FCA: Market Watch Issue 63 – Market conduct and discipline in the context of coronavirus
On May 27, 2020, the Financial Conduct Authority (FCA) published Market Watch Issue 63 in which the FCA set out their expectations of market conduct in the context of increased capital raising events and alternative working arrangements due to the coronavirus.
Market Watch considers issues in light of listed companies obligations under the Market Abuse Regulation (MAR), as well as issues in relation to short selling, managing conflicts when providing corporate finance facilities and market conduct during credit events. We will be publishing a separate briefing which considers some of the key takeaways from Market Watch in relation to the obligations of UK listed companies under MAR shortly.
(FCA, Market Watch Issue 63 – Market conduct and discipline in the context of coronavirus, 27.05.2020)
FCA: Primary Market Bulletin Issue No 28 – Coronavirus (COVID-19) update
On May 27, 2020, the Financial Conduct Authority (FCA) published a special edition of its Primary Market Bulletin which includes a statement on temporary relief for the timing of half-yearly financial reports, a statement on market practice in relation to “going concern” assessments and commentary on the FCA’s view on issuers’ engagement with shareholders and the role of issuers in delivering “soft pre-emption” in placings.
Statement on temporary relief for the timing of half-yearly financial reports
Listed companies are being given an extra month to publish their half-yearly financial reports. DTR 4.2 requires half-yearly financial reports to be published within three months of the end of the relevant reporting period but, given the additional capacity concerns companies currently have, this temporary relief enables them to publish such reports within four months of the end of the relevant reporting period. The FCA intends to keep the application of this temporary relief under review and when the disruption caused by the coronavirus pandemic subsides, the FCA will announce how it will end the policy in a fair, orderly and transparent way.
In light of this temporary relief, the FCA has updated its Q&A related to delaying annual company accounts and half-yearly financial reports during the COVID-19 crisis, first published on March 26, 2020.
Statement on market practice in relation to “going concern” assessments
The FCA note that some issuers have concerns about how to address coronavirus-related uncertainties in the “going concern” assessment in their financial statements. Some are also concerned that where the auditor’s review of that assessment highlights a need for the auditors to include remarks in their opinion, investors and intermediaries will view those remarks unduly negatively.
The FCA state that it is vital investors are properly informed as to the impact of the coronavirus so continue to urge issuers and auditors to be clear and transparent about these impacts in their financial statements. However, the FCA believe investors and intermediaries need to react to these disclosures appropriately and they should not draw unduly adverse inferences from these disclosures, nor from issuers changing their financial calendars to make use of the extra time the FCA have allowed. Investors, lenders and other users of financial statements are encouraged to take into account the unique set of circumstances arising from the coronavirus which might result in uncertainty in companies’ financial positions when assessing their response to such disclosure.
Conflicts of interest and shareholder engagement
The FCA encourage issuers to engage with their shareholders so that they are appropriately informed and aware of the issuer’s actions, particularly in relation to the implications of the coronavirus on the business. As well as making formal disclosures to the market through financial reports and trading updates, issuers are urged to consider other means of engagement with shareholders. As an example, if a physical general meeting is not being held, the FCA suggest it is good practice for issuers to look at ways in which shareholders can question management and exercise voting rights effectively.
In relation to capital raisings, the FCA refer to their statement on April 8, 2020, in which they encouraged issuers to contribute to delivering soft pre-emption rights by exercising their right to be consulted on, and to direct, bookrunners’ allocation policies. The FCA state that in this context, issuers with lots of small shareholders could consider if there is a means of them participating in a capital raisings, but recognise that there may be time pressures or legal risks that make this impossible. The FCA state that it is for issuers to decide whether to undertake a capital raising in a way that allows smaller shareholders to participate.
(FCA, Primary Market Bulletin Issue No 28 – Coronavirus (Covid-19) update, 27.05.2020)
Takeover Panel: Panel Statement 2020/6 – Offer by Brigadier for Moss Bros
On May 26, 2020, the Takeover Panel announced that Brigadier Acquisition Company Limited (Brigadier) had withdrawn its request for a review of the Panel Executive’s ruling in relation to the submissions it had received from Brigadier and Moss Bros Group PLC (Moss Bros) concerning Brigadier’s request that it be permitted to invoke certain conditions in the scheme circular dated April 7, 2020, relating to its offer for Moss Bros. This was on account of the impact on Moss Bros of the COVID-19 pandemic and related UK government measures which had led to, among other things, the closure of Moss Bros stores.
In Panel Statement 2020/4, the Panel Executive ruled that Brigadier had not established that the circumstances giving rise to its right to invoke the relevant conditions were of material significance to it in the context of its offer as required by Rule 13.5(a) of the Takeover Code and so Brigadier could not invoke any of those conditions. Panel Statement 2020/5 announced the review request. As a result of the withdrawal of the review request, the Panel Executive’s ruling stands.
(Takeover Panel, Panel Statement 2020/6, 26.05.2020)
FRC: Ethical Standard (2019) Implementation Guidance – Updated May 2020
On February 13, 2020, the Financial Reporting Council (FRC) published implementation guidance relating to the revised Ethical Standard it published on December 17, 2019. This covers transitional provisions and “Other Entities of Public Interest” (OEPIs). That implementation guidance was updated on May 26, 2020, with additional guidance being added in relation to transitional arrangements for OEPIs.
The additional guidance is as follows:
- The new requirements for OEPIs come into effect for the audit of financial periods beginning on or after December 15, 2020. Engagements for non-audit services, where a letter of engagement has been entered into and where work has started before that date may be completed on the original terms. However, firms should not enter into new non-audit services engagements which would not be permitted under the OEPI requirements after that date, even where that service would be provided between December 15, 2020 and the start of the entity's next financial period, as an objective, reasonable and informed third party might conclude that it is probable that the auditor's independence would be compromised as a result.
- OEPIs are not required to tender and rotate their auditors. As part of the transitional arrangements, the FRC reminds audit firms and OEPIs that they should avoid creating the need for companies to tender for the provision of audit services during the current COVID-19 pandemic.
- The FRC also reminds entities and auditors that the OEPI requirements are limited to the list of permitted non-audit services.
(FRC, Ethical Standard (2019) Implementation Guidance – Updated May 2020, 26.05.2020)