Included in this issue: Modern Slavery Act 2015 – Modern Slavery Act 2015 (MSA): section 54 slavery and human trafficking statement | Officers consent to act | PM announces new measures to eradicate gender pay inequality | Britain goes to work on boardroom bias | PM: Time to end discrimination and finish the fight for real equality | Changes to the Listing (LR) and Disclosure and Transparency Rules (DTR) now in force | AIM: guidance on disclosures relating to equity financing products | AIM: consultation on changes to AIM Rules for Companies | Market Abuse Regulation (MAR): further clarity brought to next year's implementation | AIM Regulation statement on disclosure obligations under the AIM Rules and MAR | BIS consultation on implementation of EU audit reform | FRC also consults on audit reform | FRC Corporate Reporting Review 2015 | Draft guidance on going concern basis of accounting and reporting on risks for private companies

Modern Slavery Act 2015 – implementation and guidance

Modern Slavery Act 2015 (MSA): section 54 slavery and human trafficking statement

Each business with a turnover of more than £36m must publish an annual statement stating the steps it has taken to ensure that slavery and human trafficking are not taking place in its business or its supply chain. This section 54 requirement is now in force and the government has published its guidance which deals with implementation, detailed application, transitional provisions and the content of the statement itself all of which is covered in our update issued last week. 

Small Business Enterprise and Employment Act (SBEEA) implementation update

Officers consent to act 

In last month's Corporate News we highlighted the SBEEA changes which came into force on 10 October 2015. These dealt with (i) officers' consent to act; (ii) suppression of directors' "day" of birth; and (ii) company accelerated strike off procedures. For more detail on the changes, please read our SBEEA Alert

Due to the changes, the Companies House forms dealing with the appointment of officers (AP01, AP02, AP03, AP04 and IN01) no longer need to be physically signed by the appointee for paper filings. For web filings, the requirement to provide three out of seven pieces of requested personal information that act as personal authentication (e.g. eye colour etc), will be removed for the appointment of officers (note it will still be required for subscribers). Instead, companies will be required merely to provide the Registrar with a statement that the director had consented to act (effected by ticking a box on the relevant CH form). Thus it would be advisable for companies to obtain some evidence of an officer's consent.

The need for such evidence is all the more important when one considers the SBEEA changes which are to come into force in December 2015 and which facilitate applications to the Registrar by directors seeking to have their details removed from the public register in situations where they claim to have been falsely appointed. In the circumstances of such an application, a company would be required to provide evidence of that director's consent to act.

Corporate Governance - Gender bias, diversity and discrimination 

A busy month on this front with announcements and updates on various initiatives:  

PM announces new measures to eradicate gender pay inequality

The Prime Minister has announced further measures aimed at removing barriers to success in the workplace including forcing larger employers to publish information about their bonuses for men and women and extending the plan for gender pay gap reporting. For the history on this issue – click here.  

Britain goes to work on boardroom bias

In Lord Davies final report on gender bias in the boardrooms of the UK's largest listed companies, he reports that the target of 25% of FTSE 100 board positions being filled by women has been met, that there are now no all male FTSE 100 boards and only 15 all male boards in the FTSE 250. Lord Davies goes on to make various further recommendations, including setting a target for women's representation to be at 33% in the FTSE 350 by 2020. He also emphasises the pressing need to focus on executive positions and the longer term pipeline of female talent.  

PM: Time to end discrimination and finish the fight for real equality

The Prime Minister has also announced that various government and private organisations have pledged to recruit on a "name blind" basis to address discrimination. 

Equity Capital Markets

Changes to the Listing (LR) and Disclosure and Transparency Rules (DTR) now in force 

The Financial Conduct Authority (FCA) has published its response statement and new rules following the quarterly consultation it launched in June 2015. The changes made which, save as stated below, are now in force are largely as originally proposed and include:

  • updating the FCA Handbook glossary to provide for a single definition of the UK Corporate Governance Code (Code) applicable to the entire FCA Handbook;
  • amending LR 9.8.6R to require each annual financial report to include not only the amended going concern statement required by provision C.1.3 of the 2014 iteration of the Code but also the directors' assessment of the longer term viability of the company required by provision C.2.2, also known as the "viability statement". In doing so, the FCA rejected arguments that it was mandating a requirement and thereby overriding the "comply or explain" principle underpinning the Code;
  • deleting the electronic eligibility requirements (LR 6.1.23R) for premium listed companies so as to accord with the provisions of Article 3.2 of the EU Central Securities Depositories Regulation; and
  • updating various headline codes for use when disseminating regulated information (DTR 8, Annex 2) – note that these headline codes will come into force on 1 December 2015.

