The changes to the sponsor regime under the Listing Rules come into effect on 31 December 2012. The changes expand the list of circumstances in which a sponsor must be appointed and extend the FSA’s supervisory and enforcement powers.
There is likely to be an impact for issuers on:
- Costs – the changes are a sign that the FSA will rely more heavily on sponsors to enforce the Listing Rules, making the role of a sponsor more like that of a nominated adviser under the AIM Rules. The changes may lead to sponsors bearing increased regulatory costs, which may ultimately be passed on to issuers.
- Sponsor-client arrangements – some sponsors may wish to implement compliance measures and request issuers/applicants to agree to standard terms and conditions in relation to ad hoc day-to-day sponsor services provided to ongoing clients.
The changes will require premium listed issuers or applicants to appoint a sponsor in a number of circumstances where this is not mandatory at present (although some issuers choose to do so). For example, a sponsor will have to be appointed:
- in the case of any related party transaction (such as a transaction between the issuer or its subsidiary undertaking and a director or substantial shareholder, or associates of such persons) where a related party circular is required, as the board’s statement in the circular that the terms of the transaction are fair and reasonable will have to state that the board has been so advised by a sponsor;
- in relation to a smaller related party transaction, to confirm to the FSA that the terms of the proposed transaction are fair and reasonable;
- where the FSA requires the sponsor to make certain announcements in relation to a reverse takeover; and
- where the FSA requires confirmation that an issuer is in severe financial difficulty in circumstances where the issuer is making a class 1 disposal.
Sponsors’ responsibilities to the FSA and standard of conduct
The rules already require sponsors to observe certain standards of conduct and to accept certain direct responsibilities to the FSA when the sponsor provides a “sponsor service”. The changes make the regime more stringent. Examples include:
- A sponsor will be under a duty to notify the FSA of any breach by the issuer or applicant of the Listing Rules, Prospectus Rules or Disclosure and Transparency Rules. Presently, a materiality threshold applies before such breaches are reportable.
- In connection with the sponsor’s duty to take all reasonable steps to identify conflicts of interest that could adversely affect its ability to carry out its obligations under the Listing Rules, the sponsor will need to take into account circumstances which could compromise the sponsor’s ability to fulfil its obligations to the FSA in relation to its provision of sponsor services.
- A sponsor will be under a duty to act with integrity and honesty in providing sponsor services.
- The FSA will be able to require sponsors to provide it with such explanation or confirmation as it reasonably requires to ensure that the Listing Rules are being complied with by an issuer.
- A sponsor will remain responsible to the FSA even where a sponsor relies on information provided by an issuer, applicant or third party when providing assurances or confirmations to the FSA. In assessing whether a sponsor has complied with its obligations under the Listing Rules, the FSA will have regard, among other things, to whether a sponsor has appropriately used its own knowledge, judgement and expertise to review and challenge the information provided to it by a third party.
The changes also extend the definition of sponsor services so that all sponsor communications with the FSA relating to the provision of sponsor services, whether oral or written, are themselves subject to the new standards.
An issuer receiving sponsor services will have a new continuing obligation to co-operate with the sponsor in providing all information reasonably requested by the sponsor for the purposes of providing the services.
Click here to access the new rules.