United Nations Climate Change
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Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
On January 30, 2019 the Financial Reporting Council (FRC) published a consultation paper proposing changes to the UK Stewardship Code, together with a draft revised UK Stewardship Code in an Appendix to the consultation paper.
The revised Code sets out more rigorous requirements for reporting, focusing on how stewardship activities deliver outcomes against objectives. Reporting will be subject to increased oversight by the FRC to ensure the revised Code is effective in raising the quality of stewardship across the investor community.
The main proposed revisions to the Code include the following
The FRC ask for responses to the consultation on or before March 29, 2019. It is expected that a final version of the UK Stewardship Code will be published in Summer 2019.
On January 30, 2019 the Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC) published a joint discussion paper seeking views on how stewardship can be improved within the existing structure of UK capital markets, acknowledging conventions such as the unitary board and shareholders’ voting rights. The discussion paper examines what effective stewardship should look like, what the minimum expectations should be for financial services firms that invest for clients and beneficiaries, the standards the UK should aspire to and how these could be achieved, as well as the potential public and private benefits of improved stewardship.
The discussion paper notes that at the same time the FRC has issued a consultation paper on a revised UK Stewardship Code and the FCA has published a consultation paper on the implementation of the amended Shareholder Rights Directive. In addition, in considering responses to the discussion paper, account will be taken of the recommendations in Sir John Kingman’s review of the FRC.
The discussion paper requests stakeholder input on certain matters, including
Reponses to the discussion paper are requested by April 30, 2019. A feedback statement will be published later in the 2019/20 financial year.
On January 30, 2019 the Financial Conduct Authority (FCA) launched a consultation on proposed changes to the FCA Handbook for the purposes of implementing parts of the Shareholder Rights Directive II (SRD II) in the UK, including provisions that impose transparency requirements on companies with shares admitted to trading on a regulated market in relation to related party transactions.
In the consultation, the FCA is planning for the scenario where an implementation period is in place after the UK’s departure from the EU. During an implementation period, EU law will continue to apply in the UK. This would require the UK to implement SRD II by June 10, 2019. If the UK were to leave the EU without an implementation period, the FCA would not proceed with the proposals addressed in the consultation, and would instead expect to return with revised proposals once the Government has decided how to proceed.
The transparency requirements in relation to related party transactions are set out in Article 9c of SRD II and they allow a number of choices to be made as part of SRD II’s implementation. The FCA is seeking to design a regime to implement SRD II’s minimum obligations in a proportionate manner for all companies within its scope, but, at the same time, impose minimum change on issuers that already comply with the existing premium listing requirements in Chapter 11 of the Listing Rules.
The consultation paper notes that one key difference between the premium listing regime and the SRD II regime is that SRD II uses the definition of related party for accounting purposes in IAS 24 which is wider than the premium listing regime, so there will be instances where existing premium listing requirements would not cover SRD II requirements.
The new rules will apply to all companies with their registered office in the UK who have shares admitted to trading on a regulated market in the UK or elsewhere in the EU. This includes both companies that are listed in the UK, and UK-incorporated issuers of non-listed shares admitted to a regulated market (such as the Specialist Fund Segment or the High Growth Segment in the UK, or a regulated market elsewhere in the EU). All these UK companies will therefore become subject to the new rules proposed by the FCA as part of its corporate governance rules in the Disclosure Guidance and Transparency Rules sourcebook (DTRs) and the new rules will be in DTR 1B and DTR 7.3. Companies with a registered office in an EU Member State outside the UK which have shares admitted to a regulated market will be subject to the rules that transpose SRD II in the Member State where their registered office is located. SRD II does not prescribe rules for non-EU incorporated issuers (including those which have shares admitted to a regulated market in the EU).
The amended DTRs will require companies to disclose and seek board, rather than shareholder, approval for material related party transactions, and the FCA proposes a relatively high threshold for materiality at 25 per cent of any one of profits, assets, market capitalisation or gross capital tests which are similar to the tests set out in Chapter 11 of the Listing Rules.
SRD II requires the public announcement of a material related party transaction but the FCA does not propose that the announcement should include a report prepared by a third party assessing whether, or not, the transaction is fair and reasonable.
The consultation proposes that firms should make disclosures no later than when the terms of the transaction are agreed, replicating the Listing Rules timing. In some instances, disclosures required under the Market Abuse Regulation (MAR) will need to be made at an earlier point in time and the requirements in SRD II are explicitly expressed to be without prejudice to the requirements on the disclosure of inside information in Article 17 of MAR.
The FCA proposes to provide exemptions from the announcement and approval requirements for some of the transaction types permitted by SRD II. This will replicate in substance the exemptions available under the existing premium listing regime so far as possible and will include transactions entered into in the ordinary course of business and on normal market terms.
Premium listing continuing obligations will be amended to extend the new DTR requirements to all premium listed issuers (other than open-ended investment companies) and issuers with a standard listing of equity shares but guidance will be included in the DTRs to reassure issuers that where they meet certain disclosure and other requirements in the premium listing regime, this will satisfy compliance with the disclosure and approval requirements in the new DTRs for the transactions in question.
Issuers within scope of the new DTR regime, and companies admitted to listing would be required to comply with the proposed changes from the start of the first financial year beginning on or after June 10, 2019.
Responses to the consultation are requested by March 27, 2019.
On January 28, 2019 the Financial Conduct Authority (FCA) published Consultation Paper 19/6 on changes to align the FCA Handbook with the EU Prospectus Regulation which came into force on July 20, 2017.
