FCA consultation on diversity-related disclosures by listed companies

The Financial Conduct Authority (FCA) has published a consultation paper (CP21/24) on proposals to require premium and standard listed companies to make disclosures in relation to gender and ethnic diversity at board and executive management level.

The consultation follows the publication earlier this year of the five year summary report of the Hampton-Alexander Review on improving gender balance in FTSE companies (see our blog post here) and the 2021 update from the Parker Review on ethnic diversity on FTSE 100 boards (see our blog post here).

The FCA is seeking views on changes to the Listing Rules which would require premium and standard listed companies to include in their annual report and accounts a statement confirming whether they have met specified board diversity targets as at a date during the financial year of their choosing. The proposed targets are that:

  • the board comprises at least 40% women;
  • at least one of the positions of Chair, CEO, CFO or Senior Independent Director is occupied by a woman; and
  • at least one member of the board is from a non-white ethnic minority background (as categorised by the UK Office for National Statistics).

Companies not meeting the specified targets would be required to explain the reasons why they have not been met.

In addition, premium and standard listed companies would be required to include data on the gender and ethnic diversity of members of their board and executive management.

There would be prescribed tabular forms for all of the proposed new disclosures.

In addition, the FCA is seeking views on expanding the current diversity policy-related disclosures required by Transparency Rules which were originally introduced as part of UK implementation of the EU Non-Financial Reporting Directive in 2017 (see our corporate e-bulletin here).

The proposed changes include adding ethnicity, sexual orientation, disability and socio-economic backgrounds to the aspects of diversity currently in DTR 7.2.8A R.

The consultation closes on 20 October 2021 and the FCA aims to publish final rules by the end of 2021. Any new disclosure requirements would apply to financial years starting on or after 1 January 2022.

Caroline Hagg
Caroline Hagg
+44 20 7466 6311

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Listing regime – latest FCA Primary Market Bulletin

The Financial Conduct Authority (FCA) has published the 33rd edition of its Primary Market Bulletin (PMB No.33). It contains an update on various issues, including the FCA’s review of delayed disclosure notifications.

Feedback on review of delayed disclosure notifications

In November 2020, the FCA published a review of notifications of delayed disclosure of inside information (see our blog post here).

Following publication of the review, the FCA says that it has received a number of queries. It clarifies that the review did not contain any new guidance and was not intended to drive wholesale changes to market practice. In particular the FCA reiterates that:

  • Periodic financial information – Issuers should begin with the assumption that information relating to financial results could constitute inside information and the FCA expects issuers to exercise judgement in assessing whether inside information exists.
  • Board changes – Following feedback on the challenges of complying with the obligation to announce inside information as soon as possible in the context of board changes, the FCA acknowledges that the question of whether information is “precise” requires judgement. The FCA also refers issuers to the guidance in its Technical Note on Assessing and handling inside information.

Major shareholding notifications and total voting rights announcements

In 2020, the FCA conducted a review of the way that UK issuers announced changes to total voting rights and the effect on major shareholding notifications.

DTR 5.6.1 requires an issuer to disclose the total number of voting rights, and the total number of voting rights attaching to treasury shares, at the end of each month if there has been a change in those numbers during the month. If there is a material increase or decrease during the month, an immediate total voting rights announcement may be required under DTR 5.6.1A.

DTR 5 also requires holders of shares and certain financial instruments to notify the FCA and the relevant issuer when certain thresholds are reached or crossed.

Recommendations made by the FCA following its review include:

  • issuers should report changes to total voting rights clearly and on time at the end of each calendar month during which an increase or decrease occurred, even if this information has previously been disclosed in accordance with DTR 5.6.1A; and
  • issuers should report total voting rights figures as a distinct announcement using “Total Voting Rights” as a headline and selecting as the classification for the regulated information “Total number of voting rights and capital”.

The new on-line portal for investors to submit TR-1 notifications of major shareholdings electronically (see our blog post here) is now live and TR-1 notifications must now be sent via the portal.

Payments to governments

In 2020 the FCA conducted a review of disclosures made by those issuers in the extractive sector required to report on their payments to governments in accordance with DTR 4.3A.

The FCA reminds issuers of the key requirements in relation to contents, publication and filing of these disclosures (in particular filing with the National Storage Mechanism in XML format).

The FCA also reminds issuers that no determinations of equivalence have been made by the FCA in respect of DTR 4.3A and so all issuers within scope are required to comply, even if they report similar information in another jurisdiction.

 

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Caroline Rae
Caroline Rae
+44 20 7466 2916

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

 

Listing regime – changes to process for notification of investor dealings

The Financial Conduct Authority (FCA) has confirmed that the way in which investors submit TR-1 notifications of major shareholdings will change from 22 March 2021.

The FCA announced that it would make changes to the submission process in November 2020 (see our corporate update 2020/22). From 22 March 2021, all TR-1 notifications in relation to shares in a UK issuer admitted to trading on a regulated market, should be submitted electronically to the FCA via the FCA’s Electronic Submission System (ESS). The FCA has published a registration guide to help investors prepare for the new system.

Under DTR5.1.2, certain shareholders and holders of financial instruments are required to notify an issuer of dealings in that issuer’s securities. Investors currently inform the issuer using Form TR-1. For issuers on the main market of the London Stock Exchange, the form must also be emailed to the FCA.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Greg Mulley
Greg Mulley
+44 20 7466 2771

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

 

The regulatory regime for companies following the UK’s withdrawal from the EU

The UK ceased to be a Member State of the European Union on 31 January 2020. A transition period then applied until 31 December 2020. During the transition period, EU law continued to apply in and to the UK, and the UK continued to trade as part of the Single Market.

