Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
European Parliament: One year delay to the implementation of MIFID II and MIFIR
On June 7, 2016 the European Parliament published a press release confirming that there will be a one-year delay in the implementation of MiFID II (Directive 2014/65/EU) and MiFIR (Regulation 600/2014), as initially announced by the Council of the EU in May 2016.
Under this agreement, the deadline for member states to transpose the MiFID II Directive into national law will be set for July 3, 2017 and the date of application of both the MiFID II Directive and MiFIR will be January 3, 2018. Previously, member states were due to effect the transposition by July 3, 2016, with both the MiFID II Directive and MiFIR coming into effect on January 3, 2017.
European Commission: Council of the EU agrees to prospectus reform
On June 8, 2016 the European Commission published a press release announcing that the Council of the EU has given its backing to the Commission's proposal to overhaul prospectus rules that apply when firms wish to tap Europe's capital markets.
The Commission proposed a new Prospectus Regulation in November 2015 in order to improve access to finance for companies and simplify information for investors. Currently a prospectus has to be drawn up, approved by the supervisor of the home Member State and published whenever securities are either offered to the public or admitted to trading on a regulated market. However, there are already certain exemptions from the requirement to produce a prospectus and additional exemptions as well as other changes are proposed in the new Prospectus Regulation.
The changes include the following:
- Exempting the smallest capital raisings: there will be a higher threshold to determine when companies must issue a prospectus. No EU prospectus will be required for capital raisings below €500,000 (currently the threshold is €100,000). Member States will also be able to set higher thresholds for domestic markets provided the offer is only made in that Member State and the total consideration of the offer is between €500,000 and €10 million.
- Creating a lighter prospectus for smaller companies: small and medium-sized enterprises (SMEs) will be able to draw up a distinct, tailor-made prospectus when they offer securities to the public provided they have no securities admitted to trading on a regulated market. The prospectus schedules for such companies will focus on information that is material and relevant for companies of their size. There will be a new optional “question and answer” format that should help SMEs in drawing up their own prospectus and all SMEs with a market capitalisation under €200 million (the current limit is €100 million) would qualify for this new regime.
- Shorter prospectuses and better investor information: the aim is to support shorter and clearer prospectuses by specifying more clearly the amount of information that is required and this will include a new prospectus summary which will be subject to a maximum of six sides of A4-sized paper when printed.
- Simplifying secondary issues for listed companies: companies already listed on a public market that want to issue additional shares or raise debt will benefit from a new, simplified prospectus. This new disclosure regime for secondary issues would apply to offers or admissions concerning securities issued by companies already admitted to trading on a regulated market or an SME growth market for at least 18 months.
- Fast track and simplified frequent issuer regime: companies that frequently access the capital markets will be able to use an annual “Universal Registration Document” which will be a form of “shelf registration” containing all the necessary information on the company that wants to list shares or issue debt. Issuers who regularly maintain an updated Universal Registration Document with their supervisors will benefit from a five day fast track approval when they want to issue shares, bonds or derivatives.
- Single access point for all EU prospectuses: it is proposed that the European Securities and Markets Authority will, for the first time, provide free and searchable online access to all prospectuses approved in the EEA. Investors will have a single portal to find information on companies that have listed shares or corporate bonds on markets where the general public can invest.
The new Prospectus Regulation is intended to replace the Prospectus Directive. By transforming the existing directive into a regulation, its provisions will be legally binding on all EU member states from the day of entry into application, and divergences that have emerged as a result of implementation of the existing directive by member states will be reduced.
IOSCO: Statement on non-GAAP financial measures
On June 7, 2016 the Board of the International Organization of Securities Commissions (IOSCO) published a report which sets out its final statement on the presentation of financial measures other than those prescribed by Generally Accepted Accounting Principles (GAAP), with the aim of assisting issuers in providing clear disclosure for investors and reducing the risk that such measures are presented in a way that could be misleading.
The statement is in substantially the same form as the proposed draft published in September 2014, with the following changes:
- The introduction has been amended to clarify the scope of the statement, and to emphasise that it applies to non-GAAP financial measures that issuers disclose outside their financial statements.
- The scope has been narrowed - the statement does not apply to any non-GAAP financial measure specified by law or required to be disclosed by a regulatory body.
- It is made clear that the statement is not a substitute for domestic requirements.
- It is provided that non-GAAP financial measures should not be presented with more prominence than the most directly comparable measure calculated in accordance with GAAP.
- An additional requirement has been included - the information issuers provide regarding non-GAAP financial measures should be readily and easily accessible to investors and other users of financial information.
The statement is relevant for issuers preparing financial statements in accordance with International Financial Reporting Standards (IFRS), and issuers preparing financial statements using a financial reporting framework other than IFRS. It also applies to any non-GAAP financial measure that is disclosed outside the financial statements, such as disclosure documents filed with regulators and shareholder communications.
Financial Reporting Lab: Call for participation in its Digital Future – Data project
On June 8, 2016 the Financial Reporting Lab published a call for participation in its next project, “Digital Future: Data”, which will look at how the use of technology to communicate corporate reporting to the investment community might evolve. This follows on from its 2015 report, Digital Present, which considered investors’ views on the current state of digital reporting by companies.
