In This Issue:
UK Listing Rules – enhancing the effectiveness of the UK listing regime: key changes.............................................2
Transparency Directive – extractive companies to report on payments to governments..........................................3
Early abolition of interim management statements...................................................................................................................4
New AIM and NOMAD Rules.............................................................................................................................................................4
Women on boards..................................................................................................................................................................................5
UK Listing Rules – enhancing the effectiveness
of the UK listing regime: key changes
Changes to the UK Listing Rules came into effect on 16
May, following the Financial Conduct Authority’s (FCA)
consultation on the effectiveness of the UK listing regime.
These changes impact companies with securities listed
on both the premium and standard segment of the UK
Official List (or which are seeking to have securities so
listed).
The focus of the changes is on premium listed companies
with a controlling shareholder (i.e., 30 per cent or more
of the shares). The FCA is keen to strengthen minority
shareholder rights and to enhance the governance of such
companies. Premium listed companies with significant
shareholders will need to consider if these shareholders
amount to “controlling shareholders” as defined in the
amended Listing Rules and, if they do, these issuers will
need to take steps to comply with the new requirements.
Some of the changes will impact all listed companies
and so the new rules, and the FCA’s feedback on the
new rules, will be of interest to all listed companies and
potential applicants for listing in London.
The key changes are:
΅΅ Free float – Whilst there are no changes to the free
float level required for premium or standard listed
companies, the Listing Rules now clarify when
securities will not be viewed as being held in public
hands and how the free float provisions, and the
FCA’s power to modify the required levels, operate for
premium and standard listed issuers. In particular, the
new rules clarify that:
―― shares subject to a lock-up period of more than 180
calendar days are excluded from the free float (on
the basis that they do not help to achieve liquidity);
and
―― shares held by fund managers in one organisation,
which in aggregate amount to more than five
per cent, may still be treated as being in public
hands provided investment decisions are made
independently by the individual fund manager and
the decisions are unfettered by the organisation to
which the fund manager belongs.
΅΅ Extension of Listing Principles to standard listed
companies – Two of the Listing Principles have been
extended to apply to standard listed companies.
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These are:
―― the requirements to establish and maintain
adequate procedures, systems, and controls to
enable compliance with obligations; and
―― to deal with the FCA in an open and co-operative
manner.
There are also two new Listing Principles for premium
listed issuers.
΅΅ Relationship agreements – Premium listed companies,
and applicants for a premium listing, with a controlling
shareholder need to put in place a relationship
agreement with the controlling shareholder, which will
need to contain certain prescribed “independence
provisions”.
΅΅ Independent directors – On the proposed election
or re-election of an independent director, premium
listed companies with a controlling shareholder will
need to obtain the approval of the majority of the
shareholders as a whole and also of the independent
shareholders of the company. The Listing Rules set
out certain information which needs to be given to
shareholders when the election or re-election of an
independent director is being considered and also
address the situation where both of these approvals
are not obtained.
΅΅ Enhanced oversight measures for independent
shareholders – If a premium listed company with a
controlling shareholder is not complying with the new
rules on controlling shareholders (for example where
the controlling shareholder refuses to enter into the
required relationship agreement) the independent
shareholders will be given the right to vote on any
related party transactions between the controlling
shareholder and the company, regardless of the
size of the transaction or the availability of any other
exemptions under Listing Rule 11.
΅΅ Cancellation of listing – A premium listed company
with a controlling shareholder will be required to
obtain the approval of the majority of its independent
shareholders, as well as the approval of 75 per cent
of the shareholders as a whole, before it can cancel
its listing or transfer to the standard segment of the
Official List. The Listing Rules address how the new
rules on cancellation of listing apply in the context of a
takeover offer by the controlling shareholder.
Transparency Directive – extractive companies
to report on payments to governments
In 2013 the European Union adopted measures to require
companies operating in extractive industries to disclose
payments made to governments. The aim of the measures
is to aid accountability and governance in resource-rich
countries.
The requirements are set out in two Directives:
΅΅ Directive 2013/34/EU (the “EU Accounting Directive”)
which applies to EU incorporated large companies and
“public-interest entities”; and
΅΅ Directive 2013/50 (the “Transparency Directive
Amendment”) which extends the requirements of
the EU Accounting Directive to all companies with
securities admitted to trading on an EU regulated
market, regardless of their country of incorporation.