The Brexit transition period ended on 31 December 2020, with the EU and UK having agreed to the terms of their future relationship through a Trade and Cooperation Agreement – you can read more about the implications of the agreement here.

Retained EU law

As of 1 January 2021, EU law no longer applies in the UK. By virtue of the European Union (Withdrawal) Act 2018, directly applicable EU law in force in the UK at the end of the transition period is retained as part of the UK statute book. Retained EU law has broadly the same status as any other UK enactment and is subject to the same rules/processes for amendment as any other UK primary or secondary legislation (or if made under devolved powers, the rules of the relevant legislature in Scotland, Wales or Northern Ireland).

EU Exit statutory instruments

The Government has made secondary legislation dealing with a range of corporate law matters to ensure that both Retained EU law and existing UK law and regulation (for example that referenced EU concepts or bodies) could operate effectively once the transition period ended. These regulations include:

FCA Rules

The FCA has made a number of changes to its Handbook that apply with effect from the end of the Brexit transition period, including changes to the Listing, Prospectus Regulation, Disclosure Guidance and Transparency Rules.

The impact of the rule changes for UK incorporated companies which have securities admitted only to a UK regulated market will be minimal. Issuers which have shares admitted to a regulated market in the UK and in an EEA state will have to adjust their systems and controls and, for example, make additional notifications to regulators for certain matters, including in relation to PDMR transactions.

Takeover Code

The Takeover Panel has similarly made a number of changes to the Takeover Code that were required as a result of Brexit. The changes will not have a significant impact on transactions.

 

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Barnaby Hinnigan
Barnaby Hinnigan
+44 20 7466 2816

Roddy Martin
Roddy Martin
+44 20 7466 2255

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

Listing Regime – changes to process for notification of investor dealings

The Financial Conduct Authority (FCA) will change the way in which investors submit the form for notification of major shareholdings from Q1 2021. Its updated webpage on submitting investor notifications sets out information on this.

Under DTR5.1.2, certain shareholders and holders of financial instruments are required to notify an issuer of dealings in that issuer’s securities. Investors currently inform the issuer using Form TR-1. For issuers on the main market of the London Stock Exchange, the form must also be emailed to the FCA.

The FCA is developing a new online portal for submission of these investor notifications. Once the new system is live, investors will have to complete an electronic TR-1 Form and submit it via the portal.

Investors will have to complete a 2-step registration process to use the portal. The FCA has published a registration guide to help investors prepare for the new system.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Michael Jacobs
Michael Jacobs
+44 20 7466 2463

Alan Montgomery
Alan Montgomery
+44 20 7466 2618

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

FCA censures listed company for breach of Listing Rules and Transparency Rules

The FCA has issued a final notice and censured Aviva plc for breach of the Listing Rules and Transparency Rules in connection with the market announcement it made in relation to certain of its preference shares.

The FCA found that Aviva contravened Listing Rule 1.3.3 and Transparency Rule 1A.3.2 which require an issuer to take reasonable care to ensure that information in market announcements is not misleading, false or deceptive and does not omit anything likely to affect the import of the information.

On 8 March 2018, Aviva issued a market announcement which included certain statements in relation to capital management, and in particular, statements in relation to Aviva’s ability to cancel certain of its preference shares at par value. The announcement explained the commercial benefits to Aviva of cancelling the preference shares. However the announcement omitted to state that no decision had been made to cancel the preference shares, outline any adverse consequences or state that there were other options available to manage the preference shares. At close of market on 8 March 2018, the market price for the preference shares had fallen by between 20% and 26%. On 23 March 2018, Aviva announced that it had decided to take no action to cancel the preference shares.

The FCA found that Aviva failed to take reasonable care to ensure that the information in the 8 March 2018 announcement in relation to the preference shares was not misleading and did not omit anything likely to affect the import of the information. It found that it was reasonably foreseeable that the holders of preference shares, and the market more generally, would be misled by the statement in relation to the preference shares.

The FCA determined that a public censure was appropriate in this case, in particular because on 30 April 2018, Aviva established a scheme to compensate shareholders who had sold preference shares between 8 March and 23 March 2018.

 

Mike Flockhart
Mike Flockhart
+44 20 7466 2507

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

LPDT rules post-Brexit

The Financial Conduct Authority (FCA) has published a Handbook Notice on the changes to the Listing Rules, the Disclosure Guidance and Transparency Rules, and the Prospectus Regulation Rules (and other parts of the FCA Handbook) that will take effect when the transition period for the UK’s exit from the EU ends on 31 December 2020.

The Notice sets out the instruments that will amend the Handbook and the Binding Technical Standards (that is the detailed EU rules that will be incorporated into UK law and for which the FCA will have responsibility after Brexit, such as on the format of insider lists). The changes are to a large extent the same as those detailed in Policy Statement PS19/5 which would have applied in the event of a no-deal Brexit, with some minor changes to reflect the fact that there has been a transition period.

The FCA has also published a version of the Handbook that will apply at the end of the transition period. This can be accessed by clicking on the “Show timeline” link on the left of the FCA Handbook page.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Michael Jacobs
Michael Jacobs
+44 20 7466 2463

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