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Registration Services' Regulatory Roundup - February 2017

Thu 09 Feb 2017

We review the latest news, legislation and corporate practices governing UK businesses

Countdown to MiFID II

The first our series of updates about MiFID II, we look into its background, outline key themes, highlight the impact of the regulation on service providers and investors, as well as on our corporate clients, their employees and shareholders.

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Corporate Governance Reform - Green Paper

The headlines within this paper put the focus of a review on three key areas, being shareholder influence and executive pay, the connection between boards and other interested parties (employees, small suppliers, etc.) and extending listed corporate governance to large privately held companies. The paper asks a series of questions which we encourage you to consider.

There is also a section within the shareholder influence and executive remuneration section which examines the relationship between individual investors and brokers and the flow of information and votes between them. Within here it refers to amending the Companies Act 2006 to extend the need for brokers to offer underlying investors the option to opt-in to voting and wider information rights, and also to provide more visibility for the voting decisions. This may have a material impact on the amount of information required to be disseminated and is certainly worth careful consideration.

To review the Green Paper go to gov.uk or click here.

The United Kingdom’s exit from and partnership with the EU – White Paper

The white paper sets out the 12 principles the government believe will lay the path for an orderly and beneficial exit from EU membership.  Light on specific detail, the paper does confirm the intended position on legislation, regulation, directives and recommendations.  There will be a Great Repeal Bill to ensure that the primary focus of legislation and regulation has the specific interests and values of the UK in mind, although the government does recognise the benefit of interconnected markets.  As such it will seek strong cooperative oversight arrangements with the EU and will continue to support and implement international standards to safely serve the UK, European and global economy.    

It will be very interesting to examine the detail of how this will work in practice as it has the potential to have far reaching implications for many UK PLCs.

To review the white paper go to gov.uk or click here

The Investment Association (IA) and Institute of Chartered Secretaries and Administrators (ICSA) 

Proposed joint guidance on engagement with stakeholders

The joint project launched by the Institute of Chartered Secretaries and Administrators (ICSA) and the Investment Association (IA) aims to assist UK boards in understanding the views of their employees and other stakeholders which should then be factored into company decision making. 

The project will identify best practice in order to produce practical guidance to enhance understanding of the interests of employees and other stakeholders, in accordance with Directors’ duties under Section 172 of the Companies Act 2006.  This section requires a director to act in the way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole and supports the principle of ‘enlightened shareholder value’. 

The project will cover:

  • Different approaches to stakeholder engagement, including consideration of the approaches identified in the Government’s Green Paper on corporate governance;
  • The ways in which companies can identify non-executive directors with relevant stakeholder experience;
  • The processes by which boards can receive the views of their key stakeholders; and
  • How training and induction can be used to enhance directors’ understanding of their duties and the interests of, and impact on, different stakeholders.

It is proposed that the guidance, which will be published in the second quarter of 2017, will also offer a set of options for companies to appropriately report how they have fulfilled their duties in this area.

The press release launching the project is available from the ICSA website.

The latest from the Financial Reporting Council

Report of the annual review of compliance with the UK Corporate Governance and Stewardship Codes 

The FRC sets out four purposes for its report: to give an assessment of corporate governance and stewardship in the UK; to report on the quality of compliance with, and reporting against, the two Codes; to give findings on the quality of engagement between companies and shareholders; and to indicate to the market where the FRC would like to see changes in corporate governance behaviour or reporting.   

In relation to the UK Corporate Governance Code (the Code) the key findings are:

