United Kingdom | Publication | July 2021
On July 28, 2021, the Financial Conduct Authority (FCA) published consultation paper 21/24 (Consultation) setting out proposed changes to the Listing Rules (LRs) and Disclosure Guidance and Transparency Rules (DTRs) in relation to diversity and inclusion on boards and executive committees.
The proposals seek to build on progress achieved under existing initiatives to improve diversity on the boards of the largest UK companies (such as the Hampton Alexander Review and the Parker Review and similar initiatives in international markets). They also follow a discussion paper (DP21/1) published jointly by the FCA, Prudential Regulatory Authority and the Bank of England earlier in July 2021 seeking views on regulatory plans to improve diversity and inclusion in the financial services sector.
The Consultation closes on October 20, 2021 and (subject to feedback and FCA Board approval) the FCA will seek to make relevant rules by late 2021.
It is proposed that the changes would take effect for accounting periods beginning on or after January 1, 2022 although the FCA encourages companies to consider making the relevant disclosures on a voluntary basis in annual financial reports published prior to that date.
The FCA notes that, by focusing initial targets and reporting on gender and ethnicity, it does not wish to diminish the importance of representation of other groups and the barriers to progression and opportunity they may face and that it will consider whether further measures to encourage transparency and progress on other diversity aspects, such as new targets, are appropriate in due course.
The new LR requirements summarised below would apply to companies with a premium or standard listing of equity shares or certificates representing equity shares (other than open-ended investment companies and “shell companies”).
It is proposed that such companies would be required to include in their annual financial reports:
New guidance is also proposed on additional information that such companies may wish to include in their annual financial report including:
Amendments to the existing provisions of DTR7.2 in relation to diversity policy disclosures in corporate governance statements are proposed to:
On July 27, 2021 the Financial Conduct Authority (FCA) published Policy Statement PS21/10 (Policy Statement) setting out final changes to the Listing Rules and associated guidance applicable to special purpose acquisition companies (SPACs). The FCA notes that its final rules aim to provide more flexibility to larger SPACs, provided they embed certain features that promote investor protection and the smooth operation of the market.
The new rules and guidance will come into force on August 10, 2021.
The Policy Statement follows on from the FCA’s previous Consultation Paper CP21/10 on this topic which was published in April 2021 (Consultation) and from earlier recommendations made in the report published by the UK Listing Review (led by Lord Hill) in March 2021 (Hill Review).
The Listing Rules currently include a (rebuttable) presumption that where a “shell company” such as a SPAC announces a reverse takeover, suspension of trading in its shares will be required (subject to limited exceptions). The Hill Review noted that this presumption was seen as a key deterrent for potential investors in UK listed SPACs.
Under the new rules, the presumption will not apply to a SPAC provided that, at the time of IPO and thereafter, it meets certain criteria. SPACs that do not meet these criteria will be subject to the presumption of suspension in the same as other shell companies.
The criteria are summarised below.
Size threshold: Aggregate gross proceeds raised from public shareholders (i.e. excluding the SPAC’s founders, sponsors and directors) at the date of admission to listing must be at least £100 million. This has been reduced from the £200 million threshold proposed in the Consultation.
Ring-fencing: As proposed in the Consultation, the SPAC must adequately ring-fence (via an independent third party) the gross proceeds raised from public shareholders, less any amounts specifically agreed to be used for the SPAC’s running costs, to ensure they can only be used for the purposes of funding an acquisition, a redemption of shares (see further below), or a repayment of capital to public shareholders.
Time limit for making an acquisition: The SPAC must acquire a target within two years of listing. This period may be extended by up to 12 months with the approval of the SPAC’s public shareholders. Following feedback on the Consultation, the FCA has also included an ability for a SPAC to extend the two or three year period by up to six months without shareholder approval in limited circumstances where a transaction is well advanced. Under the revised rules the maximum operating period would therefore be 42 months. If a SPAC has not completed its acquisition by the end of its operating period, the ring-fenced proceeds (see above) must be returned to shareholders.
Board approval: The SPAC’s board must approve any proposed acquisition. Directors must be excluded from the board discussion and vote if they: (a) are (or have an associate that is) a director of the target or any of its subsidiaries; or (b) have a conflict of interest in relation to the target or its subsidiaries. These provisions are being adopted in the form proposed in the Consultation.
