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Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
On October 26, 2017 the Financial Conduct Authority (FCA) published Policy Statement PS17/22 - Review of the effectiveness of primary markets: Enhancements to the Listing Regime.
PS17/22 sets out changes to the Listing Rules in a number of areas as summarised below, and follows on from CP17/4 which was published in February 2017.
Clarifications to Chapter 6 of the Listing Rules
In Chapter 2 of CP17/4 the FCA proposed various changes to Chapter 6 of the Listing Rules, intended to make the relevant provisions clearer and more transparent. The proposed changes included:
The FCA confirms that, in light of the feedback received, it has finalised the rules as presented for consultation subject to minor clarificatory amendments.
In response to queries from some respondents about the removal of references to its ability to waive working capital/financial track record requirements, the FCA notes that this does not mean that its waiver power has been removed (as there is still a general ability for it to modify or dispense with rules under LR 1.2.1R) and that a new applicant would therefore still be able to seek a waiver, although it is noted that past experience suggests this would be highly unusual.
Concessionary routes to premium listing
In Chapter 3 of CP17/4 the FCA consulted on:
The FCA notes that feedback on the proposals was supportive and it has therefore finalised the rules as presented in the consultation.
Classifying transactions for premium listed issuers
In Chapter 4 of CP17/4, the FCA proposed:
The FCA has finalised the revised rules as presented in the consultation. It also notes that, at this stage, it does not propose to issue further guidance on the meaning of “anomalous” (as its view is that sponsors are familiar with making judgments on whether the result of any class test is anomalous), but that it will monitor the situation when the new requirements are introduced and may produce further guidance should it identify the need in the future. It is also noted that sponsors can, as currently, seek guidance from the FCA if in doubt as to how any of the rules or guidance applies in a particular situation.
In the consultation the FCA had also asked whether there were any other possible enhancements respondents felt could be made to the calculation of the profits test or alternative profit measures that should be used either in conjunction with or in place of the profits test. However, since there was no agreement from stakeholders on which alternative profit measures to use instead of, or in conjunction with, profit before tax, the FCA is not planning to make any further changes to these rules at this stage.
Suspensions of listing for reverse takeovers
In Chapter 5 of CP17/4 the FCA proposed removing the rebuttable presumption of suspension in relation to reverse takeovers other than for shell companies (i.e. issuers whose assets consist wholly or predominantly of cash or short-dated securities or whose predominant objective is to undertake an acquisition or a merger or a series of acquisitions or mergers). Given the positive feedback received on these proposals, the FCA has finalised the rules as presented in the consultation.
The new rules will take effect from January 1, 2018.
Companies seeking admission to premium listing after January 1, 2018 should prepare any submission regarding their eligibility on the basis of the new requirements as presented in PS17/22.
On October 26, 2017 the Financial Conduct Authority (FCA) published Policy Statement PS17/23 – Reforming the availability of the information in the UK equity initial public offering (IPO) process. This follows on from Consultation Paper CP17/5 which was published in March 2017 and an earlier Discussion Paper (DP16/3) which was published in 2016. To see our briefing produced when CP17/5 was published earlier this year, please click here.
PS17/23 sets out a series of new Conduct of Business Sourcebook (COBS) provisions that are being introduced in relation to IPOs and which seek to ensure that, before any connected research is released, an approved prospectus or registration document is published and unconnected analysts have access to the issuer’s management. The rules are being introduced broadly as was proposed in CP17/5, subject to some minor technical amendments.
New COBS guidance is also being introduced to reflect the underlying conflicts of interest arising when analysts within prospective syndicate banks interact with the issuer’s representatives when an underwriting or placing mandate and subsequent syndicate positioning are being considered. Following feedback received from respondents to CP17/5, amendments have been made to the guidance in order to deal better with offerings where the issuer already has securities admitted to trading.
In CP17/5 the FCA also asked whether the new rules should apply to IPOs on multilateral trading facilities (MTFs) such as AIM. The FCA notes that feedback on this issue was mixed, and that it does not intend to apply the new rules to IPOs on MTFs at this point. However, given there is some overlap between larger companies on MTFs and smaller companies on regulated markets, the FCA encourages banks managing offerings on MTFs to consider adopting the reformed practice used on regulated markets.
PS17/23 also considers the application of the Market Abuse Regulation (MAR) to IPOs, including the application of the market soundings regime and the disclosure of information in analyst presentations. The FCA notes that its work assessing the implementation of MAR will consider these issues further.
The FCA recognises the need for an implementation period in order to minimise potential disruption to existing or prospective IPOs. The new provisions will therefore take effect on July 1, 2018.
