Keeping you up-to-date with industry changes and updates impacting the world of share registration and employee share plans.
CEO - EQ Boardroom
Welcome to our March edition of the EQ Bulletin.
This month, we report on the Dormant Asset Act, which has now received Royal Assent, marking the Scheme's expansion to new sectors, including securities.
Elsewhere, the House of Commons Women and Equalities Committee published a report on ethnicity pay gap reporting, and the FTSE Women Leaders Review has published its first report on gender balance in FTSE Leadership.
We hope to see many of you join us at the upcoming CGPro Network Virtual Event. Hosted by Boudicca, we look ahead to the 2022 AGM season and review the ever-evolving ESG landscape. CGPro Network is the new name for the Women's Company Secretary Circle (WoCoS). Building on the excellent history of WoCoS, the name change reflects our diverse and inclusive audience.
As always, if you have any questions on the content of this month's Bulletin, please contact your Client Relationship Lead.
The Dormant Asset Act has received Royal Assent, the final step required for a parliamentary bill to become law.
Introduced initially in 2008, the Dormant Assets Schemes' primary objective is to reunite owners with their financial assets. However, where this isn't possible, the dormant money is transferred to the Reclaim Fund then attributes the money to firms supporting important social and environmental initiatives across the UK.
The changes contained within this Act expands the scope of the Dormant Bank and Building Society Accounts Act of 2008. It will now include dormant assets within the insurance and pensions, investment and wealth management and securities sectors to be transferred into the reclaim fund.
The money can then be utilised to help finance social and environmental causes. Over £800m has already been distributed to charitable and social enterprises across the UK. The Schemes expansion can potentially double this amount in the coming years.
Next up will be a consultation on where the money will be spent, with the expectation that the money will continue to be used for good social causes. The Scheme may be live as soon as July 2022, with the first participants expected to follow shortly after.
In line with the principles, companies will need to make efforts to trace dormant shareholders before they can transfer funds to the reclaim fund, and consideration should be given as to whether participation in the Scheme would be suitable for them.
The Financial Reporting Council (FRC) has issued updated versions of a number of accounting standards to reflect changes made since the last editions of the standards were issued in 2018. Revised editions of the Foreword to Accounting Standards and Overview of the Financial Reporting Framework that reflect developments in accounting standards, legislation and regulation have also been issued. The standards which have been updated are:
FRS101 - Reduced Disclosure Framework
FRS102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland
FRS103 - Insurance Contracts
FRS 104 - Interim Financial Reporting
FRS 105 - The Financial Reporting Standard Applicable to the Micro-Entities Regime.
The Financial Reporting Council (“FRC”) has issued guidance on Auditor responsibilities under ISA (UK) 720 in respect of climate-related reporting by companies required by the Financial Conduct Authority. This staff guidance includes a brief reminder of the auditor’s responsibilities under ISA (UK) 720 in respect of a company’s Streamlined Energy and Carbon Reporting (‘SECR’) disclosures. It includes a brief reminder of the auditor’s responsibilities under ISA (UK) 720 in respect of the company’s Streamlined Energy and Carbon Reporting (SECR) disclosures.
An interim report from the Industry Working Group on Electronic Execution of Documents was published on 1 February 2022.
The report only applies to England and Wales and the best practice guidelines include:
Agreeing as early as possible that a document is to be executed electronically and the procedure for doing so. Determine the optimal form of electronic signature for the transaction, in particular which eIDAS (electronic identification and trust services) category (Qualified, Advanced or Simple) is required. This should be a matter of user-choice (depending on nature of parties, risk level, value and personal circumstances) and larger users should establish policies on those issues
Use a signing platform that provides a minimum set of security, safety and functionality with a strong audit trail that demonstrates an intention to sign by the signatories
Consider whether additional evidence to record the fact that the signatory is approving the document is necessary or appropriate
Where possible, provide multiple options to vulnerable customers or counterparties so that they can adopt a method of signing that suits their needs
Authentication should be easier for those with secure digital identities, but that should not be essential
The final report which will also consider the use of electronic signatures in cross border transactions is due to be published later in 2022.
Continuing the trend which has been evident over the last few years in relation to executive pay The Guardian has reported on two shareholder revolts.
Over 46% of shareholders in Greencore Group plc voted against the non-binding resolution on the directors' remuneration report at its Annual General Meeting. Glass Lewis and ISS had recommended that shareholders vote against the remuneration report due to the company's executive bonus payments. The company had awarded deferred share bonuses to the chief financial officer and chief executive for 2021, despite having claimed government support during the COVID-19 pandemic in the form of furlough payments to staff, which had not been repaid.
55% of shareholders in magazine publisher Future plc voted against the non-binding resolution on the directors' remuneration report at the company's Annual General Meeting. Including abstentions, the number of shareholders who failed to back the resolution was around 60%. Shareholders were objecting to the company continuing with the operation of a controversial value creation plan (VCP) which attracted a substantial shareholder protest in 2021. Shareholders were also unhappy about the level of payout to the former chief financial officer. The company stated it would begin a new consultation with shareholders over the VCP.
The Code Committee of the Takeover Panel published PCP 2022/1 on its proposed removal of the restriction on an offeror purchasing shares in the offeree company through an anonymous order book system. Details of the consultation which closes on 18 March 2022 can be found here. It is proposed that Rule 4.2(b) which prohibits such purchases is deleted as the Code Committee considers there now to be a low risk that an exempt principal trader would agree to place sell orders on an anonymous order book to enable an offeror to purchase offeree shares at or below the offer price where it had acquired the shares at above the offer price. If adopted the changes would come into effect in the Spring of 2022.
