You may have seen that, on Thursday last week, the FCA published Consultation Paper CP 14/2, proposing changes to the sponsor regime and some minor changes to the Listing Rules and Prospectus Rules. The FCA is also seeking views on how the joint sponsor regime is operating in practice. The deadline for responding to the consultation is 30 April 2014.
The FCA intends to publish its feedback in the last quarter of 2014.
The FCA’s proposals seek to complement earlier changes to the sponsor regime introduced in 2012 and 2013. They have three main goals: to increase the transparency of the sponsor regime, to reflect changes to the FCA’s statutory powers on sponsor approval and to enable
the FCA to sanction sponsors appropriately.
The key proposals on sponsor competence are:
- Competency framework: sponsors would need to adopt a tailored competency framework to demonstrate, as a minimum, an understanding of: 1) rules and guidance and ESMA publications directly relevant to sponsor services; 2) the FCA’s procedural requirements and processes; 3) due diligence; 4) sponsor responsibilities and obligations in Listing Rule 8; and 5) if relevant to the sponsor service, specialist industry sectors. To assist sponsors in complying with this, the FCA has developed two examples of competency frameworks: one for sponsors providing services to premium listed commercial companies and another for those providing sponsor services to premium listed investment companies. Sponsor competence confirmations would have to be by reference to the competency framework. The FCA also proposes new formal guidance on the practical aspects of these changes in the form of: (i) a Technical Note suggesting minimum requirements to consider when adopting a competency framework; and (ii) a Procedural Note providing guidance on how the FCA expects the new requirement, including the competency framework, to affect existing and new sponsors.
- Enhancing the key contact role: currently, the named point of contact between a sponsor and the FCA has to be familiar with the transaction that is the subject of the submission to the FCA but the FCA proposes that this individual should also be technically and procedurally competent, able to understand a sponsor’s obligations under Listing Rule 8 and authorised to make representations to the FCA for and on behalf of the sponsor. The FCA expects all sponsors to have a minimum of at least two key contacts but for some, more active, sponsors this figure will be considerably higher.
- Competence approval criteria: in a formal clarification of the FCA’s current approach to determining sponsor competence, sponsors would need to demonstrate that they have submitted a sponsor declaration within the last three years in order to continue to be considered competent to provide sponsor services. New sponsors would need to submit a declaration within three years of their application.
- Limited/restricted sponsor approvals: new sponsor applicants could apply to limit or restrict their approval to sponsor services in a particular area. The FCA sees this as particularly beneficial for sponsors seeking to provide sponsor services for premium listed investment companies.
In relation to joint sponsors, the FCA is keen to discuss the advantages and disadvantages of such appointments with a view to either no longer permitting them or introducing additional rules or guidance that would allow sponsors to act jointly without compromising their ability to comply with their obligations. Any proposed changes would be to ensure that the sponsor regime is fit for purpose and complies with the FCA’s statutory objectives of protecting premium listed issuers and applicants, protecting and enhancing the integrity of the UK financial system and promoting effective competition.
These proposals, if implemented, are likely to increase the compliance burden on sponsor firms and will require them to put additional systems and procedures in place.