On 28 January 2010, the Financial Services Authority (FSA) published Consultation Paper 10/3 on proposed changes to the FSA Handbook followingSir David Walker’s review of corporate governance in UK banks and financial institution entities which was published in November 2009.
This consultation paper outlines initiatives the FSA has taken to address corporate governance issues and it sets out a number of proposals for consultation. These include guidance on the FSA’s expectations in relation to non-executive directors of banks and financial institutions.
In addition, in this consultation paper, the FSA proposes amendments to the Listing Rules (LRs) to take account of the new Corporate Governance Code to be published by the Financial Reporting Council (FRC) in due course. The Corporate Governance Code will replace the Combined Code on Corporate Governance. The FRC published a draft version of the Corporate Governance Code on 1 December 2009 for consultation and will finalise the Corporate Governance Code once the consultation closes on 5 March 2010. The FRC intends to publish the new Corporate Governance Code in April or May 2010, following which it is intended that the Corporate Governance Code will apply for accounting periods beginning on or after 29 June 2010.
The LRs include a ‘comply or explain’ requirement whereby issuers which do not comply with the provisions of the Combined Code are required to explain their reasons. Issuers are also required to state how they have applied the principles of the Combined Code. The FSA proposes amendments to the LRs to refer to and apply the provisions of the Corporate Governance Code instead of the Combined Code. Since the Corporate Governance Code is currently in draft form, the FSA recognises that it may need to review the changes proposed if the final Corporate Governance Code is substantially different from the draft.
With regard to the FRC’s development of a stewardship code, the FSA plans to contribute to the FRC’s consultation on the new stewardship code which was published by the FRC on 19 January 2010. This code will require investment firms to publicly disclose the extent to which they comply with the stewardship code and explain, where relevant, their reasons for not doing so.
The FSA also plans to publish a consultation paper and subsequent guidance to clarify the interpretation of the expression ‘acting in concert’ for the purposes of the LRs but will do so separately in the second quarter of 2010.
The deadline for responses to the consultation paper is 28 April 2010. The FSA will then aim to publish final rules in a Policy Statement during the third quarter of 2010.