The Government’s official position has always been that although the trigger for dematerialisation is the Central Securities Depositary Regulation (CSDR), it has merits of its own and would proceed regardless of the outcome of the Referendum. As such, the Government intends to progress with the consultation paper, expected to be finalised over the summer and made public (inviting responses) in the autumn of 2016.
It does, however, remain to be seen whether dematerialisation stays in focus to be introduced in advance/in line with the EU stated deadline of 2023/25. Equiniti chairs the dematerialisation working group and remains close to the Government on this subject. We will provide regular updates as and when we receive them.
Reconciliations and other changes progressing
CSDR is already law and the Bank of England is committed to implementing the changes which they see as important in their objective of ensuring an orderly market. Euroclear is making progress on required changes to make sure it and the market are compliant with the CSDR, including moving from quarterly to fortnightly full reconciliations between registrars and the CSD. Similarly, the collection of Local Entity Indicators (LEIs) and other information from listed companies will go ahead as planned in the autumn, although the extent of future reporting remains to be seen.
UK firms must continue to abide by obligations under UK law, including that derived from EU legislation, despite postponement of implementation of MiFID II
The postponement of implementation until December 2017 means that, in theory, the UK might avoid some or all of the new requirements. UK financial services organisations may, however, choose to ensure that they are MiFID compliant in order to future-proof their organisations for trading with EU counterparties in a post-Brexit environment. In addition, UK regulators may feel that these enhancements are of benefit to the UK and therefore continue with implementation despite Brexit.
To re-iterate this, the Financial Conduct Authority (FCA) Chairman (John Griffiths-Jones) delivered a speech at TheCityUK Annual Conference with the clear message that UK firms must continue to abide by their obligations under UK law, including that derived from EU legislation.
Minimal impact on the UK, if any at all
The final text is expected to cause minimal impact to the UK and, given the time-lag before introduction, it is quite possible that there will now be no effect on the UK.
The Directive came into force on 17 June 2016 and subjects listed companies to new regulations influencing the appointment of auditors and the work of audit committees
The UK Corporate Governance Code will be impacted; the proposed changes have been consulted on by the FRC Code and Guidance to Audit Committees, with the consultation document expected to be published shortly. The drafts of the Code, Guidance on Audit Committees and Auditing and Ethical Standards can be found on the FRC website.
The EU Commission has issued a press release and Q&A document with regard to the proposed changes to the UK Corporate Governance Code.
MAR now in force and the FCA has clarified its stance on closed periods
- MAR came into force on 3 July 2016.
- The regulation identified closed periods as the 30 day period prior to the announcement of an interim or year-end report.
- The FCA view is that the closed period will exist immediately before the preliminary results are announced.
- This will apply until any further clarification is received from the European Commission or the European Securities and Markets Authority.
- The FCA’s Primary Market Bulletin (No. 15) covers MAR and includes draft online PDMR and delayed disclosure forms.
The ICSA, GC100 and Quoted Companies Alliance have produced a set of documents to assist companies in complying with the dealing provisions of MAR. These included a code, policy and procedures manual intended to provide a single reference point for companies.
The London Stock Exchange's (LSE) changes to the AIM Rules were implemented in full on 3 July 2016. The LSE will monitor how the revised AIM Rules work in practice and will keep the Rules under review.
The Group has produced draft resolution templates covering the disapplication of pre-emption rights
The Group has produced draft resolution templates for disapplication resolutions put to meetings after 1 August 2016. The templates cover both pre-emption rights on up to five per cent of the issued share capital and for an additional five per cent for transactions, which the board determines to be an acquisition or other capital investment.
Policy on significant changes to profit expectations
The IA recently sent a letter to the Chairs of FTSE listed companies setting out its concerns over the number of instances when companies have made significant changes to their profit expectations or reduced their dividend policy following the appointment of new management.
The IA takes non-executive directors and audit committees to task for not providing sufficient oversight of the previous management. The IA’s corporate governance research unit, IVIS, will issue an ‘Amber Top’ warning for the re-election of non-executive directors where this situation arises after 1 August 2016.
The FRC is seeking improvements in board succession planning
The next step by the FRC in its project to help companies improve board succession planning was to publish a feedback statement setting out responses and suggestions summarised from its October 2015 discussion paper.
The statement stresses that an active nomination committee is key to promoting effective board succession and that board membership should be aligned to company strategy.
In the current reporting season, the FRC will review nomination committee disclosures and report on its findings in the 2016 Developments in Corporate Governance and Stewardship Report due towards the end of 2016.
The FRC will use European Securities and Markets Authority Guidelines when reviewing strategic reports
The FRC has recently responded to the European Securities and Markets Authority’s Guidelines on Alternative Performance Measures (the ESMA Guidelines) issued in October 2015, by stating that compliance with the ESMA Guidelines will help to ensure that the annual report, when taken as a whole, is fair, balanced, comprehensive and understandable.
Annual return has been replaced
From 30 June 2016, companies will no longer need to file an annual return at Companies House. Instead companies should check the information held at Companies House for the last 12 months and file a new confirmation statement on the day the annual return would have been due. Companies House will send out reminders in advance of the filing deadline.