Amendment to Practice Statement
The Takeover Panel Executive has issued Panel Statement 2022/6 confirming that it has amended Practice Statement No. 20 (Rule 2 – Secrecy, possible offer announcements and pre-announcement responsibilities). The Executive has amended Sections 4 and 5 of Practice Statement No. 20 to clarify the application of the requirement to consult the Executive under Notes 1(b) and 1(c) on Rule 2.2 of the Takeover Code.
The amendments include:
An additional paragraph at Sections 4 and 5 to confirm that, for Notes 1(b) and 1(c) on Rule 2.2, the Executive's policy is to treat a share price movement of 10% or more as being relevant for determining the latest time by which it should first be notified by a potential offeror or the offeree company, or by its financial adviser, of a possible offer. If the relevant party has already notified the Executive of the possible offer before the 10% share price movement takes place, the Executive does not expect to be consulted again solely because of the 10% share price movement. The Executive still expects to be consulted each time the offeree company is the subject of rumour and speculation or there is a 5% share price movement in a single day.
Clarification that when calculating whether there has been a 10% share price movement over the relevant time, the reference price should normally be taken to be the lowest closing price during that period. However, the use of the lowest intra-day price during that period would also be acceptable.
In paragraph 10.6, the addition of social media to the sources of information should be monitored for rumour and speculation about the possibility of an offer for the offeree company.
While gender pay gap reporting has been mandatory for companies with over 250 employees since 2017, no such condition exists to monitor pay disparity for workers of different ethnicities. A consultation paper on ethnicity pay reporting was published by the Government in 2018 which contained proposals for mandatory reporting in this area but no response has yet been published to the consultation. On 8 February 2022, the House of Commons Women and Equalities Committee published a report on ethnicity pay gap reporting. The Government has two months to respond to the report. There is a recommendation in the report that the Government should introduce mandatory ethnicity pay gap reporting for all organisations subject to gender pay gap reporting requirements by April 2023. The legislation should require employers to publish a supporting narrative and action plan.
The report also recommends that the government should produce guidance, with clear explanations on:
Data protection to reassure employers how they can legally capture, retain and report ethnicity pay gap data
Methods for capturing, analysing and reporting ethnicity pay data
The body responsible for enforcement and what powers that body will have.
The FTSE Women Leaders Review has published its first report on gender balance in FTSE Leadership.
The report found that as of 10 January 2022:
Women held 39.1% of FTSE 100 board positions, an increase from 36.2% from the start of 2021 but 15 FTSE 100 companies had not yet achieved the 33% target.
Women held 36.8% of FTSE 250 board positions an increase from 33.2% from the start of 2021 but 57 FTSE 250 companies had not yet achieved the 33% target.
Across the FTSE 350, there were only 48 women chairs (16 in the FTSE 100), 115 women Senior Independent Directors (SID) (32 in the FTSE 100) and 18 women Chief Executive Officers (CEO) of which 8 were in the FTSE 100. There were only 75 women executive directors (29 in the FTSE 100), being 12.3% of executive directors in the FTSE 350.
The FTSE 350 had no all-male boards, but still had 6 companies considered to be 'tokenist' with only one woman on the board.
The Review also announced four new recommendations:
An increased target of a minimum of 40% women for FTSE 350 Boards by the end of 2025. The report shows that in the FTSE250 92 companies have already met or exceeded this target.
For FTSE 350 companies to have at least one woman in the chair or SID role on the board, and/or one woman in the CEO or Finance Director role, by the end of 2025.
That key stakeholders set best-practice guidance, or have mechanisms in place, to encourage FTSE 350 Boards that have not achieved the prior 33% target, to do so.
The extension of the review to include the largest 50 private companies in the UK by sales.
Guidance On Mandatory Climate-Related Financial Disclosures
The Department for Business, Energy and Industrial Strategy (BEIS) has published non-binding guidance to help companies and limited liability partnerships (LLP) meet their mandatory climate-related financial disclosure obligations under the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and the Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 which apply to financial years beginning on or after 6 April 2022.
The scope of the regulations, including whether the disclosure is required at group or subsidiary level; whether UK companies are required to report on global or UK operations; whether UK companies with an overseas parent company are exempt; and the consequences if a company or LLP does not comply with the requirements.
The information that should be included in relation to each of the elements of the disclosure requirements common to the two sets of regulations, including the desired outcomes that companies and LLPs should aim for in their disclosures against each requirement.
The level of detail required. Disclosures should allow the reader to understand the effect of climate-related financial risks and opportunities on the business, without having to refer to other sources of information produced by the company or LLP; and how they relate to the other information presented in the annual report. Information should not be omitted which, if disclosed, would influence the decisions of investors.
Whether third party information can be relied on to make the disclosures. A company or LLP may make use of information generated by a third party to help them assess the climate-related risks, but the duty to ensure accuracy will remain with the directors or designated members.
Interaction with other regulations and frameworks. The Government considers that disclosure in a manner consistent with all the Task Force on Climate-Related Financial Disclosures (TCFD )recommendations and recommended disclosures for the purposes of the Financial Conduct Authority (FCA) listing rule is likely to meet the requirements of the regulations, and the regulations complement, but do not duplicate, existing Streamlined Energy Carbon Reporting (SECR) requirements for quoted companies to report on their global energy use and for large businesses to report their UK annual energy use and greenhouse gas emissions.
We work with experts from across EQ to bring you a summary each month of what is happening within the financial services industry that impacts the share registration and employee share plans space. Register below to receive our monthly update.