In our round-up, we summarise the key developments from the last month for listed companies and issuers to note.
FCA publishes quarterly consultation paper 14/18
On 5 September 2014, the Financial Conduct Authority (FCA) published its quarterly consultation paper CP 14/18 which, amongst other things, proposes some minor changes to the Listing Rules (LRs), the Prospectus Rules (PRs) and the Disclosure and Transparency Rules (DTRs). Click here to read the consultation paper, otherwise, read on for a summary of the main proposals.
Approval of circulars
The FCA is proposing to narrow the scope of shareholder circulars requiring its prior approval to the following circulars:
- class 1 acquisition (including those relating to reverse takeovers) and disposal circulars
- circulars seeking shareholder approval for related party transactions
- circulars relating to buybacks where a working capital statement is required
- reconstruction and refinancing circulars where a working capital statement is required, and
- circulars seeking cancellation of a premium listing, or a transfer into, or out of, a premium listing by an investment company, or a transfer from a premium listing to a standard listing by a commercial company.
The reference to the types of circulars that do not require FCA approval will be deleted from the LRs. Consequently, the FCA will no longer review and approve certain circulars, which include circulars relating to:
- share buybacks that do not require a working capital statement
- schemes of arrangements
- shareholder ratification
- shareholder requisitioned general meetings, and
- share splits and consolidations that have unusual features.
The shortened list of circulars requiring advance approval allows the FCA to focus on reviewing transactions which are likely to carry more risk for investors. Consequently, this should reduce time and costs spent by issuers during the vetting and approval process and allow them to execute key transactions quickly. The FCA does remind issuers that the content requirements for circulars as set out in Chapter 13 will still apply to any circulars issued by premium listed companies and it will retain the ability to take action against premium listed companies and their directors where deficient circulars are issued.
Additionally, the FCA is proposing to make changes to LR 15 (Closed-ended Investment Funds: Premium Listing) in order to amend the approval process so that it continues formally to scrutinise and approve material changes to a closed-ended investment fund's investment policy but the review will be on a standalone basis, rather than through the approval of a circular in which the change is presented to shareholders. Consequently, the FCA proposes to charge a new fee for reviewing a material change to the fund's investment policy.
Insignificant subsidiary undertaking
One of the exemptions to the application of the related party transaction rules in LR 11 allows directors or substantial shareholders of insignificant subsidiaries to be excluded from being identified as related parties of a premium listed company in certain circumstances. The FCA is proposing to amend the rules to clarify that the insignificant subsidiary exemption is only available where such subsidiary has been consolidated within the premium listed company's group accounts for more than one full financial year.
The FCA proposes to clarify that the requirement to disclose all financial information in accordamce with the accounting policies adopted in the latest annual accounts does not apply when financial information is presented in line with profit forecast and profit estimate requirements specified by LR 13.5.32R (which requires the company to comply with the Prospectus Directive Regulation requirements for the disclosure of profit forecasts or profit estimates).
Historical financial information
To be eligible for a premium listing, a new applicant must publish or file financial information that represents at least 75% of its business for a period of at least three years. If the new applicant cannot meet this requirement as a result of acquisitions that have occurred during the three year period, it must provide historical financial information relating to the pre-acquisition period for the acquired entity or entities to make up the full three years and meet the 75% threshold. The FCA is proposing to clarify in the LRs that the historical financial information on the acquired entity must cover the period up to the earlier of the balance sheet date of the most recently audited financial information or of the acquisition date by the new applicant.
UK Corporate Governance Code (the Code)
Following the publication of the Financial Reporting Council's (FRC) edition of the Code in September 2012 (which applies to reporting periods beginning on or after 1 October 2012), the FCA is proposing to make a number of consequential changes to the LRs and the DTRs. Additionally, the FCA proposes to introduce transitional provisions for LRs and DTRs to facilitate the application of the 2012 Code and to ensure that companies and other relevant stakeholders are clear about which edition of the Code is relevant to a specific provision of the LRs and DTRs.
Since publication of the FCA's consultation paper, the FRC has published its revised UK Corporate Governance Code which is applicable for reporting periods beginning on or after 1 October 2014. Click here to read our article in this edition of the newsletter for a summary of the changes. The FCA has stated its intention to consult on any changes to the LRs and DTRs that may be required as a result of the new 2014 Code.
Changes to the Prospectus Rules
The FCA proposes to amend the PRs to update the list of documents that need to be considered to determine the effect of the Prospectus Directive. The list will be updated to include ESMA Prospectus Recommendations, ESMA Prospectus Questions and Answers and the Prospectus RTS Regulation with regard to regulatory technical standards for the publication of supplements to the prospectus.
Responses are due to be submitted by 5 November 2014.
