New Takeover Panel consultation: A major overhaul of the UK takeover regime
On October 27, 2020, the Takeover Panel (Panel) published PCP 2020/1: Conditions to offers and the offer timetable (the Consultation) setting out some of the most far-reaching proposed changes to the Takeover Code (Code) since 2011, in particular in relation to bids structured as contractual offers. As is common in the context of significant changes, the Panel’s proposals were subject to pre-consultation with stakeholders and the Consultation reflects some modifications that take into account comments received as part of this process.
This briefing considers some key issues arising from the proposed changes.
FCA: PS20/14 – Delay to the implementation of the European Single Electronic Format
On November 5, 2020 the Financial Conduct Authority (FCA) published Policy Statement PS20/14 setting out its decision to push back by one year mandatory requirements related to the European Single Electronic Format (ESEF) which includes requirements for the publication and filing of machine readable financial statements and the electronic tagging of basic financial statements and notes to these financial statements. PS20/14 also contains an announcement about the extension of COVID-19-related temporary policy measures on corporate reporting.
In CP20/12, published in July 2020, the FCA proposed pushing back implementation of the ESEF initiative requirements by one year to relieve pressure on issuers caused by the COVID-19 pandemic. In light of the feedback to CP20/12, the FCA has determined that it will continue with its proposal to push back by one year the mandatory requirements to publish and file machine-readable financial statements and tagging of basic financial information. However, requirements for the tagging of notes to the annual financial statements will now run on their original timetable. This means that:
- The requirement for all issuers to publish and file their annual financial reports in XHTML web browser format, replacing the current PDF format, will be pushed back to financial years starting on or after January 1, 2021, for publication from January 1, 2022
- The requirement for issuers who prepare consolidated annual financial statements in accordance with International Financial Reporting Standards (IFRS) to tag basic financial information will be pushed back to financial years starting on or after January 1, 2021, for publication from January 1, 2022.
- The requirement for issuers who prepare IFRS consolidated annual financial statements to tag notes to the financial statements will, however, be unchanged, applying to financial years starting on or after January 1, 2022, for publication from January 1, 2023.
The FCA notes that despite the push back, issuers can voluntarily publish and file their annual financial reports in ESEF for financial years starting on or after January 1, 2020 from January 2021 if they wish to do so. To allow issuers to submit annual reports in the ESEF standard, the FCA is upgrading its National Storage Mechanism facility, and its online archive of filings by companies who are subject to the Transparency Directive and Listing Rules. The FCA currently anticipates releasing the upgrade in January 2021, ready for those issuers who wish to file reports in ESEF on a voluntary basis. More information will be available on the ESEF pages of FCA website as the project progresses.
COVID-19-related temporary policy measures on corporate reporting
From March 2020, the FCA announced a series of measures aimed at assisting listed companies through the coronavirus crisis. These included measures extending the deadlines for publication of both annual and half-yearly financial statements, as well as a package of other measures aimed principally at companies seeking to raise additional capital. Those announcements were clear that those policy interventions were temporary while the UK faces the extreme disruption of the coronavirus pandemic and its aftermath. The FCA said at the time it would keep those interventions under review and when the disruption abates it would announce how it would end them in a fair, orderly and transparent way.
In PS20/14, the FCA repeats that commitment and states that, at the moment, the disruption caused by the coronavirus in its view has not abated sufficiently to justify removing any of the reliefs. As a result, the FCA confirms that its temporary relief for delayed publication of financial statements will, at a minimum, continue to be available to listed companies with financial periods ending before April 2021. When the FCA decides to bring any of these measures to an end, it will give companies notice so that they have time to plan for the change.
(FCA, PS20/14 – Delay to the implementation of the European Single Electronic Format (ESEF), 05.11.2020)
ESMA: Final Report on amendments to MAR for the promotion of the use of SME Growth Markets
On October 27, 2020, the European Securities and Markets Authority (ESMA) published its Final Report which includes draft Implementing Technical Standards (ITS) specifying the format of the insider list that issuers admitted to trading on SME Growth Markets (which include AIM) should provide national competent authorities on request. The Final Report stems from amendments to the Market Abuse Regulation (MAR) made by the SME Growth Markets Regulation 2019/2115 (SME GM Regulation), and follows a consultation launched by ESMA in May 2020.
Article I of the SME GM Regulation amended Article 18 of MAR and introduced a new regime for issuers on SME Growth Markets, requiring them to draw up and maintain a slightly less detailed insider list than issuers on a regulated market, which need only include those persons who, due to the nature of their function or position within the issuer, have regular access to inside information. However, Article 18(6) MAR, as amended, enables Member States to require SME Growth Market issuers to provide more extensive insider lists (including not just those with regular access to inside information but all those who have access to inside information) in a specific standard format as provided for by ESMA’s draft ITS. The format is intended to be proportionate and impose less of an administrative burden than the format of insider lists required to be maintained by other issuers.
The draft ITS includes templates for the following insider lists:
- Template 1 of Annex 1 – Deal-specific and events-based inside information.
- Template 2 of Annex 1 – Permanent insider section of insider list as supplement.
- Template in Annex 11 – Insider list for SME Growth Market issuer.
- Template in Annex 111 – Insider list for SME Growth Market issuer where Member State requires all insiders to be included.
Although the relevant requirements in the SME GM Regulation apply from January 1, 2021, ESMA notes that it considers it unlikely that the draft ITS will be adopted by that date given the steps that need to be gone through before the draft ITS can be finalised and enter into force.
(ESMA, Final Report on amendments to MAR for the promotion of the use of SME Growth Markets, 27.10.20)
TCFD: 2020 Status Report on climate-related financial disclosures
On October 29, 2020, the Task Force on Climate-related Financial Disclosures (TCFD) published its latest Status Report on the alignment of companies’ reporting with the TCFD recommendations published in June 2017. This is the third Status Report published by the TCFD since publication of the recommendations. The TCFD notes significant momentum around adoption of and support for its recommendations, but it also highlights the challenges of more consistent and robust implementation.
The TCFD found that:
- On average across the TCFD recommendations, 42 per cent of companies with a market capitalisation greater than $10 billion disclosed at least some information in line with each individual TCFD recommendation in 2019.
- Nearly 60 per cent of the world’s 100 largest public companies support the TCFD, report in line with the TCFD recommendations, or both.
- Energy companies and materials and buildings companies are leading on disclosure, with an average level of TCFD-aligned disclosures of 40 per cent for energy companies and 30 per cent for materials and buildings companies in fiscal year 2019.
- Expert users of disclosure identified the impact of climate change on a company’s business and strategy as the “most useful” information for financial decision-making but this information has the lowest level of disclosure across the recommendations, with just one in 15 companies making this disclosure.
- Asset manager and asset owner reporting to their clients and beneficiaries is insufficient.
The Status Report also provides a ‘roadmap’ for preparers through highlighting insights from expert users on which information is most useful for decision making.
The TCFD has also published guidance on climate-related scenario analysis for non-financial firms and on integrating climate-related risks into existing risk management processes. Additionally, the TCFD has published a public consultation on forward-looking climate metrics for financial firms, with responses to the consultation due by January 27, 2021.
(TCFD, 2020 Status Report on climate-related financial disclosures, 29.10.2020)