Equity Capital Markets - AIM companies

AIM: guidance on disclosures relating to equity financing products

The London Stock Exchange (LSE) has published an "Inside AIM" update providing guidance on AIM company disclosures regarding equity financing products involving AIM securities in which a company or its directors are interested. These products can include equity lines of credit, swap facilities and certain crowd funding products for the AIM company, and share sale and repurchase agreements involving AIM company directors.

AIM: consultation on changes to AIM Rules for Companies

The LSE has published AIM Notice 42 containing proposed changes to the AIM Rules for Companies and, in particular, investing companies and those companies on the market which undertake a fundamental change of business. Consequential changes are also proposed to the AIM Note for Investing Companies. In overview, if adopted, the changes will:

  • increase the amount that a new fund must raise on IPO from £3m to £6m;
  • mean that companies which undertake a fundamental disposal of their assets will be regarded as a cash shell under AIM Rule 15 (and not an investing company) and thereafter have only six months to make an acquisition or acquisitions constituting a reverse takeover. Failing to do so will mean the LSE suspends trading in the company's shares which may lead to a cancellation of its admission under Rule 41.    

Responses to the consultation are requested by 12 November 2015. 

Equity Capital Markets – Market Abuse Regulation

Market Abuse Regulation (MAR): further clarity brought to next year's implementation

The European Securities and Markets Authority (ESMA) has published its final technical standards in relation to the EU Market Abuse Regulation. You will remember that MAR comes into force on 3 July 2016.  

The recommendations relate to the operation of MAR relative to buybacks and stabilisation measures, market soundings / "wall-crossing", the disclosure of inside information (including delaying disclosure), the creation and maintenance of insider lists and disclosure of transactions by persons discharging managerial responsibility (PDMR).  

ESMA has made a number of changes since the consultation draft, these include:

  • slightly reducing the content requirements for insider lists relative to the proposals in the consultation, although these will still be significantly more onerous to compile than currently;
  • providing more flexibility for issuers by allowing the production of a single insider list with different sections instead of a mandating separate project specific lists and one detailing permanent insiders;
  • publishing a single template with slightly reduced disclosure requirements (relative to the consultation draft) for both the private and public notification of each transaction in the securities of the issuer by PDMR. Note that these disclosure obligations are also more onerous than the current requirements. It remains to be seen at what level the FCA will set the threshold above which PDMR transactions must be disclosed as is permissible under MAR – currently all "own account" transactions must be disclosed under Chapter 3 of the FCA's Disclosure and Transparency Rules;
  • altering the notification requirements when an issuer delays the disclosure of inside information. It remains to be seen whether the FCA will require the notification of every instance of delay by an issuer or will only expect that information to be provided on request. In any event, the change will necessitate far more detailed records being kept of the analysis of the status of inside / price sensitive information; and
  • amendments to the provisions relating to market soundings, including to clarify that where an issuer and its financial adviser jointly conduct a market sounding, each must comply with the new regime.    

While the European Commission has three months to consider the standards, it seems unlikely that they will alter significantly. To that end, we expect the FCA to consult on the implementation of MAR shortly. This will focus on the changes the FCA will need to make to, for example, DTR 2 and DTR 3, the Model Code and the Code of Market Conduct in relation to which it has very little discretion.

AIM Regulation statement on disclosure obligations under the AIM Rules and MAR

As a Multi-lateral Trading Facility, MAR will apply to AIM. Whether MAR will apply in its entirety will depend on whether AIM applies for, and is granted, various possible exemptions. We will keep you posted on that.

One area in which there is some clarity is in relation to market disclosure. Thus, the AIM Regulation team has published an Inside AIM update outlining opinions on how disclosure obligations under MAR will sit alongside the disclosure obligations in Rule 11 of the AIM Rules for Companies. 

AIM Regulation considers that retaining Rule 11 (in a slightly amended format to reflect MAR) is important to the integrity of AIM and the maintenance of an orderly market. As the FCA has been announced as the competent authority under MAR, retaining Rule 11 will mean that AIM companies will owe obligations both to the FCA under MAR and to the LSE under the AIM Rules when MAR comes into force.

