Thera Prins
UK Shareholder Services
There are several industry updates as part of this Bulletin:
Part of the legislative programme announced in the Kings Speech was a Draft Audit Reform and Governance Bill which includes details of the long-proposed replacement of the Financial Reporting Council with a new regulator with enhanced powers - the Audit, Reporting and Governance Authority.
Next, the publication of a dormant assets scheme participation pack by HM Treasury may provide some guidance to those companies who wish to participate in the dormant assets scheme under the Dormant Assets Act 2022.
The Financial Conduct Authority has published Primary Market Bulleting 50 focussing on the sponsors regime and have also issued a number of consultations relating to the new Public Offers and Admissions to Trading Regulations regime, the new Public Offer Platform Regime and proposed enhancements to the National Storage Mechanism.
Finally, the Financial Reporting Council has published revisions to the UK Stewardship Code as part of an ongoing review of this Code.
The Kings Speech
Amongst the measures announced in the Kings Speech at the State Opening of Parliament on 17 July was the Draft Audit Reform and Corporate Governance Bill. The draft bill will replace the Financial Reporting Council with a new regulator – the Audit, Reporting and Governance Authority (ARGA). It is proposed that ARGA will have powers to extend Public Interest Entity (PIE) status to the largest private companies making sure the audits of those important businesses are high quality and giving early warning of financial problems but at the same time removing unnecessary rules on smaller PIEs, making life easier for important smaller businesses by cutting requirements that are disproportionate.
ARGA will also have powers to investigate and sanction directors for serious failures in relation to their financial reporting and audit responsibilities. Currently directors of a company making incorrect financial statements can only be held accountable by the regulator if they are members of an accountancy body.
Further details can be found at FINAL - 17/07/24 King's Speech 2024 background briefing final GOV.uk.docx (publishing.service.gov.uk).
Dormant Assets Act 2022
HM Treasury has published a dormant assets scheme participant pack, for traded public companies, containing template explanatory notes for inclusion in a circular to shareholders and articles of association to facilitate participation in the scheme.
The Dormant Assets Act 2022 provides that the proceeds and distributions from dormant shares in public limited companies traded on a UK regulated market (e.g. Main Market) or UK multilateral trading facility (e.g. AIM) and unclaimed proceeds from corporate actions can be included within the scope of the dormant assets scheme.
The pack includes draft explanatory notes for inclusion in an AGM circular or circular to shareholders proposing possible changes to the Company's Articles of Association to facilitate participation in the scheme; along with draft Supplementary Articles of Association, providing a possible template for prospective participants to adapt and adopt to facilitate their participation in the scheme.
Full details of the pack can be found at Adjoining Articles and Explanatory Note - Google Docs (publishing.service.gov.uk)
Financial Conduct Authority – Primary Market Bulletin 50
The Financial Conduct Authority (FCA) has published Primary Market Bulletin 50. The Bulletin focuses on the sponsor regime and sets out how the FCA has responded following consultations on the Primary Markets Effectiveness Review. Areas of focus included:
Specialist Due Diligence - Following concerns raised about the sponsors role in coordinating due diligence in specialist areas, the FCA has produced a technical note providing guidance on their reasonable expectations with a sponsor applying the listing rules, prospectus rules and disclosure requirements and transparency rules with skill and expertise in the specific context of an issuer’s business and operations.
Record keeping - the FCA has updated their existing record keeping technical note TN717 to include an appendix containing a question-and-answer section. The FCA notes that record keeping remains an area for sponsor judgement and it is not possible to specify the precise records that will be reasonable in all cases.
Issuers understanding of the sponsor’s role and obligations - Feedback from sponsors and issuers has suggested that the role of the sponsor is not always well understood by issuers. FCA rules already impose obligations on issuers to cooperate with their sponsor. However, the FCA propose to make this clearer at the outset of an IPO, by writing to the Board of an issuer to explain the FCA’s expectations regarding the Board interactions with their sponsor and to clarify that the sponsor is assisting the FCA in carrying out its functions and that sponsors are closely supervised.
FCA supervisory review of sponsor services - The FCA notes that some sponsors felt that the approach to supervisory reviews had led to a disproportionate ratcheting up of the work required of sponsors. As well as updating the record keeping technical note, the FCA has also produced a new technical note explaining their approach to supervisory reviews of sponsors. This new guidance explains why and how the FCA perform reviews.
