Included in this issue: Changes to the AIM Rules for Companies arising from the EU CSD Regulation | Co-op censured for serious Listing Rules breaches | CREST and CHAPS: extension of settlement day | Transparency Directive: HM Treasury publishes draft regulations | New FCA Handbook and PRA Rulebook websites launched | Inside information – importance of learning lessons from FCA v Hannam underlined | Capital markets union: TheCityUK report on European listings regimes | Changes proposed to the City Code on Takeovers | Simon Wood in post at the Panel | Small Business, Enterprise and Employment Act 2015: implementation delayed | Implementation of the EU Audit Directive and Regulation | The Modern Slavery Act 2015 | CISI Corporate Finance Forum - 1 October 2015
Equity Capital Markets
The London Stock Exchange (LSE) has published AIM Notice 41 setting out minor changes to the availability of derogations from Rule 36 of the AIM Rules for Companies.
Under Rule 36, securities that are admitted to AIM must be deemed eligible for electronic settlement. In the past, the LSE has granted derogations from Rule 36 to enable admission of certain US securities that historically have not been eligible for electronic settlement in CREST ("Regulation S, Category 3 securities").
You will recall from previous editions of Corporate Finance News that Article 3(2) of the EU Central Securities Depository Regulation, however, requires transactions in transferable securities that take place on a trading venue to be recorded in book entry form in a Central Securities Depository (CSD). As a result, with effect from 1 September 2015, derogations from Rule 36 will no longer be available for such securities. Changes to the AIM Application Form have been made in light of this - more information on the changes can be found here.
The LSE has also reminded new AIM applicants proposing to issue Regulation S, Category 3 securities that they must request a derogation from Rule 32 (Transferability of shares) prior to admission and clearly indicate that fact on their AIM Application Form.
Following a joint investigation by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), the FCA has censured the Co-operative Bank for breaching Listing Rule 1.3.3R(misleading information not be published) and for failing to be honest with the regulator. The FCA gave serious consideration to imposing a "substantial financial penalty" but considered that the success of the Bank's turnaround plan was of greater importance and that its capital resources should be directed towards that instead.
The FCA found that between 21 March 2013 and 17 June 2013, the Bank breached LR 1.3.3R in its annual report where it indicated that it could maintain adequate capitalisation at all times, even under the most severe stress scenarios. In addition, the Bank noted that it could absorb capital shocks and cover its regulatory minimum requirements.
However, the FCA found that the Bank had knowledge that it did not have sufficient capital for these claims to be made and therefore, in publishing these misleading statements, fell "significantly below the standards expected of UK listed companies".
The Bank of England has announced that the settlement day for CREST and CHAPS will be extended by one hour and forty minutes. Once in force (expected to be summer 2016) these systems will close at 6:00pm for direct participants, such as the major banks. This will align the CREST and CHAPS settlement day with the typical business hours of many system users.
The Bank of England, Euroclear UK & Ireland and CHAPS Co will work to raise awareness of the upcoming change over the next few months. In addition, the Bank of England intends to host a market-wide forum and will determine how to monitor the delivery of benefits to end-users. The exact implementation date is expected to be confirmed shortly.
HM Treasury has launched a consultation on the draft Transparency Regulations 2015 which set out proposed amendments to the Financial Services and Markets Act 2000 (FSMA) to implement this EU amending directive. From previous editions of Corporate Finance News, you will remember that the primary thrust of the changes is to broaden the scope of Chapter 5 of the Disclosure and Transparency Rules (DTR) which will require ultimately the notification of dealings by substantial shareholders in an increased number of financial instruments issued by (or referable to instruments issued by) listed and certain AIM quoted issuers. The Directive must be implemented during November 2015.
The FCA has launched new and separate FCA Handbook and PRA Rulebook websites. Anyone attempting to visit the old online rulebook will be redirected to the new websites.
In a speech delivered at the Investor Relations Society Conference in London, Marc Teasdale, Director, Market Oversight at the FCA commented on the DTR 2 disclosure obligations of listed companies and underlined the importance of all market participants understanding the conclusions of the FCA Tribunal decision in FCA v Ian Hannam. He also commented on the implementation of the EU Market Abuse Regulation, which we covered most recently in the June edition of Corporate Finance News, and the FCA's study into investment and corporate banking, which we covered in July.
TheCityUK has published a report setting out the findings of its review of the European listings regime, which was carried out in response to a government invitation announced as part of the March 2015 Budget. The review aligns with the European Commission’s commitment to develop a Capital Markets Union and makes proposals on how the current regime could be improved to advance the goals of such a union. It also makes recommendations on improving the regime for new listings and examines the continuing obligations of listed issuers.
