to the Government if they are facing some form of material financial distress. It also notes that in exceptional situations, where evidence of material financial distress gives rise to genuine urgency, it may be possible to expedite the assessment process. 
• When to notify a transaction  and, among other things, the updated Market Guidance states that this should be when terms are sufficiently stable, with the Government generally considering it appropriate to notify when there is a good faith intention to proceed (for example, this could be evidenced by agreed heads of terms, financing arrangements being in place, board level consideration of the acquisition, or, if it is a public bid, a public announcement of a firm intention to make an offer or announcement of a possible offer).  However, a notification may still be accepted if these are not present where there are good reasons for doing so. 
• New guidance on certain aspects of an assessment period which covers the following aspects of a full assessment:  (i) use of interim orders; (ii) use of information notices; (iii) effect of information notices on assessment period timeline; (iv) use of attendance notices; (v) use of the additional period; (vi) use of the voluntary period; (vii) how the Government may inform parties that a final order is being considered; (vii) communicating decisions to parties during the assessment process; and (viii) what happens if parties decide to withdraw from an acquisition after call-in. 
• New guidance on what to do if a party needs Government financial assistance (for example loans, guarantees or indemnities) due to a final order. However, the guidance explains such assistance is expected to be provided very rarely and only if no appropriate alternative is available.  
• While there is no new guidance on the definitions for any of the 17 mandatory notification sectors, the overview part of the Market Guidance containing those definitions has been updated  to state that that if there is significant uncertainty about whether a transaction requires mandatory notification it is possible to email the Investment Security Unit (ISU) to seek their view (although any ISU advice will be caveated). 
• Guidance on completing the notification forms, including new “top tips.   

(Cabinet Office, National Security and Investment: Market Guidance April 2023, 27.04.2023)

HMRC: Consultation on the Modernisation of Stamp Taxes on Shares

On April 27, 2023 HM Revenue and Customs (HMRC) published a consultation on the modernisation of stamp taxes on shares.  This is the third publication considering reform of the UK stamp taxes regime in seven years. 

This consultation, which runs until June 22, 2023 again looks at the possibility of having a single tax on securities rather than the current framework of distinct, albeit interdependent, taxes on electronic transfers (SDRT) and on paper transfers (stamp duty).  The suggestion is that the single tax would be collected via a self-assessment portal with taxpayers being provided with a UTRN (in the same way as Stamp Duty Land Tax (SDLT) is collected and administered currently).  Collection via CREST would continue for dematerialised securities. 

Under the proposals, the purchaser would be liable for the new single tax.  The consultation suggest that the new electronic regime would enable same day registration: a registrar would be able to register ownership on presentation of the UTRN (issued immediately on the online portal). There would be a single charging point: either the point of agreement or the date the agreement becomes unconditional, with a two-year time limit from the point of agreement and a single accountable date of 14 days from that charging point.

Stamp duty and SDRT currently have different geographical bases.  The Government proposes applying the SDRT geographical scope to the new single tax on grounds of simplicity.  The key factor for whether shares are in scope of the new single tax would be whether they are shares in a UK incorporated company. 

There is also some discussion of whether it would be possible to move away from the current framework which has a very broad base (“stock” and “marketable securities”) and then relies on a number of exemptions, and to instead introduce a positively defined tax base encompassing “non-government equity in UK incorporated companies, including stocks and bonds with equity like features”.  In another move to simplification, the consultation proposes specifically excluding the grant of a security interest from the scope of the new single tax and also taking the transfer of partnership interests out of scope.  

There are also proposals for a new approach to stamp taxes where there is contingent, uncertain or unascertainable consideration, suggesting an end to the familiar stamp duty “wait and see” regime.  Instead, rules would work along the lines of the SDLT regime, allowing an application for deferment where consideration is unascertainable only in circumstances where the uncertain future event is at least six months away and, in such cases, allowing a maximum deferral period of two years. 

A total of 50 questions are raised under the wide-ranging consultation which also touches on reliefs and exemptions from the current stamp duty and SDRT regimes.  

(HMRC, Stamp Taxes on Shares modernisation, 27.04.2023)

CGI: Tackling greenwashing from a governance perspective

On May 3, 2023 the Chartered Governance Institute UK & Ireland (CGI) published a report to help those working in governance and their boards to tackle greenwashing. This is described as the practice of attempting to make a product, practice, service or an entire organisation appear more sustainable or environmentally friendly than it really is.  

The report notes that the rise of ESG (environmental, social and governance) means organisations are under increasing pressure to demonstrate their sustainability and corporate responsibility credentials, resulting in an increased risk of greenwashing. At the same time there is more regulation in this area, as well as more litigation being brought against those accused of greenwashing. 

The report frames greenwashing as a governance issue and it sets out three key principles that, if followed, should avoid the risks inherent in greenwashing. These are:

• producing high-quality, transparent disclosures;
• increasing board capacity and guaranteeing robust oversight; and
• implementing change and creating accountability

The report also covers the following questions:

• What are the different forms of greenwashing?
• How is greenwashing a governance issue?
• Why is greenwashing problematic?
• What are the existing and upcoming laws and regulations about greenwashing?
• What are the risks for organisations which are accused of greenwashing?
• How should governance professionals manage greenwashing?

The report is available to CGI members or those who have registered as free subscribers.

(CGI, Tackling greenwashing from a governance perspective, 03.05.2023)