1. Transparency and corporate behaviour: UK proposals for a register of beneficial owners

Proposals are being considered in the UK Parliament which aim to increase transparency in relation to who ultimately owns and controls companies in the UK. The key new requirement being introduced by the proposals is for companies to maintain a register of people with significant control over them, a so-called “PSC Register”.

In order to be classified as a “person with significant control” in relation to a company and therefore be registrable on the company’s PSC Register, an individual will need to meet at least one of the prescribed conditions which include:

  • holding or controlling, directly or indirectly, more than 25% of the shares or the voting rights in the company;
  • having the right to appoint or remove a majority of the board or to control the exercise of rights to do so.

Where the individual controls the company by virtue only of having significant control over another company, the proposals provide that the individual will not be “registrable” if that other company is “subject to its own disclosure requirements”. This is defined and includes for example where that company is required to maintain its own PSC Register. If the other company is not subject to its own disclosure requirements, then the individual will be “registrable”.

In order to create and maintain its PSC Register, a company will need to:

  • consider who may have significant control over it and therefore be registrable;
  • notify those persons identified as potentially being registrable and ask them to confirm whether they are registrable and confirm the particulars in relation to them required for disclosure in the PSC Register;
  • enter the required particulars in the PSC Register once they have been confirmed;
  • in the event that the company believes that there has been a change to the required particulars of an individual on the PSC Register, notify that individual seeking confirmation of the change and, once the change has been confirmed, update the PSC Register accordingly.

New companies will need to file a statement of initial significant control publicly at Companies House in the UK, as part of the incorporation process. Thereafter companies will need to confirm, and where necessary update, the information held by Companies House on persons with significant control, at least on an annual basis.

If an individual does not respond to a request from a company to confirm their personal data, the proposals provide for restrictions to be placed on the interests of that individual, which include preventing share transfers or the exercise of rights attaching to those interests.

The PSC Register must be kept available for inspection by any person who requests to view it and states the purpose for which the information will be used. If the company believes that the purpose for the inspection is not a “proper purpose”, it can apply to court for an order that the company is not required to comply with the request. The proposals do not contain any guidance on what would constitute a “proper purpose”. There is however already a similar inspection right in relation to a company’s register of members and the English courts recently confirmed in this context that “proper purpose” should be given its ordinary and natural meaning and that where a shareholder is applying for access, the “proper purpose” ought generally to relate to his interests as a shareholder or the exercise of shareholder rights. The court noted that the Institute of Chartered Secretaries and Administrators has published non-binding, non-exhaustive guidance on “proper purpose” which may be useful and which is available here.

The proposals will not apply to listed issuers which are already required to make an announcement to the market when they receive notifications from their shareholders in relation to the level of voting rights held (pursuant to DTR 5). The Secretary of State may also adopt regulations which exempt companies subject to a similar disclosure regime.

The proposals are contained in the Small Business, Enterprise and Employment Bill, which also contains measures to abolish bearer shares and prohibit the use of corporate directors. A copy of the Bill and related papers are available from the Gov.UK website.

2. Ukraine: EU sanctions

As a result of the political situation in Ukraine, the European Union has, like the United States, imposed sanctions against Russia, which include sanctions on certain Russian entities and individuals and on the activities which may be undertaken in relation to certain Russian persons. The scope of these sanctions is being kept under review as the situation in Ukraine develops.

Of particular significance in the context of the UK listing regime, the sanctions prohibit EU persons from, directly or indirectly, purchasing, selling, providing investment services for or assistance in the issuance of or otherwise dealing with transferable securities and money-market instruments with a maturity exceeding 90 days that are issued after 1 August 2014 (or 30 days in the case of securities and instruments issued after 12 September 2014) by Sberbank, VTB Bank, Gazprombank, VEB and Rosselkhozbank; each being major Russian credit institutions with over 50% public ownership and control.

