A Financial Services and Markets Bill has been published as part of the government’s Future Regulatory Framework Review (FRF Review). The FRF Review was established to determine how the UK’s financial services regulatory framework should be amended post-Brexit. The Bill covers a wide range of topics including revoking EU retained laws relating to financial services and markets.
For listed companies the most interesting aspects of the Bill are that once passed it will revoke the UK Market Abuse Regulation and UK Prospectus Regulation – both of which are part of EU retained law post-Brexit. The Financial Conduct Authority (FCA) will then have the power to set the detailed rules on the definition and disclosure of inside information, and when a prospectus is required and what it should contain. See our briefing on reform of the UK’s prospectus regime for further detail of the government’s proposals in this area.
Reform of the prospectus regime was one of the recommendations of Lord Hill’s UK Listing Review. Other recommendations included:
- restructuring the UK’s premium and standard listing segments. The FCA published a second discussion paper on this in May this year (see our blog post here for further details) and the deadline for responses is 28 July 2022; and
- a review of the regulation of secondary capital raisings by listed companies.
Our updated summary of the status of the Hill Review recommendations is available here.
For more detail on what the Financial Services and Markets Bill covers, see our financial services blog here.
The Financial Conduct Authority (FCA) has published a series of engagement papers on the new prospectus and public offers regime in the UK, as trailed by the government in December 2022.
This follows the Hill Review of the UK listing regime published in March 2021, whose recommendations included an overhaul of the prospectus regime, in particular for further issuances by companies that are already listed.
Responses to the engagement papers will inform the new prospectus rules that will be made by the FCA using new powers under the Financial Services and Markets Bill 2022-23 (once passed). The FCA asks for responses to the questions raised by the engagement papers by 29 September 2023 and then plans to consult on specific rule proposals in 2024.
The matters on which the FCA is currently seeking views are:
- Admission to trading on a regulated market (Engagement Paper 1) – The FCA says that the requirement for a prospectus on an IPO will remain and it will continue to need to contain sufficient detail to meet the “necessary information” test. It is asking for views on when exemptions to this requirement should apply, the required content and format of a prospectus in this context, and the responsibility for, and approval of, such a prospectus.
- Further issuances of equity on regulated markets (Engagement Paper 2) – The FCA says there will be no requirement for a listed company to publish a prospectus when it issues further equity securities unless there is a clear need for one. It asks whether there should be a threshold (set by reference to the percentage of existing share capital that the issuance represents) above which a prospectus would be required and what document (if any) should be required if/where a prospectus is not required.
- Protected forward-looking statements (PFLS) (Engagement Paper 3) – The FCA seeks views on how PFLS, which will be subject to the lower recklessness liability standard, should be defined. It also asks whether the FCA should set certain minimum criteria for the production of PFLS, how they should be presented and labelled in prospectuses, and whether sustainability-related disclosures should be PFLS.
The FCA is also interested in views (Engagement Paper 4) on where the current UK prospectus regime could be improved in the context of wholesale debt capital markets.
For more details on the plans for prospectus regime reform, read our full briefing here.
The government has published a written statement announcing that it has tabled an amendment to the Retained EU Law (Revocation and Reform) Bill that removes the provision in the Bill which would have revoked almost all retained EU law at the end of 2023.
In order to avoid leaving gaps in the UK legal system when the UK withdrew from the EU, the body of EU law in force at the end of 2020 was imported into UK law, and the UK legislation that implemented EU law was retained, under the European Union (Withdrawal) Act 2018 (with necessary amendments). This body of law is called “retained EU law”.
The Bill as first published would have automatically revoked the majority of retained EU law on 31 December 2023, unless specifically preserved (the so-called “sunset”). The amendment tabled by the government replaces the general sunset for all retained EU law with a list of the specific retained EU laws it intends to revoke.
