FCA: Primary Market Bulletin No.44

On March 20, 2023 the Financial Conduct Authority (FCA) published Primary Market Bulletin No 44 (PMB 44). This summarises the FCA’s disclosure expectations and supervisory strategy for the new diversity and inclusion rules it has introduced for listed companies, provides an update following consultation on a proposed new Technical Note relating to the requirement to publish a public offer prospectus where securities are issued pursuant to a scheme of arrangement, and comments on a new market practice whereby some Primary Information Providers (PIPs) are offering the ability for issuers to include multimedia content, including audio and video content, in regulatory news announcements.

Diversity and inclusion (D&I) on company boards and executive management

New requirements for financial years commencing on or after April 1, 2022

PMB 44 summarises the new Listing Rules introduced in PS22/3 to require in-scope companies to disclose in their annual financial report whether they meet specific board diversity targets relating to sex or gender and ethnicity on a 'comply or explain' basis, together with a requirement for such companies to publish standardised data on the composition of their board and most senior level of executive management by sex or gender and ethnic background. It also summarises an amendment to the corporate governance rules in the Disclosure Guidance and Transparency Rules (DTRs) to indicate that, pursuant to existing reporting requirements on board diversity policies by in-scope companies, consideration should be given to wider diversity characteristics. 

As well as clarifying which companies are in scope of these new rules, PMB 44 reminds in-scope companies that if they have not met the targets set, they should provide clear and meaningful explanations as to why they have not done so and if they cannot provide the required personal data, they should provide clear and meaningful explanations as to the extent they are not able to make the relevant disclosures.

Supervisory approach to new D&I disclosures and monitoring compliance

The FCA reminds companies that the Financial Reporting Council (FRC) regularly reviews how premium listed companies have reported in line with the UK Corporate Governance Code with a view to improving the quality of disclosures. As part of this, the FRC publishes periodic reports about board diversity and diversity related reporting by listed companies. This may extend to requirements covered by DTR 7.2.8A R. In addition, the FCA points out that it intends to conduct periodic reviews of annual financial reports to determine whether listed companies are meeting their disclosure requirements under the new Listing Rules and amended DTRs. If a listed company’s disclosures do not appear to meet the requirements, the FCA may ask the company to take corrective action, for instance enhancing their disclosures in subsequent annual financial reports.

If a listed company fails to disclose diversity-related information or fails to provide a clear explanation in their annual financial report as required, the FCA will ask the company to publish this information via a Regulatory Information Service (RIS) in line with the rules, as soon as possible after discovery. Any non-compliance will be viewed seriously and will lead to action using the full suite of powers, as well as sanctions, where appropriate.

Preparing for the new D&I requirements

The FCA reminds in scope companies that:

  • Listing Principle 1 (which requires a listed company to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable them to comply with their obligations) extends to establishing and embedding D&I reporting procedures, systems and controls in order to meet their obligations under the Listing Rules and DTRs. 
  • There is an expectation that listed companies retain records to support both the statement and numerical data disclosed in their annual financial reports. 
PMB 44 sets out the steps the FCA would expect listed companies to have considered in preparation for making the relevant D&I disclosures on a comply or explain basis:
  • Review governance arrangements for oversight of D&I targets and reporting, including the roles of the board, sub-committees, and senior management. 
  • Know the company’s compliance framework, including both new and existing rules and regulations. 
  • Assess the company’s existing public narrative reporting of diversity and inclusion. 
  • Establish or enhance procedures, systems and controls over data collection and reporting, including for choosing an appropriate reference date for data collected. 
  • Where it appears the company may not meet the targets or have the relevant data: 
    • Ensure clear and meaningful explanations can be provided (which could include possible action plans) as to why the company has not met the targets or does not have the relevant data.
    • The effectiveness of existing board succession and recruitment plans could be reviewed.
  • Identify any legal restrictions which may prevent collection or publication of the required data.

When a prospectus is required where securities are issued pursuant to schemes of arrangement

PMB 44 refers to PMB 30 in which the FCA consulted on a proposed new Technical Note to be added to the Knowledge Base relating to the requirement to publish a public offer prospectus where securities are issued pursuant to a scheme of arrangement (Primary Market/TN/606.1 – When a prospectus is required where securities are issued pursuant to Schemes of Arrangement).

Having considered the consultation responses, the FCA will not publish the proposed Technical Note. The FCA notes that all respondents to the consultation thought that where securities are allotted under a scheme of arrangement there is no 'offer to the public' for the purposes of section 102B(1) of FSMA and so no public offer prospectus is required. 

While the FCA states that its own analysis remains unchanged, it recognises that the question of whether a prospectus is required is a question of law and ultimately is for the courts to decide. In addition, as part of an ongoing legislative process to reform the UK prospectus regime, the draft Financial Services and Markets Act 2000 (Public Offers and Admissions to Trading) Regulations 2023 (the Statutory Instrument) published by HM Treasury in December 2022, excludes securities allotted under a scheme of arrangement from the definition of public offer. As a result, the FCA is not proceeding with the proposed Technical Note.

Regulatory news announcements with multimedia content – DTR 6.3.5 R, DTR 8.4.22 R and MAR 17(1)

The FCA states that it is aware of a new practice in the market where some PIPs are offering the ability for issuers to include multimedia content, including audio and video content, in regulatory news announcements. The FCA believes there are potential risks around the use of multimedia content and in PMB 44 it sets out its expectations for mitigating these risks. It also states that multimedia content should not form part of any regulated information submitted for dissemination.

The FCA believes including multimedia content in regulatory announcements creates a risk of harm to market users through a potential reduction in clarity, particularly if it makes it less clear to the reader what is regulated information, including inside information, and what is not. There is also a risk that regulatory announcements containing multimedia content could breach certain requirements in the DTRs and the UK Market Abuse Regulation (MAR).

MAR 17(1) states that 'issuers shall not combine the disclosure of inside information with the marketing of its activities'. The FCA believes that there is a risk that the inclusion of multimedia content in announcements containing inside information could breach this requirement, if the information being communicated within the multimedia content constitutes promotion or publication of the issuer’s operations. Whilst acknowledging that this risk already exists for regulatory announcements published in text format, the FCA believes the risk is heightened when using multimedia content which may not be subject to the same level of due diligence as text information before being published in a regulatory news announcement.

In addition, DTR 6.3.5 R requires an issuer to 'communicate regulated information to the media in unedited full text'. Whilst the FCA has not yet observed any cases of regulated information being disclosed in a multimedia format, such as an embedded video clip, it believes there is a risk this could occur, and in a worst-case scenario, there is a risk that splitting the information being disclosed in a regulatory announcement between text format and multimedia content could mislead market users, (for example, if it leads to the regulated information being communicated becoming misrepresented or distorted).

As well as expecting issuers to comply with their obligations under MAR 17(1) and DTR 6.3.5 R, the FCA states that it also expects PIPs to comply with their obligation under DTR 8.4.22 R (which requires PIPs to disseminate regulated information in unedited full text as submitted to the PIP and in an industry standard format). Since PIPs are exposing their customers to a new risk that they may disseminate regulated information in a non-compliant format, the FCA wants PIPs to consider this risk and what steps they can reasonably take to reduce the probability of this risk crystallising. The FCA provides examples of how PIPs could go about mitigating this risk. This includes providing guidance on their website on the proper use of this option, warnings to customers around DTR 6.3.5 R and MAR 17(1) or checkboxes if multimedia formats are selected.

(FCA, Primary Market Bulletin No 44, 20.03.2023)


Head of Corporate, M&A and Securities, Europe, Middle East and Asia
Knowledge Of Counsel

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