Shareholder approval: As proposed in the Consultation, the SPAC must provide its public shareholders with the right to vote on any acquisition, with a majority vote in favour being required to proceed with a deal.
“Fair and reasonable” statement: Where any of the SPAC’s directors has a conflict of interest in relation to the target or a subsidiary of the target, the SPAC’s board must publish a statement (reflecting advice from an appropriately qualified and independent adviser) that the proposed transaction is fair and reasonable as far as the public shareholders of the SPAC are concerned. These provisions are being adopted in the form proposed in the Consultation.
Redemption option: As proposed in the Consultation, the SPAC must give investors redemption rights allowing them to exit the SPAC at a predetermined price (which could be a fixed amount or a fixed pro rata share of the ring-fenced IPO proceeds less agreed running costs) before any acquisition is completed.
Disclosure: The SPAC must make certain disclosures to the market in relation to the acquisition. Although these provisions are being adopted in the form proposed, in light of feedback on the Consultation, the Policy Statement includes further clarification of the FCA’s expectations in this area.
In response to feedback, the FCA has modified the supervisory approach proposed in the Consultation, recognising that SPACs will want more comfort prior to admission (rather than only at the point of announcement of an acquisition) that they meet the criteria for the presumption of suspension to be disapplied. The FCA notes that it will work with SPACs and their advisers to ensure that such comfort is achieved as part of vetting the prospectus and assessing eligibility for listing (although SPACs should be mindful that such comfort will not endure in the event that circumstances/arrangements have changed or have not been accurately described) and will apply a key principle that where a SPAC meets the criteria it will generally be treated similarly to commercial companies in terms of the application of the UK Market Abuse Regulation and the FCA’s general suspension powers.
On July 21, 2021 the FCA published a statement in relation to certain exemptions set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO).
The FCA notes that, following onshoring changes made to the FPO, the definition of “Relevant Market” inadvertently no longer includes relevant UK markets. This means that the exemptions under Articles 37, 41, 67, 68 and 69 of the FPO do not cover financial promotions relating to relevant UK markets or investments traded on such markets.
On July 20, 2021 HM Treasury published a draft version of the Markets in Financial Instruments, Benchmarks and Financial Promotions (Amendment) (EU Exit) Regulations 2021 (Draft Regulations) in order to (among other things) address these deficiencies in drafting. The Draft Regulations are stated as coming into force on October 13, 2021.
Until such date as the Draft Regulations come into force, the FCA does not propose to take enforcement action against persons for breach of the financial promotion restriction if such breach only comes about because the relevant exemption no longer applies because of the omission of relevant UK markets from the definition (although it reserves the right to pursue enforcement action in the event of misconduct by an affected person that goes beyond a failure to meet the criteria for exemption as a result of the omission).
On July 28, 2021 the Takeover Panel (Panel) published Panel Statement 2021/14 (Statement) in relation to disclosure of takeover approaches.
The Statement notes that, in light of a number of recent situations in which takeover approaches were kept confidential for a long period of time without any announcement being made or required, a concern was raised with the Panel about the timing of disclosure of such approaches. As a result, the Panel has reviewed the current rules and consulted with a range of external parties on whether the requirements of the Takeover Code (Code) in this area should be expanded.
The conclusion of the Panel (for the reasons set out in the Statement) is that no changes should be made to the existing regime under Rule 2 of the Code regarding disclosure of takeover approaches.
https://www.thetakeoverpanel.org.uk/publication/view/2021-14-disclosure-of-takeover-approaches
On July 28, 2021 Institutional Shareholder Services Inc. (ISS) launched its Annual Benchmark Policy Survey, a key component of its annual policy development process. The survey seeks views on a broad range of topics, including the use of non-financial ESG performance metrics in executive compensation, racial equity audits, and the continued use of virtual-only shareholder meetings.
On the same date ISS also launched a separate Climate Survey specifically focused on eliciting feedback on a variety of climate-related questions.
Both surveys close on August 20, 2021. After analysis and consideration of the survey responses and other key inputs, ISS intends to open a public comment period in October on key proposed changes to its voting policies for next year
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