These companies will be required to publish an annual
report on payments made to governments if they are:
΅΅ undertakings active in the extractive industry (e.g.,
involved in the exploration, discovery, development
and extraction of minerals, oils, natural gas); or
΅΅ undertakings active in the logging of primary forests.
As the changes are set out in EU Directives, Member
States are required to adopt measures to implement
the changes. For the EU Accounting Directive, the
implementation deadline is 20 July 2015 and for the
Transparency Directive Amendment it is 27 November
2015.
The UK has however committed itself to early
implementation and the UK Government has published
a consultation paper on the UK implementation. The
consultation primarily focuses on the implementation
of the EU Accounting Directive and, therefore, on UK
incorporated companies. However, the approach taken is
likely to be important for entities, wherever incorporated,
whose securities are admitted to trading on an EU
regulated market and which are, therefore, subject to the
Transparency Directive Amendment.
The key points to note for non-EU incorporated issuers
are summarised below.
΅΅ Non-EU companies with securities (shares, debt,
GDRs) listed in the UK will only be caught by the
UK implementation of the Transparency Directive
Amendment and will not be subject to the UK
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implementation of the EU Accounting Directive. That
said, any differences between the two regimes will
lie not in what information is disclosed but in how and
when the information is disclosed and the liability
regime attaching to such information.
΅΅ The UK implementation date for the Transparency
Directive Amendment is not yet clear but it will
potentially be later than that for the EU Accounting
Directive (currently proposed to be financial years
beginning on or after 1 January 2015).
΅΅ The report will need to set out payments made to
governments (whether at a national, regional, or local
level) in money or in kind, where made as a single
payment, or a series of related payments, of at least
EUR 100,000 within a financial year.
΅΅ The report will need to break down the payments:
―― into types of payment in line with the categories
set out in the EU Accounting Directive (for example
taxation, royalties, signature, and discovery
bonuses); and
―― on a country-by-country and project-by-project
basis.
΅΅ The report will need to be provided at “consolidated
level”. It remains to be seen how the UK will implement
this requirement of the Transparency Directive
Amendment.
΅΅ The report, which will be separate from the annual
report and accounts, will need to be “made public”
within six months of the end of the financial year to
which it relates and will need to remain public for
at least 10 years. It is yet to be seen how the report
will need to be “made public”. One option would be
that the report would be made public via the normal
regulatory announcement procedures which apply to
regulated information. An alternative would be that
the report would need to be placed on the company’s
website.
΅΅ The report will not need to be audited. The penalty
regime which will attach to it will be clarified in the
UK implementation of the Transparency Directive
Amendment. If the report is made public via the usual
regulatory announcement procedures, it is expected
that the usual liability regime for regulated information
would apply (which is different to the liability regime
proposed in the UK implementation of the EU
Accounting Directive).
΅΅ Non-EU issuers will be required to comply with
the requirements of the Transparency Directive
Amendment, even if their home jurisdiction requires
similar disclosures. It is possible that in due course
certain non-EU disclosure regimes will be designated
as equivalent but currently there are no regimes even
being assessed by the EU for equivalence.
It is expected that the UK will publish a separate
consultation on the implementation of the Transparency
Directive Amendment in due course. Although it is not yet
clear therefore when non-EU companies with securities
listed in the UK will need to start publishing these reports,
there is no question that they will be required to do so
in the near future. Affected companies may wish to start
thinking, therefore, about the systems and procedures
that they will need to have in place to gather, and report
on the information required.
Early abolition of interim management
statements
In the Chancellor’s Autumn Statement, it was announced
that legislation would be brought forward early in
2014 to abolish the requirement in the Disclosure and
Transparency Rules that listed companies produce interim
management statements. The legislation has not yet been
published. The abolition results from an amendment to
the Transparency Directive.
New AIM and NOMAD Rules
The AIM Regulation team at the London Stock Exchange
(LSE) has issued its feedback on AIM Notice 38 and
has confirmed the final changes to the AIM Rules for
Companies (AIM Rules), AIM Rules for Nomads (Nomad
Rules), and the AIM Disciplinary Handbook (Disciplinary
Handbook). All changes to the rules are now in force, with
the exception of the new disclosure requirements in AIM
Rule 26, with which companies must comply by 11 August
2014.
AIM Rules
΅΅ General disclosure of price sensitive information
(Rule 11) – This rule has been amended to clarify that
an obligation to announce is triggered by any price
sensitive information, even if it does not fall within one
of the categories specified in this Rule. New guidance
to Rule 11 confirms that the “reasonable investor” test,
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contained in FSMA, will be included in what AIM looks
at when applying Rule 11. This reflects general market
practice and will help eliminate any potential ambiguity.
