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Registration Services' Regulatory Roundup - August 2017

01 August 2017

Welcome to your latest round up of what is happening in the share registration and company secretarial worlds


Update on dematerialisation

Implementation now likely to be in line with the EU mandated dates

We have reported previously on the work that the ICSA Registrars Group, the Dematerialisation Steering Group (DSG) and the Government Department for Business Energy and Industrial Strategy (BEIS) have progressed over the past 18 months to identify and resolve many of the policy and legal requirements for the implementation of dematerialisation of share certificates within the UK, and the subsequent issuance of a government Green or White Paper in respect of the findings. The issuance of a White Paper in particular would have pushed dematerialisation on considerably with a potential implementation date of around 2021 as opposed to the EU mandated dates of 2023/25.  

Unfortunately, due to the extent of the focus required for BREXIT negotiations and subsequent resource reallocation, BEIS has advised that they are no longer planning to issue a paper in the short term.  BEIS has however requested that the DSG and ICSA Registrars Group continues to work on the outstanding technical aspects of dematerialisation and has committed to attending meetings in order to keep abreast of progress and keep ministers updated.  

Clearly this signals further delay and it is now increasingly likely that implementation will be in line with the EU mandated dates.  Equiniti will continue to drive the DSG and engage with corporate issuers, both to keep you informed and to obtain your views that can be fed back into BEIS, Government Ministers, the DSG and the ICSA Registrars Group. 


People with Significant Control 

Changes announced to the register regime

The People with Significant Control (PSC) (Amendment) Regulations 2017 were published on 23 June 2017 and came into force on 26 June 2017.  The Regulations make changes to the regime for providing Companies House with information about ‘people with significant control of the company (PSCs)’. These changes are part of the UK anti-money laundering measures to help prevent money laundering and terrorist financing as part of the Fourth Money Laundering Directive. The Fourth Money Laundering Directive requires EU Member States to maintain a register of beneficial ownership for companies and other legal entities. 

The Regulations include many points of clarification to the original legislation but also some other more substantive changes. 

Two significant changes to the current regime are:

  • The Regulations have extended the PSC requirements with effect from 24 July 2017 to additional UK entities such as AIM and NEX Exchange Growth Market companies and Scottish Limited Partnerships.   
  • From 26 June 2017 PSC registers won’t be updated on the annual confirmation statement (CS01). Instead, changes will need to be notified to Companies House whenever they occur (forms PSC01 to PSC09).  Companies will have 14 days to update the PSC register and another 14 days to send the updated information to Companies House (effectively Companies House must be notified within 28 days of the change). This will require companies to be much more active about tracking and keeping up-to-date their PSC Registers.   

The identification of people with significant control and the preparation of a PSC Register will be complex for some companies who may need to seek outside advice or help.  For others it will be a relatively straight forward exercise.  For AIM companies and other companies already subject to a high level of disclosure through DTR 5 requirements, much of the information needed will already be available and should make the task easier. Companies going through corporate actions or re-structuring also need to bear in mind the potential impact on the PSC register and update the register accordingly.

A Companies House statement about the changes is available here

In addition the Department for Business, Energy and Industrial Strategy (BEIS) have updated their PSC Guidelines to reflect the new requirements.  The guidance is available here


Documents subject to legal professional privilege

Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation (ERNC)

Companies will need to consider the documents they believe are subject to legal professional privilege and are therefore not disclosable, following a ruling by the High Court in the case of the Director of the Serious Fraud Office v Eurasian Natural Resources Corporation.  

The case was whether certain documents created as a result of an internal investigation into possible wrongful conduct, were subject to legal professional privilege.  The documents in question requested by the SFO included interviews with employees, notes taken by company lawyers and a presentation given to an ENRC board committee.  ENRC claimed that the documents were subject to litigation privilege.  This legal privilege applies if the communication is confidential between a client and a lawyer, or between them and a third party, made for the dominant purpose of obtaining advice relating to actual litigation or contemplated litigation.   ENRC failed to show that the material was produced for the dominant purpose of contemplated litigation.  This is because initially the material was prepared for an investigation by a regulatory body rather than for criminal litigation.  

Any company needing to carry out an internal investigation into possible wrongdoing will have to consider carefully the purpose of the investigation (whether for self-reporting or cooperation purposes with regulatory bodies) and how to record such an investigation.  Material that was previously considered to be non-disclosable may now be sought by prosecuting authorities.  ENRC are appealing the decision.

The judgement is available here


Financial Reporting Council (FRC) 

Issue cyber security guidance

The Financial Reporting Council (FRC) have issued a statement advising firms to review and act on guidance issued by the National Cyber Security Centre (NCSC).

The NCSC has issued guidance on the recent “Wannacry” ransomware attack.  The FRC statement advises firms to review this guidance and take appropriate action to tighten up on cyber security.  

The guidance is available here.


CORE campaign group

Issue guidance on reporting under the Modern Slavery Act

The corporate governance campaigning group ‘CORE’ has published three short guides for businesses reporting under the ‘Transparency in Supply Chain’ clause of the Modern Slavery Act. CORE says that this is in response to emerging evidence that large companies, which are required to report on their actions to combat modern slavery, have a limited understanding of their duties and how to conduct human rights risk assessments.

