Market Abuse Regulation

FCA publishes Policy Statement on the implementation of the Market Abuse Regulation

The FCA has published a Policy Statement on the implementation of the Market Abuse Regulation (MAR), which includes feedback on two previous consultations CP15/35 and CP15/38. The FCA has also published the Market Abuse Regulation Instrument 2016, which sets out the final amendments to the FCA Handbook.

In summary, the FCA confirms that it is proceeding with the majority of its proposals with some notable exceptions. For an overview of the FCA's conclusions – click here.

MAR applies from 3 July 2016 and the Market Abuse Regulation Instrument 2016 will come into force on the same date.

LSE consults on changes to AIM Rules for Companies ahead of MAR

The London Stock Exchange (LSE) has published a consultation proposing changes to the AIM Rules for Companies in light of MAR. The proposals include:

  • amending the guidance note to AIM Rule 11 (General disclosure of price sensitive information);  
  • deleting from AIM Rule 17 the obligation for a company to notify information relating to directors' dealings on the basis that this is superseded by MAR; and  
  • setting out a new AIM Rule 21 requiring AIM companies to put in place a share dealing policy. 

Comments must be submitted to the LSE by 12 May 2016. To read our client update issued at the time - click here.

The LSE has also published an edition of Inside AIM focused on MAR compliance. For an overview – click here and scroll to the second item.

Delegated Regulation published dealing with trading during closed periods and notifiable PDMR transactions

The European Commission Delegated Regulation supplementing MAR on, among other things, indicators of market manipulation, granting permission for trading during closed periods and types of notifiable PDMR transactions has been published in final form.

MAR – Company Secretaries' Forums at Addleshaw Goddard

We will be holding Company Secretaries' Forums focused on MAR in each of our UK offices as follows:

  • London on 10 May 2016, with a 9.00am start 
  • Manchester on 26 May 2016, with a 9.00am start 
  • Leeds on 26 May 2016, with a 5.00pm start 

If you would like to join us, please email Sophie Jennings, indicating which Forum you would like to attend.

Small Business, Enterprise and Employment Act 2015 – PSC Regime

PSC register: Revised non-statutory guidance

BIS has updated both sets of its non-statutory guidance for persons with significant control (PSC) and for companies and LLPs. Most amendments are minor, but note that the revised guidance:

  • clarifies that a person's direct and indirect interests must be aggregated for the purposes of choosing the appropriate statement to include in a PSC register;  
  • reminds companies etc, that weighted voting rights on particular matters are unlikely to meet the voting rights test in the second specified condition; and  
  • correct the prescribed wording for inclusion in PSC registers of an LLP.

To read our briefing on the PSC regime - click here.

Chancellor announces agreement to share beneficial company ownership information

The Government has announced its intention to automatically share information concerning the ultimate owners of companies, after an agreement between the UK, Germany, France, Italy and Spain. This is a part of the UK's drive to improve tax transparency and tackle tax avoidance and evasion. Tax and law enforcement bodies from the five countries will exchange data on company beneficial ownership registers and registers of trusts under the agreement. The UK is the first of those countries to mandate the creation of a register of ultimate beneficial ownership.

UK Corporate Governance Code

Revised UK Corporate Governance Code, guidance for audit committees and auditing and ethical standards

The Financial Reporting Council (FRC) has published a final draft of the changes it proposes to make to the UK Corporate Governance Code, its Guidance on Audit Committees and its ethical and auditing standards as a result of the implementation of the EU Audit Regulation (EU 537/2014) and the EU Audit Directive (2014/56/EU).

By way of reminder, the Regulation has direct effect, and the Directive will be implemented from, 17 June 2016. No effective date has been given by the FRC for the revisions to the Code, its Guidance or the standards but it is anticipated that they will apply to financial periods beginning on or after 17 June 2016.

In overview, key measures which will impact on public interest entities (i.e. listed companies, credit institutions and insurance undertakings) include:

  • mandatory rotation of statutory auditors every ten years which may be extended if a tender is undertaken for a further period of ten years;  
  • introducing a cap on fees for non-audit services limiting them to 70% of the average fees paid for audit services over the previous three consecutive financial years;  
  • introducing restrictions on the scope of non-audit services which may be provided to avoid an auditor's independence being compromised; and  
  • prohibiting clauses in agreements between any company and a third party the effect of which is to restrict the choice of auditor.

