Half-yearly corporate update – our latest briefing

We have published our half-yearly update briefing which summarises the major developments in UK corporate law and regulation that have occurred over the last six months, that is from July to December 2021, and which are of relevance to UK listed companies.

The briefing is available here.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Roddy Martin
Roddy Martin
+44 20 7466 2255

Ben Ward
Ben Ward
+44 20 7466 2093

Latest FCA Primary Market Bulletin 37

The FCA has published Primary Market Bulletin 37, in which it reminds issuers about the requirement to file annual reports in ESEF, discusses the release of regulatory information service (RIS) announcements and summarises its review of sponsors’ requests for guidance on conflicts.

ESEF

The FCA reminds issuers that annual financial reports must be filed in ESEF (European Single Electronic Format – a structured XHTML format) for financial years starting on or after 1 January 2021, for filing from 1 January 2022. It also reminds them that they will need to devote further and continuing management and operational resource to ensure that they will be able to submit annual financial reports in the new format (see our blog post here for more information on the ESEF format).

RIS announcements

The FCA discusses the requirement for Primary Information Providers (PIPs), which are used by listed companies to release RIS announcements, to have in place adequate business continuity procedures in the event of any disruption. However, the FCA says that issuers may want to consider having a second PIP account so that, if their usual PIP notifies a breakdown in service, they would be able to use this second PIP to ensure their regulated information is disseminated in a timely way, as required by UK MAR, the Listing Rules and the DTRs.

Sponsor regime

The FCA has recently reviewed the conflict queries received from sponsors since the publication of Technical Note 701.3, which gives guidance to sponsors on identifying and managing conflicts. It notes that:

  • over 75% of guidance requests related to potential conflicts involving the sponsor’s group acting as a lender to the issuer or other party connected with the transaction;
  • in the vast majority of cases the FCA agreed with the sponsor’s own analysis of whether a conflict existed and, if so, the proposals to effectively manage such conflict; and
  • sponsors’ submissions generally met the requirements in its guidance.

The FCA will use this data to inform its reviews of future conflict queries it receives from sponsors and it encourages sponsors to take into account Primary Market Bulletin 37 when deciding whether to make a conflict submission to the Primary Market Specialist Supervision Team at the FCA.

Mike Flockhart
Mike Flockhart
+44 20 7466 2507

Erica MacDonald
Erica MacDonald
+44 20 3692 9643

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Corporate reporting – FRC report on implementation of ESEF

The Financial Reporting Lab of the Financial Reporting Council (FRC) has published a study on structured electronic reporting after reviewing reports that have already been filed by fifty listed companies across the UK and Europe. The study found that the majority of reports fell below the required standards and it sets out tips for companies when implementing structured electronic reporting.

Under DTR 4.1.14, for financial years starting on or after 1 January 2021 listed companies are required to publish their annual reports in “European Single Electronic Format” or “ESEF” (see our earlier blog posts here and here). Broadly, this means that issuers must publish their annual reports in an XHTML format and electronically tag the financial statements, using tags from a permitted core taxonomy.

Key recommendations in the report include:

  • Board-level involvement – Boards and audit committees should set up robust governance procedures for the ESEF process, including deciding whether the company should seek internal or external assurance of tagging (given that the audit of tagging is not currently mandatory in the UK).
  • Process – Companies should decide whether the XHTML format will be produced only once the content of the annual report is finalised or whether the two formats will be produced in parallel.
  • Publication – Where companies continue to produce a PDF alongside the XHTML version, both formats should be made available at the same time and in the same place on the company’s website.
  • Tagging – Companies should select carefully the most appropriate tag that reflects the underlying information, and only create custom tags (or “extensions”) when necessary. The UK National Storage Mechanism runs automated checks on filings when they are submitted – if errors are raised, these must be resolved before the filing can be submitted.
Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Roddy Martin
Roddy Martin
+44 20 7466 2255

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Guidance on European Single Electronic Format for annual reports

The FCA has published guidance on the requirement for listed companies to publish accounts in the European Single Electronic Format (ESEF) and the Department for Business, Energy and Industrial Strategy (BEIS) has updated its policy paper on ESEF.

