During the auction periods, professional investors would get the information and protections more usually associated with a public market but significantly reduces the constraints on management’s time to produce continual public disclosures. Investors and staff will benefit from the liquidity, founder shareholders will benefit from exit opportunities and investors will have access to smaller start-up companies. The ITV could launch toward the end of 2024 or early 2025.
The CMIT, along with HMT and the Dept. for Business and Trade (DBT), is also keen to ensure that the regulatory onus on companies is not overly burdensome. This was evidenced in the very public responses to the Financial Reporting Councils (FRCs) proposed changes to the Code. The first signs of a U-turn came on 16 October with the Govt. announcing the withdrawal of draft legislation which addressed audit and corporate governance reform.
In addition to this, the absence of prioritised primary legislation within the Kings Speech to facilitate the FRCs transformation to the Audit, Reporting and Governance Authority (ARGA) resulted in the FRC publishing a policy statement which revised down the proposals set out in its consultation on revisions to the UK Corporate Governance Code.
More than half of the original proposals will not be taken forward, including those relating to the role of audit committees on ESG, as well as modifications to code provisions around diversity, over-boarding, and stakeholder engagement.
On the 22 November The Secretary of State for DBT wrote to the FRC encouraging a flexible approach to both the Corporate Governance and Stewardship codes, focused on outcomes, and contributing to promoting the competitiveness and growth of the UK economy. A couple of standout points identified how the FRC should engage with DBT to review non-financial reporting requirements, with the aim to simplify and streamline the current requirements, and enabling companies to report on sustainability matters on a consistent and proportionate basis, by supporting the assessment of the IFRS Sustainability Disclosure Standards.
On the same day, the CMIT also wrote an open letter to the FRC entitled ‘Resetting the UK's approach to corporate governance’, which reiterated their desire that the UK’s governance and stewardship regimes must consider how they contribute to the country’s economic growth and its international competitiveness and laying out their views on revised principles. These revolve around:
- the Code supporting the promotion of a company’s success, as opposed to the prevention of its failure
- creating value for all its stakeholders, including shareholders, employees, customers, and society at large
- an assumption that governance should deliver accountability of the board to the company, its stakeholders, and shareholders, and if it does not then the directors should be removed.
The FRC is expected to publish an updated code in early 2024.
2023 also saw many of the actions from the Secondary Capital Raising Review being brought forward through support at the Chancellors Mansion House speech, the creation of industry taskforces, and their subsequent report publications. These included an Accelerated Settlement Taskforce, looking at moving the UK settlement regime to a T+1 environment, and the eagerly awaited Digitisation Taskforce Interim Report, which made an initial assessment and an interim recommendation as to how the UK could digitise the share registration industry.
In this initial assessment the Taskforce recommends that digitisation should include the removal of physical certificates and cheques, but also to mandate all investors into a broker nominee account and consider how to reform the known concerns that investors face when holding their shares through such an intermediary, including communication channels, the ability to vote and to receive dividends directly.
The speed in which digitisation can be introduced will be key to supporting the move to a T+1 settlement environment, as well as the focus on increasing retail investment and ensuring that the UK is a competitive global capital market. The US has confirmed its intention to move to T+1 in May of 2024, and the EU has issued a consultation on a similar move, potentially in 2025. The UK is expected to confirm by the end of 2023 that it intends to adopt a similar settlement regime and will likely look to deliver in 2025.
One of the more interesting points of the Digitisation Taskforce recommendations is that it would require a complete overhaul of UK company legislation and client asset regulation, and replicates many of the larger European markets such as France, Germany, and the Netherlands, as opposed to following successful international markets across North America and Asia.
The Taskforce has committed to conducting 6 months of issuer and shareholder engagement before issuing their final recommendation to HMT, in Spring of 2024. For dematerialisation to be delivered in line with the move to T+1 and the Taskforce recommendations, there will be a significant amount of work to be delivered in a relatively short period.
The expansion of the Dormant Assets Scheme also made its first successful launch with Aviva becoming the first participant to launch in the insurance and pensions sector. Other participants are being lined up to go live in the insurance and pensions sector in 2024 but there is still some work to finalise in both the investments and wealth management and the securities sector. Current timing would suggest the securities sector would be in a position to accept participants in H2 2024.
Euroclear has spent a large portion of 2023 focusing on resilience, financial crime and promoting services within their product suite. This has resulted in an increase in the fees that CREST charge for custody, asset servicing and for the CREST Courier and Sorting Services. In addition, all new CREST members are being required to accept payments via the CREST system in early 2024.
CREST 2.0 is Euroclear’s strategic focus on the development and roll out of a new settlement system. The strategic direction was signed off by the Euroclear Board in October and Euroclear will be conducting roadshows to their members in 2024. As a utility, Euroclear has suggested that their members consider the fees for development in their 2025 budgets.
2023 was far from a quiet year and 2024 promises to be much the same. As well as the details provided above, we are still waiting to see the full impact of the Retained EU Law (Revocation and reform) Bill 2022, the proposed Edinburgh Reforms and the Financial Services and Markets Bill, which is currently moving through parliament.
With a General Election and a potential new government also likely in either Spring or Autumn of 2024 it will be of interest to see what the UK Government considers a priority and which laws they are able to pass through the parliamentary process. EQ is a member of many All-Party Parliamentary Groups and maintains relationships with Government departments and regulators and will continue to monitor the legislative and regulatory landscape, considering and summarising the key aspects of publications, consultations, and announcements, and providing you with the highlights and our thoughts on the potential impact.
I’ll be keeping you up to date with further information on key industry developments, however, should you wish to discuss any of the content in this bulletin please contact your Client Relationship Lead.