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Essential Corporate News – Week ending July 15, 2016

Publication July 15, 2016


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

ESMA: Final report and Guidelines on the Market Abuse Regulation - Market soundings and delay of disclosure of inside information

On July 13, 2016, the European Securities and Markets Authority (ESMA) published its final report on the Market Abuse Regulation (MAR), setting out guidelines in relation to market soundings and the delay of disclosure of inside information and situations in which the delay of disclosure is likely to mislead the public under Articles 11(11) and 17(11) of MAR (the Guidelines). The Guidelines contain some amendments to those proposed in ESMA’s consultation paper published in January 2016.

With regard to market soundings, the sections on what to do in the case of a discrepancy of opinion have been removed. The reasons for this are related to the fact that further dialogue between the parties could involve the risk of additional information inadvertently being disclosed and the liaison requirement was not strictly included in the mandate.

Other changes relating to market soundings include:

  • The Guidelines recognise that the required internal procedures and training within a person receiving a market sounding should be appropriate and proportionate to the scale, size and nature of its business activity.
  • In assessing whether or not it is in possession of inside information, the Guidelines expressly state that a person receiving a market sounding should not be required to access information behind any information barrier established by that person.
  • The list of staff receiving a market sounding in possession of information communicated in the course of the market sounding is now subject to the record keeping requirements, which require specified records to be kept for at least five years. A person receiving a market sounding must now keep a record of those persons working for them under an employment contract or otherwise performing tasks through which they may have access to the information communicated in the course of market soundings.

Under the Guidelines on legitimate interests of issuers to delay disclosure of inside information, only two conditions have been retained that must be met where inside information relates to a management decision or contract that is subject to approval by another body of the issuer. These are:

  • that immediate public disclosure of information before a definitive decision would jeopardise a correct assessment of the information by the public; and
  • that the issuer has arranged for the definitive decision to be taken as soon as possible (not on the same day, as previously drafted).

Other issues covered in the Guidelines concerning legitimate interest in delaying the disclosure of inside information are ongoing negotiations and grave and imminent danger to the financial viability of the issuer, development of a product or an invention, a plan to buy or sell a major holding in another entity and deals or transactions previously announced and subject to a public authority’s approval.

Within two months of the Guidelines being issued, each national competent authority will have to confirm whether it complies or intends to comply with the Guidelines. In the event that a national competent authority does not comply or does not intend to comply, it will have to inform ESMA, stating its reasons.

(ESMA, Guidelines on the Market Abuse Regulation - market soundings and delay of disclosure of inside information (ESMA/2016/1130), 13.07.16)

ESMA: Updated Q&A on the Market Abuse Regulation

On July 13, 2016, European Securities and Markets Authority (ESMA) published an updated version of its Q&A on the Market Abuse Regulation (MAR), which includes a new question on whether the  announcement of interim or year-end financial results determines the timing of the closed period referred to in Article 19(11) of MAR.

ESMA notes that, according to MAR, there should be only one closed period relating to the announcement of every interim financial report and another relating to the year-end report. The term “announcement of an interim or a year–end financial report” used in Article 19(11) of MAR is the public statement whereby the issuer announces the information included in an interim or a year-end financial report that the issuer is obliged to make public according to the rules of the trading venue where the issuer’s shares are admitted to trading or national law. The date when the announcement is made is the end date for the thirty-day closed period.

With particular reference to the year-end financial report, the announcement is the public statement whereby the issuer announces, in advance of the publication of the final year-end report, the preliminary financial results agreed by the management body of the issuer and that will be included in that report. This can apply only if the disclosed preliminary financial results contain all the key information relating to the financial figures expected to be included in the year-end report. In the event the information announced in such way changes after its publication, this will not trigger another closed period but should be addressed in accordance with Article 17 of MAR.

