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 (MW 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.
MW 63 considers issues in light of listed companies obligations under the Market Abuse Regulation, as well as issues in relation to short selling, managing conflicts when providing corporate finance facilities and market conduct during credit events. Further information can be found in our briefing.
Market Abuse Regulation: UK FCA sets out expectations of market conduct in light of COVID-19
ICSA: Terms of reference for the Risk Committee – Guidance note
On June 1, 2020, ICSA’s Chartered Governance Institute published a guidance note setting out terms of reference for the Risk Committee of a company seeking to comply with the 2018 UK Corporate Governance Code and which reflect the Guidance on Risk Management, Internal Controls and Related Financial and Business Reporting published by the Financial Reporting Council in September 2014. Significant banks and insurance companies are required to have a separate board Risk Committee, but companies in other sectors sometimes consider it desirable or necessary to have a Risk Committee, separate from the board Audit Committee.
While the duties of the Risk Committee need to be tailored to the needs of the individual company as the risks associated with the operational activities of each company will be specific to that company, the outline terms include the following:
- Membership – The recommendation is that the Risk Committee comprise at least three independent non-executive directors, of whom at least one should be on the Audit and/or Remuneration Committee and/or have specific responsibility for risk.
- Frequency of meetings – At least four meetings each year are suggested.
- Engagement with shareholders – The chair of the Risk Committee should attend the AGM to answer shareholder questions and engage with shareholders on significant matters related to the Risk Committee’s areas of responsibility.
- Duties – The duties listed relate to the following areas: risk appetite, tolerance and strategy; narrative reporting; and internal controls and risk management systems.
(ICSA, Terms of reference for the Risk Committee – Guidance note, 01.06.2020)
ICAEW: Introduction to the law of dividends
On June 1, 2020, the ICAEW published an introduction to the law on dividends and to the role and content of the Guidance on realised and distributable profits (TECH 02/17BL) issued by the ICAEW and the Institute of Chartered Accountants of Scotland in April 2017. It is aimed at readers such as directors who are not accountants, to inform them about the subject generally and to make TECH 02/17BL and its principles more widely accessible.
The introduction covers the following:
- Laws relevant to dividends and other distributions – This provides an overview of the provisions in the Companies Act 2006 relating to dividends as well as other legislation and looks at the capital maintenance rules, directors’ duties, insolvency law, sector regulation, contract law and similar and specific dividend legislation.
- General principles on the realisation of profits and losses – This outlines the general principles when applying the dividend legislation, including those derived from TECH 02/17BL.
- Directory of TECH 02/17BL – This briefly describes the subject matter of each chapter of TECH 02/17BL to help users of that publication.
(ICAEW, Introduction to the law of dividends, 01.06.2020)
BEIS: UK government’s position on effect of ESEF Regulation on directors’ sign-off of accounts
On June 1, 2020, the Department for Business, Energy and Industrial Strategy (BEIS) published a policy paper setting out the UK government’s position on the directors’ sign-off of accounts of companies subject to the requirements of the Transparency Directive (implemented through the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority) and the European Single Electronic Format (ESEF) Regulation.
The ESEF Regulation came into force on June 18, 2019 and applies to consolidated annual accounts for financial years beginning on or after January 1, 2020 prepared in accordance with International Financial Reporting Standards by companies with securities admitted to a regulated market. When published under the Transparency Directive, these accounts need to be prepared in electronic format (XHTML format with iXBRL tagging).
The electronic formatting requirements in the ESEF Regulation can be applied after the directors have signed off the accounts and the policy note states that the UK government’s view is that:
- When directors consider whether to approve the accounts in accordance with the Companies Act 2006, there is no requirement for them to consider the tagging of the accounts in ESEF and in particular to consider this as part of whether the accounts are “true and fair”. The tagging can be applied later, in a version in XHTML format with iXBRL tagging.
- In terms of their process, companies can choose to create a single filing, a parallel tagged document, or create a tagged document once the annual report has been created in paper format. Whatever approach is taken, the directors’ confirmation relates to the human-readable version of the annual report and does not extend to consideration of the iXBRL tagged data.
(BEIS: UK government’s position on effect of ESEF Regulation on directors’ sign-off of accounts, 01.06.2020)