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Essential Corporate News – Week ending July 29, 2016

Publication July 29, 2016


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

Executive Remuneration Working Group: Final report

On July 26, 2016 the Executive Remuneration Working Group, established by the Investment Association in September 2015 to review pay structures in UK listed companies, issued its Final Report. The Working Group published its Interim Report in April 2016 and consulted widely throughout May and June 2016 with a wide range of stakeholders. The Working Group’s core recommendation in the Final Report is that companies be given the flexibility to select the remuneration structure that is most appropriate for their business, rather than focusing solely on the currently dominant Long Term Incentive Plan (LTIP) pay structure. The Working Group has set out a framework of structures to illustrate what this flexibility might look like in practice. The framework of structures should not be seen as an exhaustive or approved list of alternatives, but as examples designed to explore the practicalities of a more flexible system.

The Report contains the following ten recommendations aimed at rebuilding trust in executive pay structures in the UK:

  • There should be more flexibility afforded to remuneration committees to choose a remuneration structure which is most appropriate for the company’s strategy and business needs.
  • Non-Executive Directors should serve on the remuneration committee for at least a year before taking over the chairmanship of the committee. The Financial Reporting Council (FRC) should consider reflecting this best practice in the UK Corporate Governance Code.
  • Boards should ensure the company chairman and whole board are appropriately engaged in the remuneration setting process. This will ensure that the decisions of the remuneration committee are agreed by the board as a whole.
  • Remuneration committees need to exercise independent judgement and not be over reliant on their remuneration consultants particularly during engagements with shareholders. To ensure independent advice is maintained, the remuneration committee should regularly put their remuneration advice out to tender.
  • Shareholder engagement should focus on the strategic rationale for remuneration structures and involve both investment and governance perspectives. Shareholders should be clear with companies on their views on and level of support for the proposals.
  • Companies should focus their engagement on the material issues for consultation. The consultation process should be aimed at understanding investors’ views. Undertaking a process of consultation should not lead to the expectation of investor support.
  • Remuneration committees should disclose the process for setting bonus targets and retrospectively disclose the performance range.
  • The use of discretion should be clearly disclosed to investors with the remuneration committee articulating the impact the discretion has had on remuneration outcomes. Shareholders will expect committees to take a balanced view on the use of discretion.
  • The board should explain why the chosen maximum remuneration level as required under the remuneration policy is appropriate for the company using both external and internal (such as a ratio between the pay of the CEO and median employee) relativities.
  • Remuneration committees and consultants should guard against the potential inflationary impact of market data on their remuneration decisions.

(Executive Remuneration Working Group, Final Report, 26.07.16)

FCA: Updated statement on closed periods and preliminary results under MAR

The Financial Conduct Authority (FCA) has updated its statement (which was initially published in May 2016) on closed periods and preliminary results under the Market Abuse Regulation (MAR) to refer market participants to the European Securities and Markets Authority’s (ESMA) Q&A on MAR which was recently updated to include a question on this matter. The FCA notes that the approach taken to this matter in ESMA’s Q&A on MAR is similar to the approach the FCA had taken in its May statement.

(FCA, Closed periods and preliminary results under MAR, 20.07.16)

ESMA: Final report on draft implementing technical standards on notifications of investigations, sanctions and measures under MAR

On July 26, 2016 the European Securities and Markets Authority (ESMA) published its final report on the draft implementing technical standards (ITS) regarding the procedures and forms for exchanging information with ESMA as referred to in Article 33 of the Market Abuse Regulation (MAR).

Article 33(5) of MAR requires ESMA to develop draft ITS to determine the procedures and forms to be used for the following two types of submission of information:

  • national competent authorities (NCAs) shall provide ESMA annually with aggregated information regarding all administrative and criminal sanctions and other administrative measures imposed in accordance with Articles 30, 31 and 32 of MAR as well as regarding administrative and criminal investigations undertaken in accordance with those articles; and  
  • administrative and criminal sanctions and other administrative measures that are disclosed to the public by NCAs shall simultaneously be reported to ESMA.

ESMA has submitted the final draft ITS for endorsement to the European Commission.

(ESMA, Final report: Draft Implementing Technical Standards on sanctions and measures under Regulation (EU) No 596/2014 on market abuse, 26.07.16)

European Commission: Commission Implementing Decision on the equivalence of the auditor oversight systems of certain third countries published in the Official Journal

On July 27, 2016 the European Commission published Commission Implementing Decision (EU) 2016/1223 amending Decision 2011/30/EU on the equivalence of certain third country public oversight, quality assurance, investigation and penalty systems for auditors and audit entities and a transitional period for audit activities of certain third country auditors and audit entities in the EU in the Official Journal.

Following assessment, it was determined that Mauritius, New Zealand and Turkey have public oversight, quality assurance, investigation and penalty systems for auditors and audit entities that meet requirements equivalent to those set out in Articles 29, 30 and 32 of (the Statutory Audit Directive (Directive 2006/43/EC), and therefore these countries’ systems are considered equivalent to those for auditors and audit firms of the Member States.

In addition, the transitional period granted by Decision 2011/30/EU (as amended by Commission implementing decision of 13 June 2013) in respect of auditors and audit entities in Bermuda, Cayman Islands, Egypt and Russia has been extended to apply to financial years starting during the period of July 2, 2010 to July 31, 2018.

(European Commission, Commission Implementing Decision (EU) 2016/1223 of 25 July 2016 amending Decision 2011/30/EU on the equivalence of certain third country public oversight, quality assurance, investigation and penalty systems for auditors and audit entities and a transitional period for audit activities of certain third country auditors and audit entities in the European Union, 27.07.16)

OTS: Discussion papers

On July 18, 2016 the Office of Tax Simplification (OTS) published two discussion papers aimed at small companies.

The papers discuss the following:

  • proposals for introducing a Sole Enterprise with Protected Assets (SEPA) model; and
  • proposals for introducing look-through taxation for certain small companies.

For both papers, the deadline for comments is September 30, 2016, but the OTS asks that comments are ideally submitted by September 12, 2016. The OTS plans to publish its conclusions in October 2016.

(OTS, Sole Enterprise with Protected Assets: A discussion paper, 18.07.16)

(OTS, Lookthrough taxation: A discussion paper, 18.07.16)

Law Society/CLLS: Guidance on the execution of a document using an electronic signature

On July 25, 2016 the joint working party of The Law Society Company Law Committee and The City of London Law Society (CLLS) Company Law and Financial Law Committees published a guidance note on the execution of documents using an electronic signature. The note has been approved by Leading Counsel.

The Guidance sets out the legislative framework for electronic signatures and the principles for determining whether certain types of documents that have been signed with an electronic signature have been validly executed. The types of documents considered are simple contracts, documents subject to a statutory requirement to be in writing, signed or under hand, deeds and minutes and resolutions.

The Guidance also addresses:

  • the evidential weight of an electronic signature;
  • matters concerning originals and counterparts for documents in electronic and hard-copy form and documents executed using electronic and wet-ink signatures;
  • conflict of law issues and when parties to a document to be signed using an electronic signature may wish to seek advice from counsel in another jurisdiction; and
  • certain other considerations that parties to a contract and their legal advisers might need to consider when deciding whether to use an electronic signature.

The Guidance is limited in scope to commercial contracts entered into (and certain other documents signed) in a business context, rather than those to which consumers or other individuals outside a business context are a party.

(Law Society/CLLS, Note on the Execution of a Document Using an Electronic Signature, 25.07.16)

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