Thera Prins
CEO - UK Shareholder Services
Proposed reforms are once again high on the agenda. The Financial Conduct Authority has issued a consultation paper on proposed reforms to the Listing Rules which includes a proposal to remove the distinction between the premium and standard listing segments.
The Share Your Voice Campaign which is supported by Equiniti and is being led by Marks & Spencer is proposing several reforms to company law. Some of the basic principles have remained unchanged for almost 40 years, the proposals call to have the law updated to reflect technological advancements.
There is also a consultation on the modernisation of stamp taxes on shares with the consultation closing on 23 June.
A new offence which will apply to large companies - for failing to prevent fraud - is set to be introduced in the Economic Crime and Transparency Act.
The Insider Dealing (Securities and Regulated Markets) Order 2023 will align the criminal offence of insider dealing (under Part of the Criminal Justice Act 1993 (the “CJA”)) with the civil offence of insider dealing (under the UK Market Abuse Regulations (“UK MAR”)) in respect of securities and markets have been published. But is not yet in force.
Finally, the Quoted Companies Alliance has published a Small and Mid-Cap Sentiment Index, The results of which are detailed below. While Deloitte has published a report following a survey of those listed companies who were early adopters of the new Listing Rule requirements relating to Board Diversity.
Proposed reform of Listing Rules
The Financial Conduct Authority (FCA) has issued a consultation paper CP23/10 - Primary Markets Effectiveness Review: Feedback to DP22/2 and proposed equity listing rule reforms.
The consultation closes on 28 June 2023. The expectation is that further consultation will be published in the autumn of 2023 and that this will incorporate the proposed revised listing rules in full. As yet there is no definite timetable in place for any changes to the Listing Rules to come into effect.
The consultation includes a proposal to replace the current standard and premium listing segments with a single listing category for commercial company issuers of equity shares. Feedback from the UK Listing Review found that premium listing standards are regarded as overly burdensome. Also, the standards are seen to be deterring some companies from listing in the UK, even when allowing for the benefits of index inclusion. In addition, the standard listed segment is poorly understood and regarded as an inferior ‘brand’ by companies.
Other proposed changes include the removal of certain eligibility requirements such as the historical financial information requirements (on 75% of the business over three years) - three-year revenue earning track record and clean working capital requirement. An enhancement of dual-class share structures which would include dual class share structures could only be put in place at admission, and the sunset period would be extended from five years to 10 years.
Enhanced voting right shares could only be held by directors and transfer restrictions would apply such that the shares with enhanced voting rights would automatically convert to ordinary shares upon the holder ceasing to be a director. relaxation of the current regime for premium-listed companies with controlling shareholders. The current requirement for a relationship agreement with the controlling shareholder would become optional on a "comply or explain" basis, where the lack of such an agreement would require specific disclosure and risk factors in the prospectus and annual report.
Share Your Voice Campaign
A campaign led by Marks & Spencer with support from the Quoted Companies Alliance, the UK Shareholders Association, ShareSoc and Equiniti has been launched seeking reform to company law where the basic principles have remained unchanged since the 1980s.
In summary, the campaign seeks reform in the following areas:
- Increasing two-way dialogue between companies and their shareholders. - Platforms and registrars should work together to facilitate two-way dialogue between companies and the ultimate shareholders.
- A standardised technology solution across the sector. - There is early-stage trials underway between public companies and intermediaries to use blockchain technology to establish a shareholder ID and open up nominee access.
- Digital communications as default-online publication and email distribution of shareholder communication by default should be validated.
- Removal of the requirement of hard copies of annual reports. - Physical annual reports can still be made available for those members who request them.
- Recognition of digital Annual General Meetings (AGMs).- Removing the requirement to state the place and the requirement for two qualifying persons to be present for the meeting to be quorate. To ensure transparency, all submitted questions must be answered during the meeting or published, with a response on the company website, within 48 hours of the meeting conclusion.
Stamp Duty - Potential Reform
HM Revenue and Customs has published a consultation on the modernisation of stamp taxes on shares.
Read More: Consultation: Stamp Taxes on shares modernisation
The consultation closes on 22 June 2023. The proposals include the replacement of stamp duty and SDRT with a modern single tax on securities transactions which, where possible, will retain familiar concepts. The proposed new tax (STS) will be self-assessed and collected through CREST for CREST transactions, while those not undertaken through CREST will be notified to, and payment made through, a new HMRC online portal. The liable and accountable person for non-CREST transactions will be the purchaser while the SDRT liable and accountable person’s rules will be retained for CREST transactions.
Prevention of Fraud
In a press release available from New crackdown on fraud introduced by the Home Office - GOV.UK (www.gov.uk) the Home Office announced that a failure to prevent fraud offence will be introduced in the upcoming Economic Crime and Transparency Act. The offence will apply to companies defined as large by the Companies Act 2006 (meeting two out of the following three criteria: more than 250 employees; more than £36 million turnover; and more than £18 million in total assets). The offence will apply when an employee or agent commits a specified fraud offence, for the company’s benefit, and the company did not have reasonable fraud prevention procedures in place. It will not need to be proven that consent or connivance existed. The offence is limited to failing to prevent offences under the Fraud Act 2006 and the Theft Act 1968 including false accounting and fraudulent trading.