On 12 September 2014, the EU expanded its sanctions in response to the continuing unrest in Ukraine. As a result, the restrictions on dealing in transferable securities and money-market instruments now apply to certain Russian military and oil companies. In particular Rosneft, Transneft and Gazprom Neft are all within the scope of these restrictions. In addition these companies, along with the Russian banks listed above, are now subject to lending restrictions. Pursuant to these, subject to certain exemptions, EU persons are prohibited from directly or indirectly making or being part of any arrangement to make new loans or credit with a maturity exceeding 30 days available to these entities. Loans or arrangements will be new for these purposes if they are drawn after 12 September.

All of the restrictions apply not only to the named entities but also to their non-EU majority owned subsidiaries and to any entities acting on their behalf or at their direction.

In August the Financial Conduct Authority (FCA) published a notice to FCA-authorised firms and issuers reminding them of their obligations, in the light of recent developments in Ukraine. The FCA also noted that whilst the sanctions imposed by the EU remain in force, it did not expect:

  • to admit to listing any securities issued after 1 August 2014 by issuers within the scope of the sanctions, or
  • depositaries of GDR issuers within the scope of the sanctions to issue new depositary receipts.

Although it was not covered in the FCA notice, we understand that the UK Listing Authority (UKLA) is requiring all issuers which contact the FCA directly or via a sponsor (regardless of whether there is any nexus with Russia) to confirm that the issuer is not within the restricted entities set out in the EU sanctions, including the new measures described above. As the situation, and practice, is evolving, issuers should liaise with their sponsors to ensure that they are complying with the current UKLA requirements in relation to the EU sanctions. The London Stock Exchange (LSE) has also published a notice to AIM companies and their nominated advisers (NOMADs) in relation to the EU sanctions. The LSE requires all AIM companies to notify their NOMAD immediately if they fall within the EU sanctions (or any amendments thereto). The LSE has also amended the AIM application form to include a confirmation that the issuer does not fall within the EU sanctions. The LSE notice is available here.

Our corporate crime and investigations team has published regular, detailed updates on the EU and US sanctions, which are available from our website.

3. Market Abuse: amendments to the EU market abuse regime

Earlier in the summer, a new EU Market Abuse Regulation (MAR) was published in the Official Journal, which will become directly applicable in EU Member States from 3 July 2016.

MAR will completely replace the current Market Abuse Directive and its implementing measures. ESMA has been mandated by the EU Commission to prepare secondary measures in respect of the ten areas covered by MAR. Once adopted by the EU Commission, these secondary measures will also apply across the EU.

The changes being introduced by MAR will impact all companies with securities traded on any EU trading venue, as well as all EU market participants and advisers.

One important aim of the new regime is to apply a single market abuse rulebook across the EU. In the UK as a consequence, the provisions in DTR 2 (on the disclosure and control of inside information) and DTR 3 (on transactions by persons discharging managerial responsibilities and connected persons) will be deleted from the FCA Handbook. Although the new EU market abuse rulebook will contain measures governing both of these areas, there will be differences in the new regime which issuers and advisers will need to be alive to.

We produced an overview briefing on the new regime in August, which is available here.

4. Transparency Directive: update on requirements for extractive companies to report on payments to governments

In our June e-bulletin we reported on the EU measures contained in the EU Accounting Directive and EU Transparency Directive Amendment Directive to require companies operating in extractive industries to disclose payments made to governments and on the UK’s consultation on the implementation of the measures in the EU Accounting Directive which apply to EU incorporated large companies and “public-interest” entities.

Since then,

  • the UK Government has published a response paper following its consultation;
  • the EU Commission has published a consultation on which non-EU jurisdictions, if any, have disclosure regimes which are equivalent to the new EU regime. Under the EU measures, if an undertaking which would be within the scope of the EU rules prepares and makes public a report under a disclosure regime viewed as equivalent to the EU regime, the undertaking will not be required to comply with the EU measures, except for the obligation to publish the report in the EU; and
  • the FCA has published its consultation on the implementation of the measures in the EU Transparency Directive Amendment Directive which extend the disclosure requirements in the EU Accounting Directive to all companies with securities admitted to trading on an EU regulated market, regardless of where they are incorporated. Of particular note, the FCA is proposing to align the timing of the listed company requirements with those for large companies and public-interest entities under the EU Accounting Directive.

We have published a detailed briefing on the new reporting requirements, which covers each of these recent developments and is available here.