The FCA notes that this will provide a window for it to work with relevant trade associates to develop industry guidelines to support firms following the new rules requiring syndicate banks to provide unconnected analysts with management access.
On October 26, 2017 the Financial Conduct Authority (FCA) published Feedback Statement FS17/3 – Feedback Statement to DP17/2 Review of the effectiveness of primary markets: the UK Primary Markets Landscape.
FS17/3 follows on from Discussion Paper DP17/2 which was published in February 2017 in order to prompt a broad debate about the effectiveness of UK primary capital markets and how they serve their purpose of providing access to capital for issuers, and investment opportunities for investors. DP17/2 presented four areas for discussion:
FS17/3 provides a summary of the views received from respondents to DP17/2. It also focuses on three areas that the FCA thinks merit further exploration in light of such feedback, namely:
The FCA wants to further engage stakeholders on the three bullet points highlighted above and to publish proposals for consultation where appropriate in due course. The initial overview of the feedback received to DP17/2, which is contained in in FS17/3, is intended to aid such discussions. Persons who are interested in discussing any of these topics should contact the FCA at the email address set out in the Feedback Statement.
The FCA also notes that it will decide whether to proceed with the specific proposal on a sovereign controlled issuer category once feedback to that consultation (CP17/21, published in July 2017) has been considered.
On October 23, 2017 the Financial Reporting Council (FRC) published its annual assessment of corporate reporting in the UK, based primarily on the FRC’s own monitoring work in the year to March 31, 2017 and more recently performed thematic reviews. The report is aimed at helping preparers and auditors aid companies in improving the quality of their reporting. The FRC notes that while the standard of corporate reporting, particularly by the largest listed companies, remains generally good, there is still more work to be done in improving the quality of reporting.
The report notes that companies should pay particular attention to the following four areas:
Other areas the FRC comments on include the following:
The report notes that expectations of corporate reporting are evolving with an increased demand for information about how a company promotes its long-term success in line with section 172 Companies Act 2006. Requirements are also changing alongside the implementation of new standards for Financial Instruments, Revenue from Contracts with Customers and Leases (IFRS 9, 15 and 16) and the Non-Financial Reporting Directive.
The report sets out a number of future developments that may affect corporate reporting in coming years, in particular, the implications of Brexit for the UK’s accounting framework and developments in relation to the FRC’s Guidance on the Strategic Report, in respect of which a consultation document was published in August 2017.
On October 24, 2017 the Financial Reporting Council (FRC) published its Feedback Statement following its consultation via a Discussion Paper published in April 2017 on the role of the auditor in preliminary announcements.
The FRC notes that the majority of respondents believe the current regime for preliminary announcements is adequate and does not require significant change. As a result, the FRC is proposing only minor changes to its current auditor guidance as follows:
On October 26, 2017 the Investment Association (IA) announced that it is writing to FTSE companies that are due to appear on the Public Register of shareholder votes. The letter is being sent to companies in the FTSE All-Share who received votes of 20 per cent against any resolution or withdrew a resolution in 2017.
The Government announced the setting up of the Public Register in its August 2017 response to the Green Paper on corporate governance reform. The IA is prompting companies to provide a public explanation on how they have addressed their shareholders concerns since the shareholder vote before the Public Register goes live later this year. The main aim of the Public Register is to focus attention on those companies who have received a significant vote against and to track whether and how they are responding to shareholder concerns.
The Public Register will be launched in the fourth quarter of this year and will be updated regularly. The Public Register will include:
On October 20, 2017 the European Securities and Markets Authority (ESMA) updated its Questions and Answers (Q&A) on prospectus related issues.
This update includes the deletion of one Q&A (Q&A 27 on convertible or exchangeable securities) and updates to four others (Q&A 29,31,32 and 44):
On October 20, 2017 the Financial Conduct Authority (FCA) published Handbook Notice 48, which includes changes to the FCA Handbook made by the FCA board on October 19, 2017. The changes include new Conduct of Business Sourcebook (COBS) provisions intended to improve the range, quality and timeliness of information that is made available to participants during the UK equity initial public offering (IPO) process, and changes to the Listing Rules to improve and clarify aspects of those rules.
New COBS provisions
These are set out in the Conduct of Business (Initial Public Offering Research) Instrument 2017 which will take effect from July 1, 2018. The changes were proposed in CP17/5, published in March 2017 and feedback has been provided in FS17/3 published in October 2017.
New Listing Rules provisions
These are set out in the Listing Rules Sourcebook and Fees Manual (Redesignation and Miscellaneous Amendments) Instrument 2017 which comes into effect on January 1, 2018. The changes were proposed in CP17/4 published in February 2017 and feedback has been provided in PS17/22 published in October 2017.
As business resumes in the workplace and circumstances change, American companies must be ready.