Publication
Keeping your dawn raid guidance current
Unannounced inspections or ‘dawn raids’ are used by antitrust authorities to obtain evidence when there are suspicions that individuals or businesses have infringed the antitrust rules.
Global | Publication | November 11, 2016
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On November 9, 2016 the Department for Business, Energy and Industrial Strategy (BEIS) published its response to its February 2016 consultation on the implementation of the Non-Financial Reporting Directive in which it sought views on the best way to transpose the Directive, including how best to address the differences between the EU and existing UK framework and how to use the flexibilities that the Directive offers.
The Government’s responses include:
On November 7, 2016 the draft Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 were published, together with an explanatory memorandum. The Regulations amend Part 15 of the Companies Act 2006 (CA 2006) in order to implement articles 1(1) and (3) of the Non-Financial Reporting Directive (Directive 2014/95/EU) and to complete transposition of article 23(1) of the Accounting Directive (Directive 2013/34/EU). The Government’s response to its February 2016 consultation on implementation of the Non-Financial Reporting Directive was published on November 9, 2016.
Non-Financial Reporting Directive
The Regulations insert two new sections, 414CA and 414CB, into the CA 2006 in order to implement articles 1(1) and (3) of the Non-Financial Reporting Directive. Articles 1(1) and (3) amend the Accounting Directive, and insert a new requirement for some companies to disclose certain non-financial information in a statement as part of the entity’s management report.
Section 414CA sets out the requirement for certain companies and groups which are not small or medium-sized and which have more than 500 employees to include a non-financial information statement in their strategic report. The companies to which section 414CA relates are traded companies, banking companies, authorised insurance companies and companies carrying out insurance market activities (public interest entities under the Non-Financial Reporting Directive).
Section 414CB provides that the non-financial information statement must contain information to the extent necessary for an understanding of the company’s development, performance and position and the impact of its activity, relating to, as a minimum: environmental, social and employee-related matters, respect for human rights and anti-corruption and bribery matters (together "non-financial matters"). The information must include a brief description of the company's business model, a description of the policies pursued by the company in relation to such non-financial matters, the outcome of these policies, a description of the principal risks relating to such non-financial matters and how the company manages such risks. If the company does not pursue policies in relation to one or more of the non-financial matters, it must give a clear and reasoned explanation for not doing so. If a non-financial information statement complies with subsections (1) to (5) of section 414CB, it will be deemed to fulfil some of the requirements for non-financial information which are already contained in section 414C CA 2006 so as to prevent duplication. Section 414CB does not require disclosure of information about impending developments or matters in the course of negotiation if the disclosure would, in the opinion of the directors, be seriously prejudicial to the commercial interests of the company, provided that such non-disclosure does not prevent a fair and balanced understanding of the company's development, performance or position or the impact of the company's activity.
Accounting Directive
The Regulations remedy a gap in the transposition of article 23(1) of the Accounting Directive. The amendments ensure that the parent company of a small group cannot benefit from an exemption from the requirement to produce group accounts under section 399 CA 2006 if a member of the group is established in an EEA State and is a public interest entity.
The Regulations will come into force on the seventh day after they are made and apply to financial years of companies and qualifying partnerships commencing on or after January 1, 2017.
On November 4, 2016 the Financial Conduct Authority (FCA) published Handbook Notice No. 38, which sets out its response to feedback received on its July 2016 Quarterly Consultation Paper No. 13 (the Consultation) as well as the final version of the Disclosure Guidance and Transparency Rules Sourcebook (Miscellaneous Amendments) Instrument 2016.
The final Instrument is in substantially the same form as proposed in the Handbook Notice and implements the following:
Changing the definition of a prescribed market in the Handbook Glossary for the purposes of DTR 5 following the repeal of the Prescribed Markets and Qualifying Investments Order on July 3, 2016. The new definition will comprise all markets which are established under the rules of a UK Recognised Investment Exchange.
Inserting a new rule, DTR 7.2.8A, to implement the requirement in the EU Non-Financial Reporting Directive for issuers (other than those which qualify as small or medium sized under the Companies Act 2006) to describe the diversity policy they apply to their administrative, management and supervising bodies, with regard to aspects such as age, gender or educational and professional backgrounds. They must also describe the objectives of that diversity policy, how it has been implemented and the results in the reporting period. If no such policy is applied, the statement must contain an explanation as to why this is the case. This requirement applies to an issuer’s financial year beginning on or after January 1, 2017.
The Handbook changes came into effect on November 4, 2016.