Under DTR 4.1.14, issuers will have to publish their annual reports in the ESEF (see our earlier blog post). The FCA recently confirmed that the ESEF requirements that were due to become effective for financial years beginning on or after 1 January 2020 would instead become effective for financial years beginning on or after 1 January 2021 (see our earlier blog post).

FCA guidance

The FCA has published guidance for the preparation of annual reports in European single electronic format.

The guidance says that issuers should have regard to the ESEF reporting manual published by ESMA when preparing their reports in ESEF. It also sets out a small number of specific departures to the approach outlined in ESMA’s manual for UK issuers.

The FCA has confirmed that issuers will be able to voluntarily submit their annual report to the National Storage Mechanism (NSM) in ESEF from January 2021. The FCA’s ESEF webpage contains further information about the process for filing reports in ESEF.

Government guidance on auditor involvement

BEIS has updated its policy paper on ESEF to set out its view on the role of auditors. The Government first published the policy statement in June 2020 to set out its view on directors’ sign-off of accounts (see our earlier blog post).

The updated policy paper confirms that the Government will not require auditors to report on ESEF tagging of accounts at present but will consider this in the context of the recommendations on audit made by Sir Donald Brydon (see our earlier blog post).

The policy paper also notes that companies may wish to obtain assurance in relation to the preparation of accounts in accordance with the ESEF requirements in accordance with the Financial Reporting Council’s new ISAE 3000 standard.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Greg Mulley
Greg Mulley
+44 20 7466 2771

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Delay to implementation of European Single Electronic Format for annual reports

The FCA has published policy statement (PS20/14) which confirms that it intends to delay the introduction of the European Single Electronic Format (ESEF) requirements for annual reports in the UK. The delay is contingent on the Brexit transition period ending on 31 December 2020, as it is only once the transition period ends that the FCA is able to delay implementation.

Under the amended EU Transparency Directive, annual financial reports of companies which have securities listed on an EU regulated market must be published in accordance with the requirements of the ESEF for financial years beginning on or after 1 January 2020. The FCA introduced DTR4.1.14 in the Transparency Rules to implement this requirement (see our blog post at the time).

In July 2020, in light of the Covid-19 pandemic, the FCA published a consultation paper (CP20/12) containing proposals to postpone the entry into force of the ESEF requirements (see our blog post at the time).

The policy statement confirms that issuers will be required to:

  • publish their annual reports in XHTML web browser format with effect from financial years beginning on or after 1 January 2021 (rather than 2020); and
  • electronically tag their financial statements (if they produce consolidated annual financial statements in accordance with IFRS) with effect from financial years beginning on or after 1 January 2021 (rather than 2020); and
  • electronically tag the notes to financial statements (if they produce consolidated annual financial statements in accordance with IFRS) for financial years beginning on or after 1 January 2022. Although the FCA consulted on delaying this requirement by a year in its consultation paper, the policy statement confirms that this requirement will come into force with effect from January 2022 as originally envisaged.

The National Storage Mechanism (NSM) is being upgraded to allow issuers to submit annual reports in accordance with the ESEF requirements. Issuers will be able to voluntarily submit their annual report to the NSM in ESEF format from January 2021.

 

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Ben Ward
Ben Ward
+44 20 7466 2093

Government response on corporate transparency and Companies House consultation

The Department for Business, Energy and Industrial Strategy (BEIS) has published its response following its consultation on options to increase corporate transparency and enhance the role of Companies House.

The key changes, which BEIS consulted on in 2019, are:

  • Knowing who is setting up, managing and controlling companies – The government will introduce compulsory digital identity verification checks for directors, people with significant control (PSCs) and people who present company information. Shareholders will not be subject to identity verification but companies will be required to provide full names for shareholders.
  • Improving the accuracy and usability of information on the register – Companies House will be given discretion to query and check information before it is placed on the register, and the process for amending or removing inaccurate information will be simplified.
  • Company accounts – The government will consult further on measures to introduce full electronic tagging for accounts submitted to Companies House (listed companies will be required to do this in any event from 1 January 2021 – see our earlier post on this issue) and reform of the rules on shortening accounting reference periods.
  • Company names –  Companies House will have the power to query proposed company names before they are registered and the role of the Company Names Adjudicator will be reviewed.

The government will develop the proposals, consult further where necessary and introduce the necessary legislation when parliamentary time (and the necessary funding) allows.

