FCA: Primary Market Bulletin 52

On 15 November 2024 the Financial Conduct Authority (FCA) published Primary Market Bulletin 52 (PMB 52) covering three areas as summarised briefly below. We will also be producing a more detailed briefing on PMB 52 in due course.

Identification of inside information in certain situations

PMB 52 discusses identification and announcement of inside information under the UK Market Abuse Regulation (MAR) in three common scenarios where the FCA has seen differing approaches taken by issuers, namely: offer processes; preparation of periodic financial information; and CEO resignations and appointments. 

The FCA also sets out some practical actions issuers can consider taking to make sure they are well prepared to correctly identify when information may constitute inside information in these situations and more generally. These include (among other things) establishing a disclosure committee, ensuring the ability of the CFO, CEO and company secretary to make announcements in relation to performance/event based inside information outside of normal reporting timetables, appropriate training for relevant employees, and documenting of decisions relating to whether information is inside information.

Dissemination of information by issuers during shareholder calls/meetings

The dissemination of information by issuers during shareholder calls and meetings and, in particular, the use of communication apps to interact with groups of smaller private shareholders is also discussed in PMB 52. Where issuers do communicate privately with shareholder groups, the FCA suggests a number of actions they may wish to consider in order to limit the risk of disclosing inside information or misleading statements. These include (among other things) avoiding scheduling/making calls or communications during closed periods, use of scripts/speaking notes, avoiding deviating from the language/tone of previously published statements in order to avoid any misconception that new information is being disclosed (particularly where discussions take place around outlook and future performance) and making contemporaneous written notes where calls or meetings are not recorded. 

Dissemination of regulatory information during interruptions to PIP services

The FCA discusses the dissemination of regulated information by issuers during interruptions to Primary Information Provider (PIP) services and, among other things:

• Encourages issuers to consider having alternate PIP accounts to meet their disclosure obligations where their usual PIP is affected by an outage. 
• Reminds issuers they should not assume the PIP has disseminated the information and should always check the announcement has been successfully made before disclosing or publishing the information themselves (on their website or via any other media channels).
• Notes that, where regulated information has not been released by the PIP as required under the FCA’s DTRs, issuers should be prepared to discuss when it is likely to be disseminated and whether the PIP has alternate arrangements in place – subject to those discussions the issuer should consider whether the information can be announced using its own second PIP account.  

(FCA, Primary Market Bulletin 52, 15.11.2024)

HM Treasury: PISCES – Government response

On 14 November 2024, HM Treasury published the Government’s response to its earlier consultation on the Private Intermittent Securities and Capital Exchange System (PISCES). The key message in the response is that the proposal and design of the proposed PISCES Sandbox was well received and that the Government intends to proceed. Further information is in our blog post here.

Glass Lewis: 2025 UK Benchmark Policy Guidelines

On 15 November 2024, Glass Lewis published its updated UK proxy voting guidelines (Guidelines), which will apply to shareholder meetings held after 1 January 2025. 

Key changes from the 2024 Guidelines include the following:

Director tenure 

Previously, where the tenure of the board chair exceeded nine years and a delineated timeline for succession was not provided, Glass Lewis would generally recommend against the nominations committee chair. However, given the general market acceptance of a wide range of rationales when extending the tenure of a board chair beyond nine years, Glass Lewis will assess the rationale provided on a case-by-case basis. 

Board level diversity 

• Gender Diversity: Since the UK Listing Rules expect all Main Market companies to aspire to 40% gender diversity, Glass Lewis will review companies' disclosures and practices for any potentially tokenistic approach to gender diversity. From 2025, Glass Lewis will generally recommend against the re-election of the nomination committee chair at any Main Market board that has failed to appoint at least two gender diverse directors and has failed to provide a clear and compelling rationale for the lack of board-level gender diversity. Absent mitigating circumstances, the benchmark policy continues to expect FTSE 350 boards to achieve a gender diversity level of at least 33%. 
• Ethnic Diversity: Glass Lewis has updated the section on board-level ethnic diversity to state that, from 2025, it will generally recommend against the re-election of the nomination committee chair at any FTSE 250 board that has failed to appoint at least one director from an ethnic minority background and has failed to provide a clear and compelling rationale for the lack of board-level ethnic diversity.