The principal changes to the Code being carried forward are:

  • the addition to Code Provision C.3.1 that: "The audit committee as a whole shall have competence relevant to the sector in which the company operates". The proposed change requiring at least one member of the audit committee to have"competence in accounting and/or auditing" has not been made. The current formulation of "recent and relevant financial experience" will be retained;  
  • principal C.3.7 will be amended to remove the recommendation that FTSE 350 companies should put their external audit contract out to tender at least every ten years. This removes the duplication between the Code and the provisions of the corresponding 2015 Competition and Markets Authority Order. The reference in provision C.3.7 to the audit committee having primary responsibility for making the recommendation on the appointment, reappointment and removal of the external auditors has been retained; and  
  • the proposed change to provision C.3.8 to provide that the annual report should include advance notice of external auditor retendering plans has been made, but qualified to ensure that reporting is only undertaken when focused and relevant. 

Financial reporting for those NOT subject to the UK Corporate Governance Code

The FRC has also published guidance regarding the going concern basis of accounting and reporting on liquidity and solvency risks for companies that do not apply the UK Corporate Governance Code. The guidance brings together the requirements of company law, accounting standards and other existing FRC guidance. It also incorporates recent developments in the corporate reporting framework, in particular the introduction of new UK GAAP.  

Corporate Governance – Board responsibilities and directors' duties

Board Responsibilities in regulated entities

The Prudential Regulation Authority has published a supervisory statement on the collective responsibilities shared by board members of regulated entities to which it ascribes particular importance, whilst also examining the appropriate degree of independence expected of boards, particularly of subsidiaries.

Corporate Governance – Diversity

How to improve board diversity

A six step guide to good practice for companies and executive search firms has been published by the Equality and Human Rights Commission.

Corporate Reporting

New regulations change accounting regulatory framework for LLPs

The Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016 have been published.

The purpose of the regulations it to ensure the legislative requirements for LLPs remain aligned with those of limited companies. They do not, however, substantially change the LLP reporting regime. The regulations:

  • align the audit provisions for LLPs with those of limited companies;   
  • limit the number of mandatory notes to the accounts required of small LLPs; and  
  • introduce a "micro-entity" regime for LLPs.

The new regulations apply to financial years beginning on or after 1 January 2016. LLPs or qualifying partnerships may apply the amended rules to financial years beginning on or after 1 January 2015 if they have not already filed their accounts.

Corporate Reporting and tax transparency

Large businesses to be required to publish "Tax Strategy"

All 'large businesses' will be required to publish their 'tax strategy' at the start of their financial year and refresh it every 12 to 15 months thereafter under proposals announced in the Budget.

Every business in scope will be required to disclose its:

  • approach to risk management and any existing governance arrangements in place concerning UK tax;
  • attitude towards tax planning;
  • level of risk in relation to UK tax that the business is comfortable with; and   
  • approach to dealing with HMRC.

The statement must be published online either as a separate document or as part of a larger document (e.g. an annual report) and access to it must be free of charge.

'Large businesses' include UK companies, partnerships, groups and sub-groups (of a wider foreign group) with an annual turnover greater than £200 million or with more than £2 billion in assets. HMRC expect that this will, broadly, catch businesses with their own Customer Relationship Manager (although any business passing the turnover or balance sheet tests will be caught).

There will be relatively modest financial penalties for non-compliance with the disclosure obligation. It also remains to be seen whether there will be penalties for businesses that derogate from their published tax strategy.

HMRC have published draft guidance on the regime which will commence for accounting periods beginning after the Finance Bill 2016 receives Royal Assent.

Commission proposes to introduce country-by-country tax reporting for multinationals

The European Commission is proposing to amend the Accounting Directive to require large, multinational companies to publish an annual report disclosing their profit and tax accrued and paid in each EU member state and certain tax-haven jurisdictions on a country-by-country basis.

The companies within scope include:

  • ultimate parent undertakings of EU-headquartered multinational groups with a consolidated net turnover of at least €750 million; and
  • large and medium sized EU subsidiaries and branches of non-EU headquartered multinational groups with a consolidated net turnover of at least €750 million.

Banks and other financial institutions already subject to public country-by-country reporting will be exempt from the new reporting requirement to the extent that their reports cover all affiliated undertakings.

International organisations increase and formalise co-operation on tax issues

The International Monetary Fund, the Organisation for Economic Co-operation and Development, the United Nations, and the World Bank Group have announced their intention to increase co-operation on tax issues.

Equity Capital Markets

FCA revises enforcement powers

The FCA has published the Enforcement Guide (Transparency Regulations 2015) Instrument 2016 which is now in force. This enables the FCA to obtain a court order suspending the voting rights of a shareholder which has breached certain requirements of the Transparency Directive and, in particular, Chapter 5 of the Disclosure and Transparency Rules.