(ESMA, Questions and Answers on the Market Abuse Regulation (ESMA/2016/1129), 13.07.16)

Takeover Panel: Response Statement 2016/1 – Communication and distribution of information during an offer

On July 14, 2016 the Takeover Panel published RS 2016/1, its Response Statement on the communication and distribution of information and opinions during an offer, by, or on behalf of, an offeror or the offeree company following a Consultation Paper (PCP 2016/1) published in February 2016.

The Response Statement contains some minor amendments to the proposals in PCP 2016/1 as explained in the Response Statement, and includes a blackline of the final changes to the existing Takeover Code.

Areas covered in PCP 2016/1 and RS 2016/1 include:

  • equality of information to shareholders;
  • meetings and telephone calls with shareholders and others;
  • videos, social media and websites; and
  • advertisements and telephone campaigns.

The amendments to the Takeover Code introduced as a result of the Response Statement will take effect on September 12, 2016.

(Takeover Panel, The Communication and Distribution of Information During an Offer: Publication of RS 2016/1 - 2016/5, 14.07.16)

(Takeover Panel, The Communication and Distribution of Information During an Offer: Response Statement by the Code Committee of the Panel Following the Consultation on PCP 2016/1, 14.07.16)

FRC: Reminders for half-yearly and annual financial reports of listed issuers following the EU referendum

On July 12, 2016 the Financial Reporting Council (FRC) published a reminder for directors highlighting some matters for them to consider when preparing their forthcoming half-yearly and annual financial reports in light of the referendum vote for the UK to leave the EU.

The considerations discussed include:

  • Business models: The FRC encourages clear disclosure of a company’s business model as part of the strategic report, including a description of the main markets in which the company operates and its value chain. The disclosure should be sufficient to enable readers to make an assessment of the company’s exposure arising from the outcome of the referendum.
  • Principal risks and uncertainties: Directors must consider the nature and extent of risks and uncertainties arising from the result of the referendum and the impact on the future performance and position of the business. The FRC notes that care must be taken to avoid ‘boilerplate’ disclosures, with company specific disclosures being more informative and useful, for example, the impact of trade agreements for companies with a high level of exports to Europe.
  • Market volatility: The volatility in the markets following the referendum result may have an impact on balance sheet values at June 30, 2016 or at subsequent reporting dates. There could be an impact on the value of financial instruments, assets may be impaired and future earnings could be impacted by the decline in the value of sterling for non-UK sales.
  • Going concern basis of accounting: As part of the preparation of the financial statements, directors must consider whether the going concern basis of accounting is appropriate and whether disclosures of material uncertainties are needed, particularly where there is a material risk of breach of covenants.
  • True and fair: There is an overarching requirement for annual financial statements and half-yearly reports of listed issuers to give a true and fair view and the FRC encourages directors to consider whether additional disclosures are necessary to ensure that this requirement is met.
  • Half-yearly financial reports: There is a general requirement that the interim management report of listed companies must include disclosure of important events that have occurred during the first six months of the financial year, and an indication of their impact on the interim financial statements.

(FRC, Reminders for half-yearly and annual financial reports following the EU referendum, 12.07.16)

QCA: Revised Remuneration Committee Guide

On July 13, 2016 the Quoted Companies Alliance (QCA) published its revised Remuneration Committee Guide for Small and Mid-Size Quoted Companies.

The Guide, prepared to assist remuneration committee members of small and mid-size quoted companies in setting pay for executive directors and senior management in a fair and reasonable manner, was last published in 2012, and it has been revised and updated to address new remuneration regulations and developments in governance behaviour and best practice. Key changes include:

  • A new section providing a high-level explanation of the changes to the legal regime for main market companies that took place in 2013;
  • Specific reference made to clawback arrangements;
  • Expanding the narrative on the roles and responsibilities of the people involved in the work of the remuneration committee, placing greater emphasis on the role of the remuneration committee chairman;
  • Integrating aspects of the QCA’s Corporate Governance Code for Small and Mid-Size Quoted Companies (QCA Code), published in 2013 and of the Audit Committee Guide for Small and Mid-Size Quoted Companies, published in 2014;
  • Expanding the section on communicating with shareholders and creating a new section on the remuneration report, to reflect the increased focus on relations with shareholders.