΅΅ Company Website Disclosure (Rule 26) – Subject
to the transitional provisions mentioned above,
companies will need to disclose on their websites:
―― the date on which the details relating to the AIM
securities in issue and significant shareholders
were last updated;
―― whether the AIM company is subject to the UK
Takeover Code (or equivalent legislation or
regulation in its country of incorporation) or whether
it has adopted similar provisions voluntarily;
―― their annual accounts for the last three years (or
since their date of admission) whichever is the
lesser; and
―― details of the corporate governance code that the
company has decided to apply, how it does so or,
if no code has been adopted, a statement to that
effect. In circumstances where no code has been
adopted, companies are also required to clarify
their current corporate governance arrangements.
΅΅ Jurisdiction (Rules 43, 22, and Disciplinary
Handbook) – New Rule 43 states that even if an
AIM company ceases to have its shares traded on
the market, the LSE retains jurisdiction over it for the
purposes of investigating conduct and taking any
disciplinary action in relation to acts or omissions while
its shares were being traded. Consequential changes
have been made to Rule 22 to allow the LSE to secure
information from the company in question and to the
Disciplinary Handbook.
΅΅ Class tests (Schedule 3) – original proposed changes
to this rule clarified what has been the AIM Team’s
practice when assessing profits (i.e., losses should
be included and the negatives should be ignored).
Feedback suggested that this was not helpful on the
basis that the treatment of losses, in relation to the
Profits Test, is considered on a case-by-case basis
by AIM Regulation. Accordingly, the Exchange has
decided not to proceed with these changes.
Nomad Rules
΅΅ Eligibility Requirements (Rule 2) – The LSE originally
proposed changes enabling it to use its discretion to
waive the two year track record and/or three relevant
transactions requirement. In light of feedback these
changes are not included in the new rules.
΅΅ Qualified Executives (Rule 4) – The proposals for
relaxation to the continuing eligibility criteria for QEs
has been adopted. The LSE has confirmed that periods
of maternity/paternity leave will not ordinarily prejudice
a candidate’s continuous QE status and other periods
of absence will be considered on a case-by-case
basis.
΅΅ Continuing eligibility (Rules 11 and 30) – Several
amendments have been made to this section of the
Nomad Rules, including a requirement to notify the
LSE of a change of control “which is reasonably likely”
and any material adverse change in its financial or
operating position that may affect its ability to act as a
Nomad. Should the LSE deem a change of control to
have occurred, a new application for Nomad status will
be required.
Women on boards
The Davies Review Annual Report 2014 shows that
women now account for approximately 21 per cent of
overall board directorships in the FTSE 100—up from
12.5 per cent in 2011. There now remain only two all-male
boards in the FTSE 100.
Lord Davies reports a “growing recognition” of the social
and economic benefits of having more women on boards.
Gender equality in business allows companies to:
΅΅ “improve performance at Board and business
levels through input and challenge from a range of
perspectives”;
΅΅ “access and attract talent from the widest pool
available”;
΅΅ “be more responsive to the market by aligning with a
diverse customer base, many of whom are women”;
and
΅΅ “achieve better corporate governances, increase
innovation and avoid the risks of ‘group think’”.
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Targets
In 2011 Lord Davies recommended that FTSE 100
boards should aim for a minimum 25 per cent female
representation on their boards by 2015, which in practical
terms means that fewer than 50 women need to be
appointed to FTSE 100 boards in the next 18 months
for the UK to meet this milestone. Such an achievement
would double the percentage of women on boards since
2011 and is, according to Lord Davies, a target which "can
clearly be achieved".
Legislation?
Lord Davies points out that the UK’s voluntary, businessled
approach is under intense scrutiny from European
partners, regulators, investors, and other stakeholders,
while countries such as Germany have already chosen the
legislative route. German companies are required to allot
30 per cent of their non-executive board seats to women
from 2016 or leave the positions unfilled. Meanwhile
Norway, a non-EU member, imposed a 40 per cent quota
in 2003—a target reached in 2009. Norwegian companies
can be liquidated if they fail to reach the target.
The European Parliament voted in favour of legal quotas
last November but the European Council reached
deadlock on the matter. Failure by the UK to achieve
the voluntary targets would raise the prospect of legal
intervention by Government or from the European Union.
With the spotlight on British business, Lord Davies asks
the UK to prove that it can deliver real change in this area
without legislative measures.