The planned amendment to the Retained EU Law Bill does not affect the proposed reform of the UK Prospectus Regulation and Market Abuse Regulation. The Financial Services and Markets Bill, which is currently in the House of Lords, will repeal those regimes and give the FCA power to set the detailed rules on when a prospectus is required and what it should contain, and on the definition and disclosure of inside information. See our blog post here for more information.
The government has also published a policy paper which sets out some more detailed proposals for post-Brexit reform. It is largely focused on employment law issues including:
- simplifying the rules that apply under the TUPE Regulations when a business transfers to a new owner;
- limiting the length of non-compete clauses in employment contracts to three months; and
- reducing the rules on recording working hours and other administrative requirements under the Working Time Regulations.
For further information on these proposals, see our employment team’s blog post here.
HM Treasury (HMT) and the FCA have published a joint statement on their review of the criminal market abuse regime.
The UK’s criminal sanctions for insider dealing and market manipulation are contained in the Criminal Justice Act 1993, and are separate from the civil sanctions that can be imposed for breaches of the UK Market Abuse Regulation (UK MAR).
The government committed to reviewing the UK’s criminal market abuse regime in its Economic Crime Plan 2019-22 published in July 2019.
Having completed the review, HMT and the FCA state that:
- they have identified a number of areas where the government believes it would be appropriate to update the criminal market abuse regime. These will be developed in parallel with the government’s acceptance of the recommendations of the Fair and Effective Markets Review in relation to wholesale markets, where the government plans to lay secondary legislation in 2023; and
- they will consider changes to the criminal market abuse regime alongside any reforms to UK MAR through the Future Regulatory Framework (FRF) Review. As part of the FRF, the government intends to repeal UK MAR – which became part of retained EU law in the UK post-Brexit – through the Financial Services and Markets Bill 2022-23 (read more on the Bill on our blog here) and replace it with UK-specific legislation.
HM Treasury has published a policy statement setting out its approach to the repeal of financial services retained EU law. As part of this, it has also published an illustrative statutory instrument on public offers and admissions to trading (SI) which demonstrates how it will make its proposed changes to the prospectus and public offers regime.
The policy statement forms part of the ‘Edinburgh reforms’ – a package of reforms which the government hopes will drive growth and competitiveness in the UK financial services sector. The key proposals of the Edinburgh Reforms, and their potential significance and impact, are discussed in our webcast series.
The SI covers the majority of the changes previously announced by the government in March 2022 in response to its consultation on the UK prospectus regime. Key points to note are:
- prospectuses will remain a key feature of an IPO in the UK;
- the FCA will be given discretion to determine when a prospectus is required but, for a listed issuer, a public offer to its existing shareholders would not of itself require a prospectus;
- the overarching requirement for a prospectus to contain ‘necessary information’ will be retained, but the FCA will be given power to make rules on the detailed disclosure requirements, opening the door to a more proportionate disclosure regime for secondary issues (if a prospectus is required at all); and
- liability for forward-looking information in a prospectus will be aligned with liability for other listed company published information: liability will only be incurred when those involved are reckless.
Our detailed briefing on the UK prospectus regime reform proposals is available here.
The Treasury intends to deliver the Edinburgh reforms by splitting the work into tranches. The prospectus regime will be among the first tranche of rules to be reformed using the new powers in the Financial Services and Markets Bill.
The Treasury has stressed that the exact drafting, design and format of the SI is not final and will continue to develop before the final legislation is laid before Parliament once the Financial Services and Markets Bill has received Royal Assent (expected in spring 2023). The Treasury says it expects to make significant progress on Tranches 1 and 2 by the end of 2023.
Recent additions to our Corporate Notes blog include a look at the new register of overseas entities owning UK property, a summary of the Financial Services and Markets Bill 2022-23 and Secondary Capital Raising Review recommendations, as well as an overview of the FRC guidance on running an effective AGM and position paper on audit and corporate governance reform. Other additions also include a look at the new and updated guidance on the National Security and Investment Act 2021 and Panel Bulletin 5 on possible offer announcements.