If a company can prove it has reasonable procedures in place to prevent fraud it can avoid prosecution. The government will be under a statutory duty to publish guidance to set out reasonable fraud prevention procedures before the offence comes into force.
The offence will come into force after both the Economic Crime and Corporate Transparency Bill receive Royal Assent and the government has published guidance. If convicted, a company can receive an unlimited fine.
Insider Dealing (Securities and Regulated Markets) Order 2023
The draft Insider Dealing (Securities and Regulated Markets) Order 2023 has been published by HM Treasury.
Read More: The Insider Dealing (Securities and Regulated Markets) Order 2023
With an explanatory memorandum available from The Insider Dealing (Securities and Regulated Markets) Order 2023 .
The draft order supplements the Criminal Justice Act 1993 (CJA) to align the securities and markets on which the criminal offence of insider dealing can be committed under Part 5 of the CJA with those to which the UK Market Abuse (MAR) Regulation applies. The list of securities within scope of Part 5 is currently narrower than the list of securities covered by the civil insider dealing offences in MAR.
Consequently, amongst other matters the draft order replaces the list of securities in Schedule 2 of the CJA with a new list (containing those instruments found in Part 1 of Schedule 2 to the Financial Services and Markets 2000 (Regulated Activities) Order 2001), revokes the Insider Dealing (Securities and Regulated Markets) Order 1994 and certain amending instruments (SIs 1996/1561, 2000/1923 and 2002/1874) and sets out the condition that security which falls within Schedule 2 of the CJA must be either traded on a specified trading venue or its price or value be linked to such securities. The venues are UK, EU or Gibraltar regulated markets, multilateral trading facilities or organised trading facilities; NASDAQ; the SIX Swiss Exchange; and New York Stock Exchange.
The order will enter into force 21 days after the day on which it is made.
At the time of writing no Statutory Instrument bringing the order into force has been made.
Small and Mid-Cap Sentiment Index
The Quoted Companies Alliance (QCA) has published a Small and Mid-Cap Sentiment Index following a survey conducted by YouGov based on responses from 77 small and mid-cap companies and 17 advisory firms.
Read More: Quoted Companies Alliance Small & Mid-cap Sentiment Index
The survey found that optimism over the UK economy has improved dramatically since the last survey in H2 2022 improved optimism towards business prospects over the next 12 months with a 10% increase in job growth and a 16.6% in mean expected turnover. Companies have expressed their concern at being the subject of a possible takeover bid over the next 12 months. In comparison with 12 months ago, one in three also feel more vulnerable to a takeover. One in six quoted company directors were likely to consider moving their primary listing within the next year.
The desire for improved liquidity was the key reason cited by this group, closely followed by better valuations elsewhere, better access to capital and other markets’ better reputations. De-listing is also a likely consideration for one in seven of the quoted company directors surveyed, reinforcing the ongoing reduction in the number of listed companies on the UK stock market. Directors were said to be turned off by disproportionately high levels of regulation for smaller stocks, as well as a lack of liquidity with on-going costs being noted as an additional factor.
Board Diversity: Deloitte Corporate Reporting Insights: Diversity & Inclusion
New Listing Rules LR 9.8.6R(9-11) and LR 14.3.33R introduced a requirement for premium and standard listed companies to provide disclosures on board and leadership diversity. In brief, companies need to report on whether it has met certain targets in relation to board diversity as at a chosen reference date including at least 40% of board members should be women, one of the senior positions (Chair, Chief Executive, Chief Financial Officer or Senior Independent Director) should be held by a female and at least one director is from a minority ethnic background. Where the targets have not been met, reasons for this should be stated. These new provisions take effect for periods commencing on or after 1 April 2022 although the Financial Conduct Authority (FCA) did encourage companies reporting on periods commencing on or after 1 January 2022 to provide such disclosures voluntarily where possible.
Read More: Corporate Reporting Insights 2023 | Deloitte UK
This article looks at how the first 30 FTSE 350 December 2022 reporters are preparing themselves for greater transparency around the board and leadership diversity. It also considers whether companies are already complying with the new Listing Rule requirements or moving their disclosures closer towards full compliance. The report found the following:
53% of companies met or exceeded the target of 40% of women on the board; 97% had at least one minority ethnic director on the board’.
70% of companies explained persuasively why workforce diversity and inclusion was important to the business but only 33% referenced diversity and inclusion in disclosures on board decision-making.
Companies that successfully integrated diversity and inclusion throughout their culture reflected it throughout the annual report, in some cases including in the Chair and CEO statements.
Only 17% of companies responded to the FCA’s call to voluntarily include the new Listing Rule diversity disclosures in full.
The Report includes several recommended actions including assessing whether the annual report explains clearly and consistently why diversity and inclusion at workforce, executive management, and board level is important to the business.
Evaluate the board’s existing approach for building diversity and inclusion into succession planning and evaluation. Consider how to report transparently in this area. When adopting the new FCA Listing Rules, consider all elements to be included - such as an identifiable statement setting out that each of the targets in the Rule – and evaluate whether this has been achieved or a plan is in place to achieve them. Make sure both mandated tables on sex or gender identity and ethnicity are included; and ensure clarity in the explanation of how data has been gathered.
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