While some of the provisions of the Prospectus Regulation already apply, most are due to apply from July 21, 2019 and on that date the existing Prospectus Directive and associated EU measures will be repealed. The purpose of CP19/6 is to update the FCA’s Prospectus Rules sourcebook so that it is consistent with the Prospectus Regulation. It will be known as the Prospectus Regulation Rules sourcebook.
CP 19/6 notes that the Prospectus Regulation will come into effect after the UK’s departure from the EU and the proposals in it cover the scenario where there is an implementation period following Brexit. If there is a “no deal” Brexit scenario, then the FCA will not proceed with the proposals in CP 19/6 and in that scenario, the FCA would produce revised proposals once the Government has decided whether to proceed with the reform of the UK prospectus regime.
The proposed new Prospectus Regulation Rules sourcebook will have a similar structure to the current Prospectus Rules sourcebook. However, it will contain fewer FCA rules as most of the provisions will sit within the Prospectus Regulation and the EU’s delegated acts and regulatory technical standards (RTS) made under the Prospectus Regulation which will apply directly at a European level. However, it will contain more of the text boxes which will replicate key provisions of the Prospectus Regulation and other relevant EU legislation and domestic law.
CP 19/6 notes that the main differences between the existing rules and the proposed new sourcebook are
Comments are requested by March 28, 2019.
On January 29, 2019 the Pensions and Lifetime Savings Association (PLSA) published an updated version of its Corporate Governance Policy and Voting Guidelines (2019 Guidelines). The new guidelines have been updated to mirror the 2018 UK Corporate Governance Code and highlight some of the key developments in UK corporate governance policy and practice.
On the whole, the 2019 Guidelines, which aim to assist pension schemes, asset managers and their proxy voting agents in the interpretation of the 2018 UK Corporate Governance Code and in forming judgements on AGM resolutions, remain unchanged. However, additional guidance has been added throughout and several revisions have been made to the UK Voting Guidelines section.
The revisions include the following
In relation to the particular voting guidelines, the 2019 Guidelines suggest, in relation to sustainability and climate change, that shareholders may wish to consider supporting relevant climate-related or similar resolutions and key issues to doing so should be the proportionality and achievability of the resolution. The 2019 Guidelines also state that, in determining dividend policy, companies should take account of issues such as the level of Deficit Repair Contributions needed in considering the company’s financial position, and the need to pay such Contributions and payments to any defined benefit scheme should be considered in capital structure decisions.
On January 31, 2019 the European Securities and Markets Authority (ESMA) published an updated version of its Q&A regarding the Prospectus Directive. ESMA has added two additional Q&As to clarify the application of certain provisions in the Prospectus Directive in case the UK withdraws from the European Union (EU) on March 29, 2019 with no withdrawal agreement in place (no-deal Brexit).
The Q&As provide the following clarifications in the event of a no-deal Brexit
On January 31, 2019 the European Securities and Markets Authority (ESMA) published an updated version of its Q&A regarding the Transparency Directive. ESMA has added one additional Q&A to clarify the application of certain provisions in the Transparency Directive in case the UK withdraws from the European Union (EU) on March 29, 2019 with no withdrawal agreement in place (no-deal Brexit).
The Q&As provide the following clarification in the event of a no-deal Brexit
On January 31, 2019 the Department for Environment, Food and Rural Affairs (EFRA) and the Department for Business, Energy & Industrial Strategy (BEIS) published revised Environmental Reporting Guidelines (Guidelines). The Guidelines are designed to help companies and limited liability partnerships in complying with the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (‘the 2018 Regulations’), and to help all organisations with voluntary reporting on a range of environmental matters, including voluntary energy and GHG emissions reporting, and through the use of key performance indicators (KPIs).
Most of the amendments to the Guidelines have been to incorporate guidance for companies to help them comply with their obligations under the new streamlined energy and carbon reporting regime (SECR regime) set out in the 2018 Regulations. The SECR regime applies to quoted companies, unquoted large companies incorporated in the UK, and large LLPs and comes into effect on April 1, 2019 for financial years beginning on or after that date.
The updated Guidelines provide guidance on the steps a company should to take when considering its environmental impacts and which KPIs companies need to report to comply with their legal obligations. It also outlines additional voluntary information that is likely to be useful to qualifying organisations and a wide range of stakeholders.
In addition, the Guidelines highlight the principles for accounting & reporting environmental impacts, including
On January 28, 2019, the Competition and Markets Authority (CMA) published for consultation a draft guidance document to explain how a “no deal” EU exit would affect its powers and processes for anti-trust and cartel enforcement, merger control and consumer law enforcement after exit. The guidance also explains the treatment of “live” cases in a no deal scenario, which are those cases that are being reviewed by the European Commission or the CMA on March 29, 2019.
The consultation document does not specifically cover some of the CMA’s functions which are less materially affected by a “no deal” EU exit, including regulatory appeals, market studies, market investigations and the criminal cartel offence.
Responses are requested by February 25, 2019.
Our aim is to help our clients understand the potential opportunities and challenges that COP25 may have on their business.
IMO 2020 is almost upon us. Readers are well aware of the impending switch to 0.5 percent fuel mandated by Annex VI of MARPOL which will cause an anticipated drop in HSFO demand, the potential hazards of new untested LSFO blends, the concerns around scrubber operations, the debate over open loop versus closed loop, and the myriad of other risks associated with the impending regulatory change.