The full Bulletin is available from Primary Market Bulletin 50 | FCA
New Public Offers and Admissions to Trading Regulations regime
Consultation Paper CP24/12 sets out the FCA's proposed rules for companies seeking to admit securities to a UK regulated market or primary multilateral trading facility under the new framework made by the Public Offers and Admissions to Trading Regulations 2024. It is proposed that the existing Prospectus Regulation Rules (PRR) will be replaced with a new Prospectus Rules: Admission to Trading on a Regulated Market sourcebook (PRM).
While there will be a degree of similarity between the current and the proposed rules there will be some changes. These may include raising the threshold at which a prospectus is required for further issuances of securities already admitted to trading on a regulated market from 20% to 75% of existing share capital. Plus, the need to make certain climate related disclosures where climate related risks have been identified where admission of securities to a regulated market is sought.
The consultation is open until 18 October and can be viewed at CP24-12: Consultation on the new Public Trading Offers and Admissions to the Trading Regulations regime (POATRs) (fca.org.uk)
New Public Offer Platform Regime
Consultation Paper CP24/13 sets out proposed rules to support the new regulated activity of operating an electronic system for public offers of relevant securities (referred to as a public offer platform or POP), created by the Public Offers and Admissions to Trading Regulations 2024. The new Regulations will replace the UK Prospectus Regulation (EU) 2017/1129. Companies seeking to make public offers of securities outside a public market to a broad investor base, where the value of the offer is more than £5 million, will need to do so via a POP.
The consultation sets out the FCA’s proposed rules for the operation of a POP. The consultation closes on 18 October. The FCA is proposing to finalise rules for the new regime by the end of the first half of 2025. However, the FCA notes that it will need to consider what further time is required before the new regime comes into force. This is to allow firms to apply for permission to carry on the new regulated activity with a transitional regime being a possibility.
Details of this consultation can be found at CP24/13: New public offer platform regime (fca.org.uk)
Enhancing the National Storage Mechanism
Consultation Paper CP24/17 details proposals to change the National Storage Mechanism’s (NSM) data requirements for ‘regulated information’, which is information disclosed by regulated market issuers in accordance with the Disclosure Guidance and Transparency Rules (DTRs), Listing Rules, and parts of the Market Abuse Regulation (MAR). There is also a proposal to standardise the way Primary Information Providers (PIPs) submit information to the NSM. The intention is to introduce more comprehensive metadata requirements to improve the functionality of the NSM by making it easier for NSM users to find regulated information.
Full details of the consultation which is open until 27 September can be found at CP24/17: Enhancing the National Storage Mechanism (fca.org.uk).
Financial Reporting Council Updates to the Stewardship Code
The Financial Reporting Council (FRC) has announced significant revisions to the UK Stewardship Code application process and has committed to five priority areas of review as it continues its revision this Code.
Following extensive engagement with over 1,500 stakeholders the FRC will focus on five themes in the new phase of the Code’s revision:
- Purpose – expectation of what defines effective stewardship, what this looks like in practice, and how reporting against the Code can help to deliver this.
- Principles – what reporting will be necessary to deliver on a renewed purpose of the Code.
- Proxy Advisors – how the Code might support greater transparency of activities.
- Process – reduce the reporting burden currently associated with being a Code signatory and ensure that information included in reports is useful and accessible to all underlying investors and other stakeholders.
- Positioning – The FRC is working closely with other regulators such as the DWP, TPR and the FCA to support clarity in understanding the revised Code and its successful implementation.
The FRC is also making five immediate changes to significantly reduce the reporting burden on existing signatories. These changes will:
- Remove the annual requirement to disclose all ‘Context’ reporting expectations, except for new reports or material changes Remove the requirement to annually disclose against ’Activity‘ and ’Outcome‘ reporting expectations for some Principles.
- Explicitly allow use of content from previous reporting and cross-referencing of such reports.
- Set clear expectations of what is considered an ‘outcome’ for stewardship purposes.
- Emphasise the ability to exercise reporting against Principles 10, collaborative engagement, and 11 escalations ‘where necessary’.
This will provide clarity on areas signatories outlined as challenging to address, reduce the volume of reporting and provide flexibility for signatories in defining how they undertake stewardship. The FRC will launch a formal public consultation on the Code later this year, with a revised Code expected in 2025.
Full details are available from FRC announces significant update to the UK Stewardship Code
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