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Essential Corporate News – Week ending March 3, 2017

Publication March 3, 2017


Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.

FCA: Consultation on reforming the availability of information in the UK equity IPO process

On March 1, 2017 the Financial Conduct Authority (FCA) published a Consultation Paper proposing a package of measures to reform the availability of information during the UK equity initial public offering (IPO) process. In April 2016 the FCA published a Discussion Paper on this topic, which noted that some areas of the process need improving, namely the timing, sequencing and quality of information being provided to market participants.

The Consultation Paper includes detailed consideration of the feedback received to the Discussion Paper, as well as policy analysis in relation to certain key issues. The Consultation Paper also proposes a package of policy measures intended to improve the range and quality of information available to investors during the IPO process, including a series of rules which seek to ensure that a prospectus or registration document is published, and providers of ‘unconnected research’ have access to the issuer’s management, before any connected research is released. The package also includes new guidance clarifying the FCA’s expectations on analysts’ interactions with the issuer’s management and their corporate finance advisers when considering the IPO mandate and a bank’s syndicate positioning.

New Handbook rules

New Handbook rules are intended to restore the primacy of an approved prospectus document, significantly improve the range and quality of information available to investors, and facilitate the availability of such information early enough in the process to support more balanced investor education and price discovery.

Proposed new rules in the Conduct of Business sourcebook (COBS) include the following:

  • Investment banks should enable a range of unconnected analysts to communicate with the issuer’s management team before connected research (ie by analysts from syndicate banks) is published. If this is not done, the syndicate banks must prevent their analysts from communicating with the issuer or its external advisers. 
  • If a range of unconnected analysts is able to communicate with the issuer’s management, connected research can be published one day after publication of the prospectus or registration document. Otherwise connected research cannot be published until seven days after publication of the prospectus or registration document. 
  • The FCA will work with trade associations representing investment banks and independent research providers to develop ‘research guidelines’ to cover access terms and the ‘range’ of unconnected analysts to be offered management access.

The FCA also seeks views on a proposal from the investment banking community which would prevent lengthening the IPO timetable, as well as views on the consistency of handling inside information in the IPO process with obligations under the Market Abuse Regulation (MAR), particularly in the context of the content of analysts’ presentations containing inside information.

Finally, the FCA also seeks views on the application of these proposals to multilateral trading facilities such as AIM and the NEX Exchange growth markets.

Proposed Handbook guidance

New Handbook guidance clarifies the FCA's expectations on analysts’ interactions with the issuer’s management and their corporate finance advisers around the time an underwriting or placing mandate and subsequent syndicate positioning is being considered.

The FCA’s existing guidance states that an analyst should not become involved in activities which are inconsistent with the maintenance of their objectivity and provides examples of activities which would ordinarily be considered inconsistent with an analyst’s objectivity, including ‘pitches’ for new business. The FCA is proposing to add further guidance to clarify that it would regard ’participating in pitches’ in new business’ to include where an analyst interacts with the issuer or its representatives until:

  • the firm has accepted a mandate to carry out underwriting or placing services for the issuer; and 
  • the firm’s position in the syndicate has been contractually agreed.

The proposed guidance is intended to reinforce the framework in COBS 12 to further mitigate the risk of bias being imparted to connected research and should also reinforce the benefits introduced by the new rules described above.

The FCA has requested comments on the Consultation Paper by June 1, 2017. It will consider feedback and then publish a Policy Statement later in 2017.

(FCA, Consultation Paper CP17/5: Reforming the availability of information in the UK equity IPO process, 01.03.17)

FCA: Policy Statement on changes to DTR 2.5 – Delay in disclosure of inside information

On February 24, 2017 the Financial Conduct Authority (FCA) published a Policy Statement providing feedback on its November 2016 consultation on changes to DTR 2.5 and the disclosure of inside information.

The FCA confirms that it will proceed with the proposals outlined in the Consultation Paper, but will make the following changes:

The revised Handbook text included in the Policy Statement came into force on February 24, 2017.

(FCA, Policy Statement PS17/2: Changes to DTR 2.5: delay in the disclosure of inside information, 24.02.17)

OTS: Progress report and call for evidence on reform of stamp duty on paper transactions

On March 2, 2017 the Office of Tax Simplification (OTS) published a progress report and call for evidence on its simplification review of residual stamp duty on shares from November 2016. The purpose of the review is to develop recommendations to simplify this area of the stamp duty system from both a technical and administrative stand point.

In the report, the OTS notes that no respondents to the review suggested any change to the fundamental requirement that stamp duty be paid to enable a transfer of legal ownership to be registered; this being the key feature which means stamp duty is both difficult to avoid and inexpensive to collect.

However, respondents indicated that they would like to see paper stamp duty effectively abolished. Therefore, the OTS is proceeding on the basis that it has to develop a modern replacement system. In order to explore the options, the OTS includes a discussion of how a digital stamp duty approach could work.

Possible options are parallel taxes (abolishing paper stamp duty and creating a digital, self-assessed stamp duty which would sit side by side with Stamp Duty Reserve Tax) or merged tax (abolishing paper stamp duty and modifying SDRT so that it covers paper transactions as well). To date support has been for the ‘merged tax’ but the report sets out issues to be considered in that context.

The OTS has requested responses to the report by May 31, 2017.

(OTS, Simplification review of residual paper Stamp Duty on shares: Progress report and call for evidence, 02.03.17)

PERG/PwC: Report on improving transparency and disclosure reporting by portfolio companies

On March 2, 2017 the Private Equity Reporting Group (PERG) published a report, together with PricewaterhouseCoopers (PwC), providing an updated version of PERG’s guidance on good practice reporting by private equity portfolio companies under the Walker Guidelines. The PERG guidance remains in substantively the same form as the 2016 version.

The report highlights the following areas which reflect trends identified from PERG’s most recent review and where additional focus will result in an improved level of reporting:

  • The importance of the narrative describing how the business has performed in the year cannot be overlooked. A truly balanced and comprehensive analysis of development and performance during the year and position at the year-end should focus on performance against the strategic objectives and reflect both the operational challenges and successes achieved in the year.
  • In the annual report, it is essential to provide a context of the trends and factors affecting future development and performance in relation to the wider market and how the ongoing business expects to perform in what can often be dynamic circumstances. This discussion should consider both the wider market environment that is impacting the business and how this is shaping the strategy and decisions made.
  • The inclusion of commentary on human rights is a requirement under the Walker Guidelines and this is in line with increasing regulatory emphasis, such as the introduction of the Modern Slavery Act 2015. All companies need to consider how they are addressing compliance with human rights matters and include a discussion on this, which could be, for example, by considering the supply chain aspects or labour practices in the UK and overseas.
  • The topic of gender diversity needs to be a greater feature of the annual report, with stronger narrative on the policies in place as well as presenting the breakdown of the metrics for the number of people of each sex at the director, senior manager and employee level.

(PERG/PwC, Improving transparency and disclosure: Good practice reporting by portfolio companies, 02.03.17)

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