AIM Regulation has stated that it intends to work closely with the FCA to minimise potential duplication and envisages that it will continue to discuss announcement obligations with nominated advisers in the first instance and will co-ordinate with the FCA as necessary. However, AIM Regulation acknowledges that only the FCA will be able to opine on MAR compliance and will retain the right to engage directly with AIM companies. 

EU Audit Reform

BIS consultation on implementation of EU audit reform

The Department of Business, Innovation and Skills has published a consultation paper setting out proposals for the implementation of the Directive amending the EU Statutory Audit Directive and the EU Audit Regulation on the statutory audit of public interest entities (PIEs). The Regulation will apply from 17 June 2016, by which time the Directive must also have been implemented.  

In addition to the consultation paper, the government also published a draft version of the Statutory Auditors and Third Country Auditors Regulations 2015, together with proposed amendments to the Companies Act 2006. 

The consultation seeks views on various issues, including: 

  • for the purposes of the Regulation and those provisions of the Amending Directive that relate to PIEs, the decision not to extend the definition of a PIE to companies traded on AIM. Thus, PIEs will only be those entities with securities admitted to trading on a regulated market, banks, building societies, and insurers;
  • the requirement that PIEs retender their audit engagement at least every ten years and change their auditor every 20 years. The consultation also sets out transitional arrangements for PIEs which first appointed their current auditor in the 13 years leading up to the application date of the Regulation;
  • measures to make ineffective any agreement with a third party that restricts an audit client's choice of auditor;
  • proposed amendments to the Companies Act 2006 to reflect the wider range of entities that must now be audited under EU law; and
  • formal designation of the FRC as the UK's competent authority with ultimate responsibility for regulatory tasks under the Statutory Audit Directive.

Responses to the consultation are required by 9 December 2015. 

FRC also consults on audit reform

The Financial Reporting Council (FRC) has also published a consultation to revise the Ethical and Auditing Standards, the UK Corporate Governance Code and related Guidance on Audit Committees, as part of its ongoing work to enhance confidence in audit. The proposals are designed primarily to implement the EU Audit Directive and Regulation mentioned above, but also to reflect other recent changes, including revisions to the International Audit and Assurance Standards Board's auditor reporting standards and the new audit-related obligations of FTSE 350 companies under the Competition and Markets Authority's Statutory Audit Services Order. For our CQC update containing more detail, please click here.

The consultation runs until 11 December 2015. 

Financial Reporting

FRC Corporate Reporting Review 2015 

The FRC has published its Corporate Reporting Review Annual Report for 2015, covering the year to 31 March 2015. The report notes that:   

  • the quality of corporate reporting is generally good but that the FRC has a potential concern about how some boards assess materiality;
  • that some smaller companies fail to explain their "story" and comply fully with the relevant standards and thus the FRC has issued a consultation to support a step change in the quality of their reporting;
  • boards made appropriate efforts to implement the new consolidation, joint venture and associate accounting standards, and to produce the "new" strategic reports;
  • in relation to strategic reports, the FRC encouraged boards to focus on disclosures relevant to investors and not include extraneous material in their reports. Disclosures in strategic reports should be consistent with a company's business model and the FRC continues to raise questions about the disclosure of key performance indicators where these could not be reconciled to the relevant amounts or where trends were not explained; and
  • in relation to clear and concise reporting, the FRC stresses that important messages in the report and accounts should not be obscured by extraneous material, and boards should not include irrelevant information on the premise that it will avoid regulatory enquiry.

The report also highlights: 

  • a number of areas of focus for boards in the next reporting cycle, including the quantitative and qualitative aspects of materiality and clear and concise reporting; and
  • good practices that companies are encouraged to adopt on receiving a letter from the FRC.  

Financial Reporting – private companies

Draft guidance on going concern basis of accounting and reporting on risks for private companies

The FRC published draft guidance for consultation focusing on the issues surrounding the accounting and reporting on solvency and liquidity risks for companies that do not apply the UK Corporate Governance Code. The guidance will be non-mandatory for all companies required to make disclosures on the going concern basis of accounting in their financial statements and on principal risks and uncertainties within their strategic report, other than those that are required, or choose voluntarily, to apply the Code. 

Comments on the draft guidance are requested by 15 January 2016.