Essential Corporate News – week ending September 13, 2019

FCA: CP19/27 - Quarterly Consultation Paper 25

On September 6, 2019 the Financial Conduct Authority (FCA) published its quarterly consultation paper 25 (CP19/27) proposing various amendments to the FCA Handbook.

CP19/27 requests feedback on several proposals, including:

• Minor Handbook amendments to update references to the UK Corporate Governance Code (the Code) including amending the Glossary definition to refer to the 2018 edition of the Code and inserting transitional provisions in the Listing Rules Sourcebook and the Disclosure Transparency Rules Sourcebook (DTR) to continue applying the 2016 edition of the Code to accounting periods beginning before January 1, 2019.
• Changes to the DTRs to implement the European Single Electronic Format, including inserting a new rule to implement Article 4(7) of the amended Transparency Directive under which issuers must prepare annual financial reports in a single electronic reporting format in accordance with the Regulatory Technical Standard, as amended. These changes would apply to annual financial reports for financial years beginning on or after January 1, 2020, but the changes would not come into force in the event of a no deal Brexit before that date.
• Further Brexit-related changes to the Handbook & Binding Technical Standards following the extension of Article 50, which will only come into effect if the UK leaves the EU without an implementation period, including changes to the related party rules under DTR 7.3 so it would only apply to UK-incorporated issuers with voting shares admitted to a UK regulated market from exit day.
• Minor amendments to chapter 15 of the Supervision manual related to Alternative Investment Fund Managers Directive Forms.
• Amendments to the Collective Investment Schemes sourcebook.
• Changes to regulatory reporting requirements.

Some of the proposed Brexit changes will only come into effect if the UK leaves the EU on October 31, 2019 without an implementation period and the FCA requests responses on these proposed Brexit-related changes, the amendments to the Supervision manual and certain of the other proposals by October 4, 2019. In relation to the consultation on the Handbook amendments to update references to the UK Corporate Governance Code, to the proposed changes to the DTRs to implement the European Single Electronic Format and to certain of the other proposals, responses are requested by November 1, 2019.

(FCA: CP19/27 - Quarterly Consultation paper 25, 06.09.19)

(FCA: CP19/27 - Quarterly Consultation paper 25 press release, 06.09.19)

QCA: The role of non-executive directors in growth companies

On September 6, 2019 the Quoted Companies Alliance (QCA) and Henley Business School published a research report “The Role of Non-executive Directors in Growth Companies” (Report). The Report is intended to highlight the very different role that Non-executive Directors (NEDs) play in growth companies when compared to the largest companies on the stock market.

The findings of the Report highlight not just the difference between small and large companies but also provide insights about how the role, and skills required, of NEDs in growth companies vary greatly (with size, complexity, type of ownership and stage of development all having an influence over the type of Chair and NED that can add value).

The Report highlights three key aspects of the NED role in, and contribution to, growth companies:

• While the Chair is central in creating the necessary conditions for NED effectiveness through the implementation of sound governance practice, the experience, skill and will of the individual NED remains the decisive factor.
• While there is wide variation in how a NED role can be carried out, four basic company types can be identified, each implying a particular approach by NEDs and requiring specific experience, skills and behaviour, and also a specific approach by the Chair. The Report labels the four types of company as: “keep the business on track”, “keep the CEO on track”, “develop the team” and “making sense of complexity”.
• While all NEDs are tasked with some form of monitoring, in growth companies this is achieved through engaged stewardship.
  The Report also identifies a number of important questions that NEDs and Chairs of growth companies should ask of themselves to ensure they are performing in their roles (both now and prospectively).

(QCA: The role of non-executive directors in growth companies, 06.09.19)

HM Treasury: Prospectus (Amendment etc.) (EU Exit) Regulations 2019

On September 6, 2019 the Prospectus (Amendment etc.) (EU Exit) Regulations 2019 (Regulations) were made and published alongside an explanatory memorandum. The Regulations follow the new EU Prospectus Regulation, the majority of provisions of which came into force on July 21, 2019, to ensure that the UK’s prospectus regime would continue to operate effectively in the event that the UK leaves the EU without a deal.

The Regulations amend the Prospectus Regulation and related Commission delegated regulations (as retained EU law) and certain pieces of UK legislation, in addition to containing amendments to the Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019.