On November 3, 2016 the Department for Business, Energy & Industrial Strategy (BEIS) published a discussion paper which outlines possible approaches to the transposition of Article 30 of the Fourth Money Laundering Directive (the Directive) for which BEIS is responsible. This discussion paper follows on from the HM Treasury consultation on the transposition of the Fourth Money Laundering Directive, published on September 15, 2016, which identifies and explains the changes to, and the new requirements of, the Directive as a whole, outlines the Government’s proposals or issues to be addressed for transposing them into UK law and seeks views on the proposed implementation. The BEIS discussion paper addresses the requirement for EU Member States to maintain a central register of beneficial ownership information of corporate and other legal entities in their territory. The UK already has a register of people with significant control (PSC) regime, however, certain of the requirements of the Directive are different from the existing PSC legislation. The discussion paper highlights those areas, and outlines possible ways for amending the UK’s requirements to meet the UK’s transposition obligations.
Article 30 of the Directive has two main requirements: that EU Member States hold adequate, accurate and current information on beneficial ownership of corporate and other legal entities incorporated within their territory in a central register; and that such information should be made available to specific authorities and organisations across the EU. BEIS believes that the existing PSC regime meets these requirements in most respects, but that some amendments and additions may be needed, including the following:
BEIS is requesting comments on its proposals by December 16, 2016.
On November 9, 2016 the Hampton-Alexander Review led by Sir Philip Hampton and Dame Helen Alexander published a report on improving gender balance in the leadership of FTSE companies. The report extends the recommendations of the Davies Review by increasing the target of representation of women.
The report’s recommendations include:
Women on boards
FTSE 350 companies should aim for a minimum of 33 per cent women’s representation on their boards by 2020. More women should be appointed to the roles of chair, senior independent director and executive director positions on FTSE 350 boards and FTSE companies which have yet to address gender imbalance on their boards should take prompt action to address any shortfall.
FTSE women leaders
Government reporting requirements
Investors
Executive search firms
The report also contains evidence for the rationale for improving diversity, a ‘how to” for companies to consider for improving diversity, CEO comments, emerging research, focus features on several industries, and a discussion on the progress for women on boards, as well as detailed analysis of progress in FTSE 100 and 350 companies.
On November 7, 2016 Tomorrow’s Company published a report presenting options to increase employees' voices in company governance structures. The report offers two options to achieve this. One option incorporates employees as insiders by introducing them as employee representatives on the board and the other is designed to give them a powerful channel of communication and challenge as outsiders based on some form of employee advisory panel.
Tomorrow’s Company suggests that, while offering companies flexibility, these options would apply to all companies with more than 500 employees in the UK. These companies would be required to demonstrate that they have offered effective employee voice within their governance structure. This could either be demonstrated by the formal introduction onto the board of one or more employee directors, or by the use of employee consultative structures outside the board. In both cases the company would be required to report on how its arrangements achieved employee voice. In the case of the second ’outside’ option the company would be required to give the employee advisory panel an opportunity to report publicly on its activities and its views of the effectiveness of the arrangements at the AGM, in its annual report, and on its website. There would be a transition period of two years during which the principle of ‘comply or explain’ would apply, as companies start to experiment with either option and explain what they are doing.
Companies with more than 50 per cent of employees in the UK would be required to demonstrate employee voice at the group level, while those below 50 per cent would have the option to demonstrate employee voice at the UK subsidiary level, most likely under option 2.
The proposed options are as follows:
Option 1 – Employee directors on a unitary board
This would involve introducing employee representatives onto the board, where they would have the same legal duties and responsibilities as other directors. There are three ways in which such directors could be elected:
Option 2 – Employee advisory panel
This would involve introducing (or, where it already exists, formalising) an elected employee advisory panel that meets regularly and has formal channels of communication to the board. In order to ensure that this option has teeth, the panel would be empowered by giving it the right to report publicly its views on key issues facing the company, including executive pay. These views could be published in the company’s annual report and a summary of the panel’s conclusions would be presented by the panel chairman at the AGM. For subsidiaries of multinationals the advisory panel would communicate regularly with the UK management board of the company with an annual report or presentation provided to the group level board.
Tomorrow’s Company comments that these proposals are intended to start a pragmatic discussion on how companies can increase employee voice in their governance structures and it notes that further work would be needed to work out the specific details of the proposals.
On November 10, 2016 the European Securities and Markets Authority (ESMA) reissued its guidelines on persons receiving market soundings under Article 11(11) of the Market Abuse Regulation (MAR). The Guidelines were previously published in October 2016 and, while there have been no material changes, the application date has moved to January 10, 2017 from December 20, 2017.
(ESMA, MAR Guidelines: Persons receiving market soundings, 10.11.16)
Publication
Unannounced inspections or ‘dawn raids’ are used by antitrust authorities to obtain evidence when there are suspicions that individuals or businesses have infringed the antitrust rules.
Publication
The EU Foreign Subsidies Regulation, or FSR, is intended to prevent or remedy distortions of the EU internal market caused by “foreign” – meaning non-EU – subsidies benefitting companies active in the EU.
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The English High Court has given its judgment in the legal battle between FW Aviation (FWA) and VietJet Aviation Joint Stock Company (VietJet). This case revolved around the enforcement of leasing agreements for four Airbus aircraft and the alleged interference by VietJet in the aircraft’s repossession in Vietnam.
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