The Guide is available for purchase on the QCA website.

FRC: Amendments and further consultation on FRS 101 - Reduced Disclosure Framework

On July 8, 2016 the Financial Reporting Council (FRC) published amendments to FRS 101 on the Reduced Disclosure Framework, which is an optional accounting standard intended to enable cost-efficient financial reporting within groups, particularly for those applying EU-adopted IFRS in their consolidated financial statements. The amendments follow a review of FRS 101 by the FRC and contain some minor changes to the draft amendments published in December 2015, providing certain disclosure exemptions in relation to IFRS 15, “Revenue from Contracts with Customers”, and clarifying the order in which the notes to the financial statements are presented.

As a result of comments received during the consultation process, the FRC is now separately consulting, in FRED 65, on a further amendment to FRS 101 to remove the requirement for a qualifying entity to notify its shareholders in writing that it intends to take advantage of the disclosure exemptions in FRS 101. A similar, consequential amendment is also proposed to FRS 102.

The FRC has requested comments on this consultation by October 14, 2016 and aims to finalise the amendments in December 2016, with them applying to accounting periods beginning on or after January 1, 2016.

(FRC, Amendments to FRS 101 Reduced Disclosure Framework 2015/16 cycle, 08.07.16)

(FRC, FRED 65: draft amendments to FRS 101 Reduced Disclosure Framework - Notification of shareholders, 08.07.16)

Cranfield School of Management: Female FTSE Board Report 2016

On July 7, 2016 Cranfield School of Management published its 2016 Female FTSE Board Report. The Report notes that the percentage of women on FTSE 100 boards had increased to 26 per cent in March 2016, significantly more than in March 2015 (23.5 per cent), but similar to the recorded 26.1 per cent in the final report by Lord Davies published in October 2015.

The Report comments that progress among executive ranks and in the executive pipeline remains very slow. Female executive directorships stand at 9.7 per cent in the FTSE 100 and 5.6 per cent in the FTSE 250,with only 19.4 per cent of women holding roles on executive committees of FTSE 100 companies. The Report notes that this shortage of women in top senior roles will make it difficult  to reach and sustain Lord Davies’ target of 33 per cent women on FTSE 350 boards by 2020.

The Report identifies some key points to be considered for future action to maintain momentum moving forward, including:

  • The focus on boards must be preserved as the pace of change has not kept up since Lord Davies’ final report. Chairmen and search consultants must ensure that boards are continually refreshed and the board turnover rate should be at least 14 per cent. A larger share of new appointments must go to women, and the board appointment process must remain robust, transparent and gender-inclusive.
  • Greater attention should be paid to the female pipeline. Women are under-represented on FTSE 100 executive committees, especially in operational and C-suite roles, compared to functional roles. Future action should consider how organisations can develop talented women more effectively and how they can encourage more of them to take up operational roles.
  • More robustness and transparency in reporting gender composition at executive committee level and below is needed. Companies should be encouraged to monitor and report gender balance across all seniority levels.
  • Metrics and targets are effective tools to create a disciplined approach to gender balance and cultural change in organisations and the Report sets out principles of target setting and provides case studies of organisations that use voluntary gender targets.

(Cranfield School of Management, Female FTSE Board Report 2016 - Women on Boards: Taking Stock of Where We Are, 07.07.16)

HM Treasury: 72 firms have signed up to the Women in Finance Charter

On July 11, 2016 HM Treasury announced that 72 financial services firms have now signed up to its Women in Finance Charter, which commits financial services firms to link the remuneration packages of their executive teams to gender diversity targets and to set internal targets for gender diversity in their senior management, publish progress reports annually against these targets, and to appoint a senior executive responsible for gender diversity and inclusion.

(HM Treasury, Press release: 72 firms sign up to new Charter to link City bonuses to the appointment of senior women, 11.07.16)

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