Russian financial sanctions update
In our September edition of the Corporate newsletter, we reported on the new UKLA confirmations required from issuers in light of the new EU sanctions on certain Russian banks pursuant to Council Regulation (EU) No 833/2014. Click here to read our article. On 8 September 2014, an amending Council Regulation (EU) No 960/2014 was published which issued further restrictive measures against certain Russian companies. Click here to read the amending regulation.
On 18 September 2014, the AIM Regulation team published AIM Notice 40 which provides that, in the light of the EU sanctions, all AIM companies must inform their nomad immediately if either now, or in the future, they fall within the EU sanctions regulations (or any subsequent amendment to those regulations). The London Stock Exchange (the LSE) has also modified its AIM application process and application form so that it obtains a confirmation from issuers that their applications are not caught by either of the EU sanctions regulations.
New LSE settlement cycle and dividend procedure timetable
The LSE has issued a market notice to remind member firms of the reduction in standard settlement cycle from T+3 (trade date plus three business days) to T+2 (trade date plus two business days) with effect from Monday 6 October 2014. This means that cash and securities will need to be settled two business days after a transaction conducted on a stock exchange or multilateral trading facility, rather than the current cycle of three business days after the trade.
Additionally, the LSE has issued an updated Dividend Procedure Timetable for 2014, together with the Dividend Procedure Timetable for 2015. The timetable reflects the change of the ex-dividend date from Wednesdays to Thursdays (which is being changed as a result of the change to the settlement cycle). Record dates will remain as Fridays.
Companies with securities trading on the Main Market or on AIM must take account of the LSE's Dividend Procedure Timetable. A dividend timetable which follows the guidelines set by the Dividend Procedure Timetable does not need to be notified to the LSE in advance, provided the dividend information is disseminated via a Primary Information Provider (PIP) under a correct headline (which is referred to in the PIP Service Criteria & Regulatory Headline Categories standards set out by the FCA).
New ESMA consultation on draft regulatory standards on prospectus related issues
On 26 September 2014, the European Securities and Markets Authority (ESMA) published a consultation on its proposed draft regulatory standards (RTS) on prospectus related issues under Directive 2014/51/EU (the Omnibus II Directive), which entered into force on 23 May 2014.
ESMA is consulting on draft RTS in relation to the following matters:
Approval procedure of prospectuses
ESMA is consulting on draft RTS on the national competent authority's approval procedure of prospectuses. The RTS include requirements on what other information should be submitted with the prospectus, how the prospectus and other information should be submitted and how the national competent authority should notify its approval (or decision to refuse its approval) of the prospectus.
Incorporation of information by reference
ESMA has compiled an exhaustive list of information which can be incorporated by reference. This is based on the conditions set out in the Prospectus Directive.
Publication of prospectuses
The draft RTS largely replicate the provisions in the Prospectus Directive Regulation (EU 809/2004) on the publication of a prospectus and expands certain provisions relating to the publication of prospectuses in electronic form. In our July corporate newsletter, we reported on the Court of European Justice's ruling in Michael Timmel v Aviso Zeta AG. In its ruling, the Court addressed the question of whether certain restrictions on access to a prospectus would make its electronic publication incompatible with the requirements of the Prospectus Directive Regulation. Click here to read our article. ESMA's proposed RTS on the publication of electronic prospectuses supports the Timmel ruling by providing that such access shall not be contingent on:
- the completion of a registration process;
- the acceptance of a disclaimer; or,
- the payment of a fee.
As we noted in our briefing, the Timmel ruling cast some doubt on the use of disclaimers by issuers or offerors for the provision of electronic access to a prospectus. In its consultation paper, however, ESMA states that disclaimers may be used but investors should not be required to accept, that is to actively indicate their agreement to, such disclaimers to access the prospectus. ESMA further notes that, whilst the acceptability of a disclaimer will depend on its context, the persons responsible for the prospectus cannot exclude or restrict their liability in any way through the use of disclaimers and, in any event, the legality of any disclaimer is a matter for determination by the courts. Consequently, ESMA's position suggests that a 'disclaimer' should be used as a mere notification of terms to investors – rather than to actually disclaim any liability for the prospectus, or as a means to deny access to a prospectus. It will be interesting to see how the market responds to the draft RTS in consultation, given that the use of a wide range of disclaimers for access to electronic prospectuses is relatively commonplace.
Dissemination of information relating to offers to the public and admissions to trading on a regulated market
ESMA sets out four categories of communication through which advertisements may be disseminated being via print, broadcast, digital or oral modes of communication. Additionally, the RTS seek to ensure that information disclosed in oral or written form about an offer to the public or admission to trading on a regulated market, whether for advertisement or other purposes, is not inconsistent with the information disclosed in the prospectus.
Responses to the consultation are due by 19 December 2014, following which ESMA must submit draft RTS to the Commission by 1 July 2015.
Click here to read the consultation paper.