Changes proposed to the City Code on Takeovers
The Code Committee of the Takeover Panel has published two consultation papers proposing changes to the City Code on Takeovers and Mergers (City Code) as follows:
- PCP 2015/2 sets out proposed amendments to the definition of "voting rights" such that it would extend, with limited exceptions, to shares which are subject to voting restrictions or suspended voting rights. At present, the definition only catches voting rights "currently exercisable at a general meeting". The purpose of the proposals is twofold: first, to make it clear that where a shareholder is, for any reason, currently restricted from exercising the voting rights attaching to shares, these (restricted) voting rights should nevertheless be taken into account in considering the application of the City Code in relation to that person and to other shareholders in the company; and, second, to eliminate the existing scope for a company to issue "suspended voting shares" as a means of avoiding the normal application of Rule 9 of the City Code (When a mandatory offer is required), including the requirement for the company to obtain a whitewash; and
- PCP 2015/3 proposes to introduce three new presumptions to the current definition of "acting in concert" in the City Code – these additions are intended to codify existing practices of the Panel Executive. As with those categories of persons currently presumed to be acting in concert, the additional presumptions will be equally rebuttable.
Comments on both consultations are required by 11 September 2015. We will issue a more detailed overview of the changes when the Code Committee issue its response statement.
As announced by the Takeover Panel in August, Simon Wood, a Partner in our Corporate team, has now started his two year secondment as a Secretary of the Panel. We wish him well.
Governance, Reporting & Compliance
A revised provisional implementation timetable has been published by Companies House for the Small Business, Employment and Enterprise Act 2015 (SBEEA). Headline changes to the timetable are as follows:
- companies must keep a register of those "persons with significant control" (PSC Register) from April 2016 (previously January 2016);
- companies must file PSC Register information at Companies House from 30 June 2016 onwards (previously April 2016);
- "check and confirm" statements, replacing Annual Returns, and the new regime relating to Statements of Capital will come into force in June 2016 (previously April 2016); and
director disqualification regime amendments are expected to come into force in June 2016 (previously April 2016).
The implementation of the bar on corporate directors taking effect was also recently moved back by 12 months to October 2016. To review the revised implementation timetable in full, please read our SBEEA Implementation Timetable Alert which has been amended to reflect the changes.
BIS has also confirmed that the government intends to end the ability to ban invoice assignment clauses in business to business contracts through powers granted under the SBEEA.
BIS has published an update on the implementation of the EU Audit Directive and Regulation. In doing so it has confirmed that:
- BIS will publish a formal consultation in the next few weeks focussing on the definition of a "public interest entity" (PIE), the powers of the Financial Reporting Council (FRC) and mandatory retendering and rotation of PIE auditor appointments. The outcome of the consultation will be significant as, depending on its conclusion, it may bring AIM and other non-listed companies within the scope of the rules;
- in September, the FRC will report on the decisions it has reached on the Directive driven changes to auditing and ethical standards and consult further on the detail of implementation, including issues such as types of entity in scope and prohibited non-audit services. The consultation will also propose changes to the UK Corporate Governance Code and its associated Guidance on Audit Committees; and
- in early September, the FCA will consult on Directive driven changes to the DTRs relating to Audit Committees which will be of relevance to companies with securities admitted to trading on regulated markets. The PRA will undertake a similar consultation later in the same month, dealing with requirements for banks, building societies and insurers.
The Directive must be implemented by 17 June 2016. By way of reminder, the FRC has been confirmed as the UK competent authority for the regulation of auditors.
This Addleshaw Goddard Briefing provides an overview of The Modern Slavery Act 2015 which is expected to be brought into force no earlier than October 2015. To read the Government's response and its next steps paper (published on 29th July) where the annual turnover threshold was confirmed as £36m thereby determining whether a company is 'large' and so subject to the requirements of the Act – click here.
The Act provides for all businesses which have a turnover of over £36m to publish an annual statement stating the steps that they have taken to ensure that slavery and human trafficking are not taking place in their business or supply chains.
CISI Corporate Finance Forum - 1 October 2015
We are hosting another CISI Corporate Finance Forum in our London office on 1 October 2015. This is aimed primarily at Compliance Officers but all are welcome. The agenda will focus on the imminent implementation of the EU Market Abuse Regulation and in addition to providing an overview of key changes and ESMA advice, look in more detail at the impact of the Regulation on:
- The meaning of "inside information" and the related disclosure obligation
- Market soundings, wall-crossing and cleansing announcements
- Suspicious transaction and order reports.
The event will commence with lunch at 12.30pm with presentations starting at 1.00pm. Please register your interest in attending by emailing Brian McDonnell and do feel free to extend this invitation to relevant colleagues.