Julie Farley
Julie Farley
+44 20 7466 2109

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Ben Ward
Ben Ward
+44 20 7466 2093

FCA to delay implementation of European Single Electronic Format for annual reports

The Financial Conduct Authority (FCA) has published a consultation paper (CP20/12) in which it proposes to delay the introduction of the European Single Electronic Format (ESEF) requirements for annual reports in the UK.

Under the amended EU Transparency Directive, annual financial reports of companies which have securities listed on an EU regulated market must be published in accordance with the requirements of the ESEF for financial years beginning on or after 1 January 2020 (see our corporate update 2019/1). The FCA introduced DTR4.1.14R in the Transparency Rules to implement this requirement (see our corporate update 2020/1).

In light of the Covid-19 pandemic, the FCA is proposing to postpone the entry into force of the ESEF requirements by one year.  Issuers would therefore be required to:

  • publish their annual reports in XHTML web browser format and electronically tag their financial statements with effect from financial years beginning on or after 1 January 2021 (rather than 2020); and
  • electronically tag the notes to financial statements for financial years beginning on or after 1 January 2023 (rather than 2022).

The proposals are contingent on the Brexit transition period ending on 31 December 2020, as it is only once the transition period ends that the FCA gains the ability to delay implementation.

The consultation closes on 28 August 2020.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Alex Kay
Alex Kay
+44 20 7466 2447

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Signing off accounts published in the European single electronic format

The Department of Business, Energy and Industrial Strategy (BEIS) has published a policy paper outlining its position on the directors’ sign-off of accounts for companies that are subject to the requirements of the Transparency Directive and the EU Delegated Regulation on the use of the European single electronic format (ESEF).

Under the Transparency Rules (DTR 4.1.14R) issuers must, for financial years beginning on or after 1 January 2020, publish their accounts in ESEF. Under the ESEF requirements, companies will have to issue their annual reports in Extensible Hypertext Mark-up Language (XHTML), and IFRS consolidated financial statements contained in annual reports will have to be marked up using extensible business reporting language (XBRL). XBRL is an electronic language that enables both machine and human readability in one document. The format, and tagging, is designed to allow for software analysis.

BEIS is of the view that:

  • ESEF tagging is not relevant when the directors consider whether company accounts have been prepared in accordance with the Companies Act 2006 and are “true and fair”. The tagging can be applied to a later version of the accounts; and
  • companies may choose to create a single filing, or create a tagged document once the annual report has been completed in paper format. In each case, the directors’ confirmation relates to the human-readable version of the annual report and not the iXBRL tagged data.
Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Robert Moore
Robert Moore
+44 20 7466 2918

Ben Ward
Ben Ward
+44 20 7466 2093

Minor changes to the Listing and Transparency Rules

The Financial Conduct Authority (FCA) has published minor changes to the FCA Handbook, including the Listing and Transparency Rules.

The FCA consulted on the changes in September 2019.

The changes are:

  • Governance Code – References in the Listing Rules and Transparency Rules to the UK Corporate Governance Code have been updated to reflect the 2018 edition of the Code. The changes apply to financial years beginning on or after 1 January 2019.
  • European Single Electronic Format for annual reports – Under the amended EU Transparency Directive, annual financial reports of companies which have securities listed on an EU regulated market must be published in the European Single Electronic Format (ESEF) for financial years beginning on or after 1 January 2020 (see our corporate update 2019/1). The FCA has added a provision into the Transparency Rules to require issuers to comply with this.

The rule changes took effect on 13 December 2019.

Mike Flockhart
Mike Flockhart
+44 20 7466 2918

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Ben Ward
Ben Ward
+44 20 7466 2093

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

European Single Electronic Format

In December 2019, the Financial Conduct Authority (FCA) published its Handbook Notice 72 which set out changes to the FCA Handbook to reflect the implementation requirements for annual corporate reporting in the European single electronic format (ESEF) under the Transparency Directive (2004/109/EU). The changes correspond with the ones proposed in the FCA’s September 2019 consultation paper (CP19/27).

Under the amended EU Transparency Directive, all annual financial reports of companies which have securities listed on an EU regulated market must be published in the ESEF for financial years on or after 1 January 2020.

Mike Flockhart
Mike Flockhart
+44 20 7466 2918

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Ben Ward
Ben Ward
+44 20 7466 2093

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038