The Regulations largely preserve the existing regime as it currently applies to issuers in the UK, and do not make policy changes, other than those necessary to reflect the UK’s new position outside the EU.

Amendments set out by the Regulations include:

• The transfer of functions currently exercised by the European Commission, including the making of equivalence decisions for prospectus requirements and accounting standards and the making of delegated regulations under the Prospectus Regulation, to HM Treasury and the transfer of functions currently exercised by European Securities and Markets Authority (ESMA), including the issuing of binding technical standards, to the Financial Conduct Authority (FCA). In addition, the Regulations remove certain functions under the Prospectus Regulation that are no longer considered necessary after Brexit.
• A requirement for UK issuers to use UK-adopted international accounting standards for historical financial information to be included in prospectuses. Issuers established outside the UK must use UK-adopted international accounting standards or the accounting standards of other countries if an equivalence decision has been made. The Regulations set out explicitly the accounting standards that can be used by issuers both before, and after the point at which the UK leaves the EU (regulation 71).
• A requirement that EEA issuers wishing to offer securities to the public or requesting the admission of securities to trading on a regulated market in the UK secure approval of their prospectus from the FCA, irrespective of whether their prospectus has already been approved by an EEA regulator. Valid prospectuses passported into the UK pre-exit will continue to be valid up to the end of their normal period of validity. In such cases, the prospectus will be treated as if it had originally been approved by the FCA, but any supplements will require FCA approval (regulation 74).
• A requirement that EEA issuers secure FCA approval of registration documents. EEA issuers will need to seek approval of registration documents issued after Brexit from the FCA, but registration documents which have already been approved prior to Brexit can be passported into the UK for use as a constituent part of a prospectus until the end of their normal period of validity. However, a prospectus that contains one of these registration documents will require separate FCA approval for the securities note and the prospectus summary (regulation 75).
• The removal of permission to incorporate by reference information contained in prospectuses previously approved by an EEA state national regulator. However, information contained in a prospectus approved by an EEA regulator before exit day may continue to be incorporated following exit day (regulation 47).
• The removal of the obligation for UK authorities to co-operate and share information with EU authorities. The regulations provide that co-operation and information sharing will be based on the existing framework under the Financial Services and Markets Act 2000 which applies to third countries and allows for co-operation and information sharing on a discretionary basis.

The Regulations came into force in part on September 6, 2019 with the remaining provisions due to come into force either immediately before ‘exit day’ or on exit day.

(HM Treasury: Prospectus (Amendment etc.) (EU Exit) Regulations 2019, 06.09.19)

(HM Treasury: Prospectus (Amendment etc.) (EU Exit) Regulations 2019 explanatory memorandum, 06.09.19)

HM Treasury: Competition (Amendment etc.) (EU Exit) (No 2) Regulations 2019

On September 10, 2019 HM Treasury published the Competition (Amendment etc.) (EU Exit) (No 2) Regulations 2019 (Regulations), together with an explanatory memorandum.

The Regulations are made in order to correct certain deficiencies in competition legislation arising from the UK’s exit from the EU without a deal. Amendments are made to the Competition Act 1998, the Enterprise Act 2002 and the Competition (Amendments etc.) (EU Exit) (Regulations 2019, amongst other instruments.

The Regulations address UK-related commitments made by parties under merger control and competition investigation procedures and aim to ensure that any commitments made prior to exit day relating to the supply or acquisition of goods or services in the UK are preserved.

The Regulations grant UK competition authorities the power to monitor and enforce these commitments, largely mirroring those powers which currently apply under UK competition enforcement and if the UK leaves the EU in a no-deal scenario, the Regulations require the Competition and Market Authority to publish guidance on this issue.

The Regulations also amend the saving and transitional provisions of the Competition (Amendment etc.) (EU Exit) Regulations 2019 to clarify the law and procedure to be applied in private law claims which involve breaches of both domestic and European prohibitions as well as claims involving behaviour which spans exit day.

(HM Treasury: Competition (Amendment etc.) (EU Exit) (No 2) Regulations 2019, 10.09.19)

(HM Treasury: Competition (Amendment etc.) (EU Exit) (No 2) Regulations 2019 explanatory memorandum, 10.09.19)