The new project will investigate how technology trends might drive future change in corporate reporting and provide opportunities for improvements in the access to, and analysis of, corporate reporting data. It will also look at how transformation of reporting formats, potentially driven by regulatory change (such as the expected implementation of a European Single Electronic Format for corporate reporting by 2020), might be optimised for investors and companies.
The Lab is interested in hearing from any individuals within companies or investment organisations, particularly any companies rethinking the use of technology to deliver their corporate reporting and from those within investment organisations who are responsible for data use and strategy. It is also asking those interested in the topic to participate in an online survey it has set up.
The Lab will undertake work on Digital Future: Data in 2016 and intends to publish its initial output before the end of 2016.
Valuing your Talent: Reporting human capital - Illustrating your company’s true value
Valuing your Talent, which is a collaborative project bringing together professional bodies for finance, management and human resources, has published a report to assess the current standard of human capital narrative reporting among FTSE 100 companies and to ascertain if the most up-to-date guidelines have improved current practice. Human capital reporting involves people measures which demonstrate how a company’s workforce generates value and delivers long-term business performance.
The report concludes that there has been an overall increase in the quantity and quality of reporting of human capital issues across FTSE 100 companies between 2013 and 2015, although whether this increase may be solely attributed to changes in legislation is open to question. However, even though it would appear that there has been an overall increase in human capital reporting, it is debatable whether investors and other stakeholders will be able to make informed decisions based on generally positive reports on a variety of human capital issues. The report finds that the majority of companies do cite incidents that could be labelled under the workforce risk banner in their reports, but that some organisations seem to avoid reporting human capital risk incidents that appeared in the media in their annual report. Valuing your Talent believes that this approach is being chosen to minimise the impact of the events on the firm’s corporate reputation and share price, and to avoid deterring potential investors who may pay particular attention to annual reports.
The report recommends that companies continue to focus on the reporting of human capital issues, but adopt broadly consistent terminology to describe the human capital items, thereby making universal comparison easier. However, this does not mean that they should all use the same wording or take a ‘boilerplate’ approach to human capital reporting, which would not adequately reflect the contextual nature of the human capital issues present in organisations.
The Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016
On June 8, 2016 the Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016 were published. These apply various company filing changes made by the Small Business, Enterprise and Employment Act 2015 (the SBEEA) to limited liability partnerships (LLPs) and unregistered companies. For example:
- Paragraph 3 of Schedule 1 of the Regulations inserts a new regulation 18A in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 (LLPR 2009). This provides that LLPs will be able to opt out of keeping their own register of members and register of members' residential addresses, and can keep the information solely on the public register held at Companies House instead.
- Paragraph 5 of Schedule 1 of the Regulations inserts a new Part 8 in the LLPR 2009 (Annual confirmation by LLP of accuracy of information on register). This replaces the current requirement for LLPs to deliver an annual return with a requirement to deliver a confirmation statement at least once in each 12 month period, stating that the LLP has delivered all the information required to be delivered to Companies House for the period covered by the confirmation statement.
- Schedule 2 of the Regulations amends the Unregistered Companies Regulations 2009 to apply the requirement to deliver a confirmation statement under Part 24 of the Companies Act 2006 (CA 2006), as amended by section 92 SBEEA, to unregistered companies, in place of the current requirement to deliver an annual return.
In addition, the regulations are relevant to limited companies since Regulations 6 and 7 prescribe the classification scheme for company type, and the classification system for a company's principal business activities, to be used when companies are required to provide this information to the Registrar of Companies (either on incorporation under section 9 CA 2006, or when making a confirmation statement as required by section 853C).
The Regulations were made on June 6, 2016 and come into force on June 30, 2016.
The Registrar of Companies (Fees) (Amendment) Regulations 2016
On June 8, 2016 the Registrar of Companies (Fees) (Amendment) Regulations 2016 were published. The Regulations amend current regulations relating to fees payable to the Registrar of Companies and cover a number of Registrar fee matters, including those arising as result of the changes coming into force under the Small Business, Enterprise and Employment Act 2015 (the SBEEA) on June 30, 2016 (and, in some cases, already in force).
The changes include the following:
- Fees for non-same day incorporation will be reduced (for companies, to £12 for the Web Incorporation Service and £10 for the Software Incorporation Service, and for limited liability partnerships (LLPs), to £10 for electronic incorporation).
- References to the annual return will be replaced with reference to the confirmation statement (which replaces the annual return from June 30, 2016) although the fee for filing will stay the same.
- Fees payable for registration of charges will be increased to £23 for hard copy filing and £15 for electronic filing.
- Fees payable for inspection and provision of copies of certain material on the register held by the Registrar via Companies House Direct will be decreased.
Transitional provisions in the Regulations provide that specified provisions shall not apply in relation to annual returns made up to a date prior to June 30, 2016 and where documents are delivered to the Registrar on or before June 29, 2016 but registered on or after June 30, 2016.
The Regulations will come into force on June 30, 2016.
How will latest changes to Volcker Rule affect non-US banks?
Kathleen A. Scott discusses the final Volcker Rule, focusing on some of the issues raised by non-US banks in their comments.