  • Compliance with the Code remains high, with 90% of FTSE 350 companies reporting compliance with all, or all but one or two, of its 54 provisions. Full compliance has risen from 57 to 62%. The provision for at least half the board, excluding the chairman, to be independent non-executive directors is the provision most frequently not complied.
  • There has been reduced investor support for remuneration resolutions during the 2016 AGM season, with concern about a lack of transparency about the link between executive pay and performance. There has also been a 24% increase in the number of resolutions with a significant minority vote against the recommendation of the board. The FRC has stated that reporting by companies where this is the case is insufficient and requires improvement.
  • In relation to viability reporting the FRC found a small number of comprehensive reports in 2016 – the first full year of reporting.  There is little variation in disclosures and in the FRC’s sample a third of companies provided only basic information. The FRC encourage more constructive reporting in line with the spirit of the Code, including a clear rationale for choice of timeframe, what qualifications and assumptions were made, and how the underlying analysis was performed.
  • Succession planning was another area of focus for the FRC in 2016.  The FRC findings indicate that most companies provide only basic descriptions of their policy and practice and the FRC would like to see nomination committees having a more active role in the alignment of board composition with company strategy, and to ensure that the board has the necessary skills to ensure its long-term success. 

The FRC comments on the Government’s Green Paper on corporate governance reform

In their annual review of governance, the FRC comment on the government’s Corporate Governance Reform Green Paper.  The FRC have suggested that additional powers may be necessary in order to show alignment of business, investor and public interests.  These include: monitoring governance information in annual reports; requiring governance reporting by large private companies; improving reporting by companies about the elements of section 172 of the Companies Act 2006; and taking action against directors who are not members of the professional bodies that are overseen by the FRC. They also recommend a wider remit for the remuneration committee and shareholder consultation where there is a significant vote against an AGM resolution. 

For the full report go to the frc.org.uk or click here

The Pensions and Lifetime Savings Association (PLSA)

New Corporate Governance Policy and Voting Guidelines for 2017 

The guidelines were last published in 2015 and in the 2017 guidance, the PLSA sets out fourteen principles, its recommendations in relation to the UK Corporate Governance Code and voting guidance on typical AGM resolutions including on remuneration policy, related party transactions, the issue of new shares and approval of Articles.  The press statement accompanying the release of the PLSA guidance focuses on executive pay indicating investors continuing concern over excessive remuneration.  The main changes to the guidance published in 2015 include:

  • A call for remuneration policies to ensure that the maximum pay-out remains in line with the expectations of shareholders and other stakeholders, including workers and the wider society;
  • Additional items where a vote against a remuneration policy may occur such as if pension payments (or payments in lieu of a pension) are worth over 50% of annual salary, failure to disclose variable pay performance conditions for annual bonuses and excessive salary or performance-related pay awards;
  • A recommendation that for a vote against the re-election of the remuneration committee chair where the investor has voted against the remuneration policy or report.
  • A recommendation that a vote against the chair or chair of the nominations committee may be warranted if there is no clear evidence that diversity is being sufficiently considered.  This includes a failure to move towards the Hampton-Alexander Review recommendation that 33% of the board should be women by 2020.  Companies should also include better reporting on culture and employment practices in their annual reports. 

The PLSA Corporate Governance Policy and Voting Guidelines 2017 are available from the PLSA website

FCA ScamSmart

The FCA has reinvigorated its ScamSmart campaign to help educate and protect investors from potential fraud.  With Nick Hewer of the Apprentice fame as the new face of the campaign the FCA has updated its messaging and website to try and offer help and support for retail investors to identify potential scams, but also to let them know what to do should they fall victim.  Should you wish to incorporate any of the new documentation with any shareholder mailings please discuss this with your relationship manager.

Office Of tax Simplification

Following the Autumn Statement, a project group had been set up with the Office for Tax Simplification to digitise stamp duty.  The project group, of which Steve Banfield, Equiniti Industry Director is a member, will aim to submit their plans to the Treasury by summer 2017.   

Rolls-Royce deferred prosecution agreement

The value of self-reporting and co-operation with the Serious Fraud Office (SFO)

Rolls-Royce has been under investigation for allegations of bribery, corruption and false accounting since 2010 as a result largely of voluntary disclosures by Rolls-Royce.  It was confirmed on 17 January 2017 that a deferred prosecution agreement (DPA) has been reached between the SFO and Rolls-Royce with a payment by Rolls-Royce of nearly £500 million.  The DPA means that the company will not be subject to prosecution but is subject to an agreement with the SFO on a course of action for a period of time where any prosecution is deferred. This case shows the value of self-reporting and co-operation with the SFO.


For further information on this subject, please speak with your Equiniti relationship manager.