ESMA: Questions and answers on the Prospectus Regulation
On March 27, 2019 the European Securities and Markets Authority (ESMA) published a new document containing nine Q&As relating to the Prospectus Regulation (Regulation EU 2017/1129). These Q&As have been published in a new document to separate them from ESMA’s Q&As published in relation to the Prospectus Directive.
The purpose of the Q&As is to promote common supervisory approaches and practices in the application of prospectus supervision, and to provide guidance as to how national competent authorities will interpret the Prospectus Regulation. They will also help parties manage the transition from the Prospectus Directive to the Prospectus Regulation (the final provisions of which come into effect on July 21, 2019) by clarifying the effect of the Prospectus Regulation on current and prospective prospectuses.
The Q&As relate to the following
- Grandfathering and implementation of the Prospectus Regulation.
- The status of Level 3 guidance relating to the Prospectus Directive after the entry into application of the Prospectus Regulation.
- Updating information in a registration document or universal registration document before and after they are part of a prospectus.
(ESMA, Questions and answers on the Prospectus Regulation, 27.03.19)
AFME: Selling restrictions for equity transactions following no-deal Brexit or Brexit with deal/transitional period
On March 27, 2019 the Association for Financial Markets in Europe (AFME) published model wording setting out the selling restrictions for equity transactions for use following a no-deal Brexit or a Brexit with a deal or transitional period, as applicable. The wording covers the selling restrictions most frequently used in practice, being an EEA public offer selling restriction covering public offers in the EEA and a new UK public offer restriction.
The following are provided
- For a no-deal Brexit, an EEA public offer selling restriction, a UK public offer selling restriction and selling restrictions addressing additional UK securities laws (relating to section 21 Financial Services and Markets Act 2000.
- For Brexit with a deal and transitional period, an EEA and UK public offer selling restriction and selling restrictions addressing additional UK securities laws (in relation to section 21 Financial Services and Markets Act 2000).
If there is a deal, AFME anticipates that no further changes will be required to the language to reflect the full implementation of the new Prospectus Regulation. If there is no deal, then AFME notes that the UK’s policy is to implement the Prospectus Regulation but it states that it is unclear whether there will be a timing mismatch between the EU 27 and the UK regarding implementation. It intends to review the impact of these issues in July 2019.
(AFME, Selling restrictions for equity (EEA and UK), 27.03.19)
BEIS Committee: Executive rewards: Paying for success – Report
On March 26, 2019, the Business, Energy and Industrial Strategy Committee of the House of Commons published a report which provides an update on trends on executive pay and examines the Government’s performance in addressing the pay gap between chief executives and company performance and employee pay.
The report includes a number of recommendations including the following
- The new regulator which is to replace the Financial Reporting Council should clarify and strengthen its guidance on executive remuneration with a view to exerting significant downward pressure, avoiding unjustifiable payments and ensuring that, if they are made, they can be readily recovered.
- The new regulator should monitor how remuneration reports and better reporting against section 172 Companies Act 2006 meet the aims of increased transparency and alignment of pay with objectives.
- The new regulator should monitor companies’ compliance with the UK Corporate Governance Code with a view to making an assessment of which method of engagement proves most effective and recommending changes.
- Companies should be required to appoint at least one employee representative to the remuneration committee to ensure that there is full discussion of the link between executive pay and that of the workforce as a whole.
- The pay ratio reporting requirements should be expanded to include all employers with over 250 employees and the lowest band should be included alongside the quartile data required.
- Companies and partnerships should report on pay ratios in their 2019 annual report. The new regulator should take to task any company or firm that fails to explain adequately how they have taken into account pay ratios when determining levels of remuneration, particularly when pay ratios significantly exceed sector norms.
- While the BEIS Committee welcomes the development of the Investment Association’s Public Register, it recommends that the new regulator should explore more effective sanctions than a letter from the Investment Association where shareholder concerns on pay are ignored.
- The new regulator should take on responsibility for monitoring the impact of the Wates Principles for private companies and examine the case for greater disclosure around remuneration and for expanding its application more widely.
- The BEIS Committee urges the publication of the independent study commissioned by the Government into share buybacks and recommends that remuneration reports include analysis of the impact on executive remuneration of any share buybacks during the reporting period.
Structure of pay
- The BEIS Committee believes that executive pay should be simplified, more obviously geared to promoting companies’ long-term objectives and be linked more closely to that of the workforce as a whole. It recommends that remuneration committees should set, publish and explain an absolute cap on total remuneration for executives in any year. The new regulator should be more prescriptive and interventionist, where necessary, in pursuit of these objectives and be prepared to publicly call out poor practice or behaviour.
- The new regulator should engage with investors to develop guidelines on bonuses to ensure that they are genuinely stretching and a reward only for exceptional performance, rather than being effectively an expected element of annual salary.
- The new regulator should seek public explanations from any company that fails to deliver alignment on pensions contributions between directors and the majority of the workforce.
Engagement by companies on pay
- Remuneration committees should engage early and meaningfully with major investors on executive pay, be prepared to make the case for pay reform and restraint in the interests of avoiding reputational damage and the new regulator should seek to ensure that these activities are properly explained in remuneration reports.
- The guidance in the new Stewardship Code should include a requirement to asset owners to provide much more detailed information about their objectives, including those in relation to executive pay.
- Proxy agents should tailor their policy guidelines and advice to individual investors so as to resist excessive and poorly designed pay policies and awards.
- The new regulator should revise the Stewardship Code to ensure that it is able to not just encourage, but deliver, genuine and effective engagement between companies and their shareholders on executive pay in a way that requires both parties to discharge their responsibilities transparently and accountably.
(BEIS Committee, Executive rewards: Paying for success, 18th report of session 2017-19, 26.03.19)
Takeover Panel: Amendments to references in the Takeover Code to the UKLA and other matters
On March 25, 2019, the Code Committee of the Takeover Panel published Instrument 2019/2 which makes consequential and minor amendments to the Takeover Code.
The amendments include the following
- The replacement of references to the “UKLA” and the “UKLA Rules” with references to the “FCA” and the “FCA Handbook” in light of the recent announcement by the Financial Conduct Authority that it will no longer be using the name “UK Listing Authority” or “UKLA”.
- An amendment to Note 2 on Rule 9.1 concerning collective shareholder action, to remove the reference to an annual general meeting or an extraordinary general meeting and replace it with reference to a general meeting.
Since the amendments to the Takeover Code set out in Instrument 2019/2 have either been made as a consequence of changes to legislation or do not materially alter the effect of the provisions in question, the amendments have been made without formal consultation and come into effect from April 1, 2019.
(Takeover Panel, Instrument 2019/2, 25.03.19)
(Takeover Panel, Statement 2019/6, Amendments to the Takeover Code, 25.03.19)