Board oversight of artificial intelligence 

In a new section of the Guidelines, Glass Lewis has outlined its expectation that boards be cognisant of, and take steps to mitigate exposure to, any material risks that could arise from their use or development of AI. Companies that use or develop AI technologies should adopt strong internal frameworks that include ethical considerations and ensure effective oversight of AI and where there is evidence that insufficient oversight and/or management of AI technologies has resulted in material harm to shareholders, shareholders may be recommended to vote against the re-election of accountable directors, or resolutions, as appropriate, if Glass Lewis finds the board’s oversight, response or disclosure concerning AI-related issues to be insufficient. 

Pension contributions 

The benchmark policy will generally recommend against the relevant remuneration proposal where executive pension contribution rates exceed those applying to the majority of the workforce and Glass Lewis expect no element of variable pay to be pensionable. 

Hybrid plans 

A new section outlines Glass Lewis’ assessment of ‘hybrid incentive plans’ in executive remuneration policies. Where a hybrid plan is proposed, companies should provide: 

• A rationale as to why a hybrid model is preferred over a single structure; 
• A reduction in maximum opportunity compared to the previous LTIP, with an explanation on the methodology used to determine the discount rate; and  
• A total vesting and post-vesting holding period of at least five years.
   Further, where competition for talent in the United States or internationally is cited as part of the rationale for introducing a hybrid plan, Glass Lewis expects companies to disclose their consideration of relevant peers. 

Dilution limits 

In light of recent changes to the Investment Association's Principles of Remuneration, potential dilution of over 5% over a ten-year period in relation to executive (discretionary) schemes will no longer generally lead to a recommendation to oppose equity awards. 

Voting structure 

Following the updated UK Listing Rules, a new section to the Guidelines addresses multiclass structures at UK companies. Where a board adopts a multi-class share structure in connection with an IPO, spin-off, or direct listing within the past year, and a share class with superior rights is unlisted, Glass Lewis will generally recommend voting against the chair of the governance committee (or equivalent) or a representative of the major shareholder up for election if the board: (i) did not also commit to submitting the multi-class structure to a shareholder vote at the company’s first shareholder meeting following the IPO; or (ii) did not provide for a reasonable sunset of the multi-class structure (generally seven years or less). 

Special Purpose Acquisition Companies 

A new section outlines specific considerations in relation to Special Purpose Acquisition Companies (SPACs). Glass Lewis will generally defer to management and the board when a SPAC seeks a reasonable business combination deadline extension. It also does not necessarily consider a former SPAC executive to be affiliated with the company post-combination, recognising the unique nature of a SPAC executive. Additionally, and recognising the unique role of a SPAC executive, Glass Lewis will generally apply its higher limit for company directorships, five public company boards, when reviewing potential over-commitment.

Glass Lewis has also clarified some areas in existing policies concerning conflicts of interest, proxy voting results, overall approach to executive remuneration, remuneration committee engagement, salary, annual bonus deferral, restricted share plans and virtual shareholder meetings.

(Glass Lewis, 2025 UK Benchmark Policy Guidelines, 15.11.2024)

ISS: Proposed UK Benchmark Policy changes for 2025

On 18 November 2024, ISS published a consultation document setting out proposed changes to their different Benchmark Policies that will generally apply to shareholder meetings held on or after 1 February 2025. 

Five policy updates are being proposed for the UK and Ireland. These reflect several recent changes in regulations and guidelines including on topics such as remuneration, dilution limits, and board diversity and the proposed policy changes are as follows: 

• Policy update regarding remuneration considering the recently updated Principles of Remuneration by the Investment Association (IA). 
• Policy update to adjust references to dilution, acknowledging the updated IA Principles of Remuneration, and providing transparency on investors' expectations regarding best practices. 
• Policy updates to the remuneration applicable to smaller companies, which reflects the increased focus on pay resolutions in the revised QCA Corporate Governance Code, particularly the recommendation that remuneration policies and remuneration reports be presented for advisory shareholder vote.
• Policy clarification regarding the FCA requirements for companies to report against targets related to board diversity, including gender and ethnic diversity. 
• Policy update to remove the reference regarding the Capital Requirements Directive limit ratio between variable and fixed remuneration in light of the recent change in regulation and the fact that UK banks and investments firms are no longer subject to the variable-to-fixed remuneration cap.

Comments are requested by 2 December 2024 and ISS expects to announce the final ISS benchmark policy updates in mid-December 2024.

(ISS, Proposed ISS Benchmark Policy Changes for 2025, 18.11.2024)