The Financial Conduct Authority (FCA) is getting its house in order before the implementation of the new reporting regulations this autumn.
In anticipation of the coming into force of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the Directors' Remuneration Reporting Regulations) and the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 (the Narrative Reporting Regulations) (together, the Reporting Regulations) on 1 October 2013, the FCA has published a consultation paper (CP 13/7) setting out its proposals for consequential changes to the Listing Rules (LRs), to become effective on 1 January 2014. Click here and here to read our articles in this edition of the newsletter for an update on each of the Reporting Regulations.
Avoiding duplication and reducing administrative burden for UK issuers
The reforms to financial reporting in company law have provided the FCA with an opportunity to review how the LRs should be updated, in particular Chapter 9, which sets out the continuing obligations for a company that has a premium listing of equity shares.
Having conducted an analysis of the requirements in the Reporting Regulations against those requirements set out in the LRs, the FCA concludes that the Reporting Regulations, particularly when read in conjunction with the Companies Act requirements, do not appear to impose substantially different requirements for premium listed UK issuers. Consequently, in order to avoid unnecessary duplication of requirements for UK issuers, the FCA proposes to delete those LRs which produce substantially the same outcome as the requirements in the Reporting Regulations, save those which apply equally to premium listed UK and premium listed overseas incorporated companies. The FCA does not intend to change the existing requirements for overseas premium listed companies and so these companies will remain subject to the current requirements under the LRs.
Once the changes are effective, premium listed UK companies will be subject to the remuneration reporting obligations in the Reporting Regulations, the Companies Act and the revised LRs.
A detailed comparative analysis between the requirements of LR 9.8.8.R (Annual Financial Report, Report to Shareholders) and the requirements set out in the Directors' Remuneration Reporting Regulations is set out in Appendix 1 of the consultation paper.
A summary of the proposed key changes to the LRs is set out below.
The FCA believes that the obligations under LR 9.8.8R fall within the scope of the Directors' Remuneration Reporting Regulations and therefore proposes to delete most of the obligations under this rule, save for LR 9.8.8(9) (details of the unexpired term of any directors' service contract of a director proposed for election or re-election at an AGM) which applies to both UK and overseas issuers.
The FCA concludes that, as the requirements relating to the disclosure of the details of directors' service contracts under the Directors' Remuneration Reporting Regulations, when read alongside the separate disclosure requirements in the Companies Act 2006, achieve the same outcome as the corresponding LR9.8.8R(8) (details of directors' service contracts), this LR should be deleted.
Similarly, despite noting that the Directors' Remuneration Reporting Regulations require the calculation of an aggregate pension input amount using a different methodology from that specified in the relevant LR9.8.8R12 (defined benefit schemes' disclosures), the FCA believes that substantially the same outcome is reached and is proposing to delete this LR.
The Narrative Reporting Regulations will bring to an end the use of 'summary financial statements' (in place of a full annual report and accounts), as this will in future be replaced by a strategic report with supplementary information. Consequently, references in LR9.8.13R to 'summary financial statements' will be changed to 'strategic report with supplementary information'.
Subject to consultation feedback, the proposed changes to the LRs will come into effect on 1 January 2014 and will apply to premium listed UK issuers with a year-end on or after this date. Premium listed UK issuers with a year-end before this date must comply with the existing LR requirements. This means that premium listed UK issuers with a year-end falling in the period 30 September 2013 to 31 December 2013 will have to comply with the existing LR requirements and the new Reporting Regulations from 1 October 2013 (being the date of implementation of the Reporting Regulations) to 31 December 2013.
The deadline for responding to the consultation is 9 October 2013.