The FCA has published Quarterly Consultation No 12 (CP16/8) which, amongst other things, proposes changes to the Listing Rules (LR), Disclosure and Transparency Rules (DTR), and the Prospectus Rules (PR). The changes relate to the definition of a reverse takeover in the LR, the prescribed reporting format for annual reports on payments to governments prepared under the DTR by issuers who are active in the extractive or logging of primary forest industries, and changes to the PR to reflect the most recent ESMA publications. Comments on the proposals should be received by the FCA by 18 May 2016.

For more detail, read on.

Reverse takeovers

Following a consultation in January 2012 (CP12/2), the definition of Reverse Takeover was moved from LR 10 to new rule LR 5.6.4R.

The reverse takeover provision in LR 5.6.4R refers to the class tests defined in Annex 1 of Chapter 10 of the LR.

Chapter 10 of the LR deals with significant transactions undertaken by premium listed issuers. The class tests are used to determine the percentage ratio of a transaction. LR 5.6.4R references the percentage ratio to determine whether the transaction is a reverse takeover.

Given that LR 5.6.4R only refers directly to the specification of the class tests which are outlined in LR 10 Annex 1, there is no wider reference to the remainder of LR 10 and the aggregation provisions in LR 10.2.10R. By removing the definition from LR 10, the clear linkage to the requirements in the body of LR 10 on aggregating transactions has been lost.

As a result, the requirements fail to make clear that the transaction cannot be artificially broken up to avoid being classified as a reverse takeover. The FCA believes this would represent a circumvention of the safeguards provided by LR 5.6.4R – that corporate entities that are, in substance, new entrants to the market receive the appropriate level of scrutiny for new applicants for listing.

The FCA is, therefore, proposing to amend LR 5.6.4R to state that issuers must apply the aggregation provisions in LR 10.2.10R, in addition to the class tests, when calculating the percentage ratio of a transaction.

Reports on payments to governments

The Transparency Directive Amending Directive (2013/50/EU) (the "TDAD") introduced a requirement for issuers who are active in the extractive or logging of primary forest industries to prepare an annual report on payments made to governments in the countries in which they operate.

The UK Treasury asked the FCA to implement this new requirement early and this was achieved by the introduction of new DTR 4.3A which took effect with respect to financial years beginning on or after 1 January 2015.

Separately, the Accounting Directive (the "AD") (also implemented early in the UK) requires companies that are “large undertakings” or “public interest entities” and operate in the mining and extractive industries or logging of primary forestry industries to disclose the payments they make to governments. As such, listed issuers may find they are required to file two separate reports.

At the time DTR 4.3A was introduced, no reporting format was prescribed because the Transparency Directive (as revised by TDAD) (the "TD") did not require one. However, to relieve the reporting burden for issuers caught by both regimes, the FCA ensured that the designated TD filing system or National Storage Mechanism (NSM) in the UK could accept reports prepared under the AD for the TD reports. This allowed issuers to prepare one report to meet the requirements of both Directives.

In the Open Governments Partnership’s National Action Plan (NAP2), the Government committed that, in 2016, "UK listed and UK registered extractive companies will start to publish data under the EU Directives in an open and accessible format". The FCA has, therefore, considered its rules in light of this commitment and is proposing a prescribed reporting format for all relevant TD issuers, whether EU or third country. The Treasury has advised the FCA that this aligns with the NAP2 commitment.

Given the Government’s commitment to a more precise requirement on format, the FCA considers it appropriate to propose the same reporting format which is prescribed in the UK for AD reports on payments to governments.

Based on its review of the AD reporting format requirements the FCA considers that there is a clear benefit to requiring a report under the TD to be prepared in XML (extensible markup language) format which uses the same data schema as is required under the AD. This will ensure that issuers who fall within scope of both the AD and TD reporting requirements can prepare a report which meets the requirements of both Directives in one format. For those issuers who are not required to use the reporting format prescribed in the UK for the AD reports on payments to governments, the FCA acknowledges that the introduction of a prescribed reporting format for TD reports will impose an additional administrative burden. However, in order to achieve a level playing field and comparability of reporting, it proposes to prescribe the reporting format for all TD issuers who are required to prepare a report.

In addition, the FCA is proposing to introduce a specific requirement for all TD reports on payments to governments to be filed with the FCA and the method for doing so.

It is proposed that the new requirements as to format and filing of the reports be included within new Rule 4.3A.10 R and that a transitional provision will provide that this new rule applies in relation to a financial year of an issuer beginning on or after 1 August 2016.

The FCA is keen to point out that the proposed new filing requirements will be in addition to (and not instead of) the existing DTR requirements for the disclosure, dissemination and filing of regulated information. While XML meets the ‘open and accessible’ format referred to in the Government’s commitment in NAP2, it is not a human readable format. Therefore, filing in XML format alone will not meet the existing DTR requirements for reports on payments to governments. Issuers will, therefore, have to continue to disclose, disseminate and file a human readable version of the report as set out in:

  • DTR 4.3A.5R which states that the report on payments to governments must be made public at the latest six months after the end of the financial year,
  • DTR 6.3.2R which states that an issuer or person must disclose regulated information in the manner set out in DTR 6.3.3R to DTR 6.3.8R, and
  • DTR 6.2.2R which states that an issuer or person that discloses regulated information must, at the same time, file that information with the FCA.

Changes to the Prospectus Rules to reflect ESMA publications

PR 1.1.6G sets out a list of documents that need to be considered when determining the effect of the Prospectus Directive. The FCA is proposing to update this to reflect the most recent ESMA publications.
The proposals are to:

  • change PR 1.1.6G(6) to refer to 'ESMA Prospectus Opinions' in the plural and update the relevant definition to reflect that there are now four ESMA opinions (and make a consequential change to PR 1.1.8G as a result), and
  • update the definition of '‘ESMA Prospectus Question and Answers', which appears at PR 1.1.6G(3), to refer to the last version published by ESMA on 15 December 2015.

If ESMA publishes a further opinion regarding prospectuses or a new version of its Prospectus Q&A during the consultation period, the FCA proposes to update the relevant definitions accordingly in the final rules.

Next steps

Comments on the proposals outlined above should be received by the FCA by 18 May 2016. To see a copy of CP16/8 in full, click here.