The guides are available here


European Commission (EC) 

Publishes new EU Prospectus Regulation

The EU Prospectus Regulation (the Regulation) replaced the EU Prospectus Directive from 20 July 2017.  

The European Commission cites the reasons for introduction of the Regulation to be to:

  • make it easier and cheaper for smaller companies to access capital;
  • introduce simplification and flexibility for all types of issuers, in particular for secondary issuances and frequent issuers which are already known to capital markets;
  • improve prospectuses for investors by introducing a retail investor-friendly summary of key information, catering for the specific information and protection needs of investors.

The majority of provisions will apply from 21 July 2019.  However, two provisions which came into effect from 20 July 2017 relate to exemptions from the obligation to publish a prospectus when securities are admitted to trading on a regulated market.  These are:

  • Currently annual increases of shares admitted to trading of less than 10% are exempt; this exemption has been increased to a higher threshold of 20% over a twelve month period.  In addition a broader range of financial securities are covered rather than just shares.
  • A change to the exemption for shares resulting from the conversion or exchange of other securities so that the exemption will only be available where the shares to be admitted over a twelve month period represent less than 20% of the shares already admitted to trading. 

The Financial Conduct Authority consulted on changes to the Prospectus Rules in March 2017 to reflect these changes and it is expected final rules will be published shortly.

The EU Prospectus Regulation is available from the European Commission’s website.

Publishes non-binding guidelines on the disclosure of non-financial information by companies

The EC states that their objective is to help companies fulfil the requirement to disclose relevant and useful information on environmental and social matters in a consistent and more comparable way. These obligations were set out in an EU Directive on disclosure of non-financial and diversity information by certain large undertakings and groups which came into force on 6 December 2014. The Directive sets out minimum requirements on the disclosure of non-financial information by certain large companies in their annual report including relevant information on: environmental aspects, social and employee matters, respect for human rights, anti-corruption and bribery issues.

The guidelines are available here


The City of London Law Society (CLL) and Law Society Company Law Committees’ Joint Working Parties 

Publishes updated version of Q&As on Market Abuse

The CLL and Law Society Company Law Committees’ Joint Working Parties published their Q&As on the Market Abuse Regulation (MAR) as a suggested approach to implementing certain aspects of MAR in 2016.  

The Q&A contain the practical application of MAR in certain situations.  The amended Q&As, published on 30 June 2017, contain a new Part C which deals with contractual arrangements involving a subscription for shares, for example where there is to be an issue of consideration shares in connection with an acquisition, and the disclosure of inside information to third parties involved with the transaction.


The Criminal Finances Act 2017 

Companies are required to have reasonable prevention procedures against tax evasion

The Criminal Finances Act 2017 (the Act) received Royal Assent on 27 April 2017. The Act amends the Proceeds of Crime Act 2002 and is targeted to tackle money laundering and corruption, make provision in connection with terrorist property and creates a new corporate offence of failure to prevent facilitation of tax evasion.  This is based on the offence in the Bribery Act 2010 of the failure to prevent bribery. 

Companies are expected to have in place reasonable prevention procedures against tax evasion in a similar manner to the Bribery Act. A company or partnership may be prosecuted for failure to prevent the facilitation of tax evasion if a person evades tax and an associate of the company, such as an employee or agent, criminally facilitates the tax evasion while acting in their capacity as an associate of the company.  A defence would be that the company can show it had in place reasonable prevention procedures (or that it wasn’t reasonable for prevention procedures to be in place).   

It has been confirmed that the new corporate criminal offence of failure to prevent tax evasion will be effective from 30 September 2017.  Companies should carry out a risk assessment and implementation plan to ensure that they have reasonable controls and procedures in place to prevent tax evasion. 

The Act is available here

The government published draft guidance (October 2016) as to what may be considered reasonable prevention measures. In the same way as for the Bribery Act 2010, the draft guidance emphasises: 

  • The importance of the commitment of top-level management to preventing the facilitation of tax evasion.
  • The introduction of effective internal communication, including whistleblowing channels.
  • The need to monitor and review procedures put in place.

The draft guidance is available here


The Department for Business, Energy and Industrial Strategy (BEIS)

Publishes Taylor Review of Modern Working Practices

On 11 July 2017 the Department for Business, Energy and Industrial Strategy published ‘Good Work - Taylor Review of Modern Working Practices’.  The remit of the review was wide ranging and covers areas such as the relationship between employer and employee, quality of work, tackling exploitation, employee rights and employee representation.  

The review was set up in the light of changes in technology that have impacted on the rights of workers and working practices and recommends certain employment and tax reforms.  It also sets out seven steps which it believes will help towards providing fair and decent work with potential for development and fulfilment. It is now for the Government to decide which of its recommendations it will take further.

The Taylor Review is available here


The Financial Conduct Authority (FCA) 

Publishes pro-forma templates for notifying share buy-backs and stabilisation measures

Pro forma templates have been published by the FCA for companies to use to notify share buy-back transactions or stabilisation measures.  

Under the EU Market Abuse Regulation a safe harbour against possible market abuse offences is provided for companies carrying out share buy-backs and stabilisation measures provided that certain conditions are met.  One of these conditions is to notify the FCA of the buy-back or stabilisation.  The FCA have said however that companies don’t have to use their templates for the notifications. 

The templates are available from the FCA’s MAR website here.

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