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Essential Corporate News – Week ending July 7, 2017

Publication April 7, 2017


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

Prospectus Regulation published in the Official Journal

On June 30, 2017, the Prospectus Regulation (Regulation EU 2017/1129) on a prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (repealing Directive 2003/71/EC) was published in the Official Journal.  It will enter into force on July 20, 2017.  While it is directly applicable, certain provisions, as set out in Article 49(3), need to be transposed by member states by July 20, 2019.  However, certain provisions will apply from July 20, 2017 and other provisions will apply from July 20, 2018.

The following provisions apply from July 20, 2017:

  • Points (a),(b) and (c) of the first sub-paragraph of Article 1(5) - these provide exemptions from the obligation to publish a prospectus for the admission of securities to trading on a regulated market for the following types of issues:

(a) Securities fungible with securities already admitted to trading on the same regulated market provided that they represent, over a period of 12 months, less than 20 per cent of the number of securities already admitted to trading on the same regulated market;

(b) Shares resulting from the conversion or exchange of other securities or from the exercise of the rights conferred by other securities, where the resulting shares are of the same class as the shares already admitted to trading on the same regulated market, provided that the resulting shares represent, over a period of 12 months, less than 20 per cent of the number of shares of the same class already admitted to trading on the same regulated market;

(c) Securities resulting from the conversion or exchange of other securities, own funds or eligible liabilities by a resolution authority due to the exercise of a power referred to in the Bank Recovery and Resolution Directive (2014/59/EU).

  • The second sub-paragraph of Article 1(5), which sets out the circumstances in which the 20 per cent threshold referred to in point (b) above relating to shares resulting from the conversion or exchange of other securities shall not apply.

The Financial Conduct Authority consulted on the necessary minor amendments to the Prospectus Rules sourcebook to accommodate the rule changes arising from these provisions in CP17/6 which it published in March 2017.

The following provisions will apply from July 20, 2018:

  • Article 1(3) which exempts offers of securities to the public with a total consideration in the EU of less than €1 million, calculated over a 12 month period, from the requirements of the Regulation.  It also states that member states may enact other disclosure requirements at national level, but only to the extent that such requirements do not constitute a disproportionate or unnecessary burden to the issuer.
  • Article 3(2) which enables member states to decide to exempt offers of securities to the public from the obligation to publish a prospectus where the total consideration of each such offer in the EU is less than €8 million, calculated over a period of 12 months, provided such offers are not subject to notification under Article 25 of the Regulation (i.e. a “passport” notification from the competent authority in the issuer’s home member state to the competent authority where the offer is going to be made, stating that the prospectus has been drawn up in accordance with the regulations.  This will allow the prospectus approved in the home member state to be used for an offer in a host member state or “passported”).
    The remainder of the Regulation will apply from July 20, 2019.

(European Parliament and the Council of the European Union, Prospectus Regulation, 30.06.17)

ESMA: Q&A on the Market Abuse Regulation updated

On July 6, 2017 the European Securities and Markets Authority (ESMA) updated their Q&A on the Market Abuse Regulation (MAR) by adding a new Q&A (Q7.7).This notes that, according to Article 3(1)(26)(d) of MAR,  a closely associated person is, inter alia, “a legal person, trust or partnership, the managerial responsibilities of which are discharged” by a person discharging managerial responsibilities (PDMR) or by a closely associated natural person. It asks whether the reference to “the managerial responsibilities of which are discharged” in Article 3(1)(26)(d) of MAR is to be read in the same way as the definition of PDMR within an issuer contained in Article 3(1)(25) of MAR?

The answer is no, the reference to “the managerial responsibilities of which are discharged” in Article 3(1)(26)(d) of MAR should be read to cover those cases where a PDMR within an issuer (or a closely associated natural person) takes part in or influences the decisions of another legal person, trust or partnership (a “legal entity”) to carry out transactions in financial instruments of the issuer. For example, in the case of mere cross board membership, where a person sits on the administrative, management or supervisory body of an issuer and also on the board of another legal entity where they exercise executive or non-executive functions, without however taking part nor influencing the decisions of that legal entity to carry out transactions in financial instruments of the issuer, then that person should not be considered to be discharging managerial responsibilities within that legal entity for the purposes of Article 3(1)(26)(d) of MAR. Therefore, that legal entity should not be subject to the notification obligations under Article 19(1) of MAR, unless it is directly or indirectly controlled by, is set up for the benefit of, or its economic interests are substantially equivalent to those of that person.

(ESMA, Q&A on MAR, 06.07.17)

CLLS and Law Society: Updated MAR Q&A

On June 30, 2017 the City of London Law Society (CLLS) and Law Society Company Law Committees' Joint Working Parties on Market Abuse, Share Plans and the Takeover Code published an updated version of their Q&A setting out their suggested approach to implementing certain aspects of the Market Abuse Regulation (MAR).

The Q&A has been produced in light of the uncertainties that surround the interpretation of MAR and related subsidiary regulations. The updated Q&A includes a new Part C that addresses contractual arrangements involving a subscription for shares.

Where parties are negotiating contractual arrangements in relation to a transaction, and those arrangements involve a subscription of shares, the Joint Working Parties expect:

the issuer to be able to selectively disclose inside information to the counterparties in connection with such arrangements (in accordance with Articles 10 and 14 of MAR);
the issuer to delay disclosure of the inside information to the market, notwithstanding its disclosure to the counterparties (so long as all three conditions set out in Article 17(4) are met); and
would not require the inside information to be announced before the relevant contractual arrangements can be entered into with the counterparties.

(CLLS and Law Society, Q&A on MAR, 30.06.17)

CMA: New guidelines amending de minimis merger exemption

On June 16, 2017 the Competition and Markets Authority (CMA) published new guidelines that increase the merger exemption threshold for UK markets of insufficient importance (de minimis).

The threshold above which the de minimis exemption cannot be used has been increased to cover markets with an annual value of £15 million, an increase from £10 million. This will allow the CMA to focus on larger, more problematic transactions.

In addition, the threshold under which the CMA considers that a reference to phase two will not be justified, other than in exceptional circumstances, has been increased to cover markets with an annual value of £5 million rather than £3 million.

(CMA, De minimis guidelines, 16.06.17)

FCA: Markets in Financial Instruments Directive II Implementation - Consultation Paper VI

On July 3, 2017 the Financial Conduct Authority (FCA) published Policy Statement 17/14, its second statement on the implementation of the Markets in Financial Instruments Directive II (MiFID II), alongside Consultation Paper 17/19, its sixth consultation paper on its implementation proposals for MiFID II.

The Policy Statement clarifies the FCA’s final rules on conduct of business and client assets, and final rules and guidance on certain other matters. Policy Statement 17/14 follows on from PS17/51, published in March 2017, which focused on markets and organisational requirements.

The CP17/19 seeks views on a number of small proposed changes to the FCA Handbook which the FCA has not previously been able to consult on. It also proposes some amendments to the Prospectus Rules and the FCA glossary as a consequence of changes to section 86(7) Financial Services and Markets Act 2000 (FSMA) in light of MiFID II, which comes into effect on January 3, 2018.

The closing date for comments on CP17/19 is September 7, 2017.

(FCA, Consultation Paper 17/19, 03.07.17)

FTSE 350 firms urged to improve gender transparency

On July 2, 2017 Business Minister Margot James urged FTSE 350 chief executives to be more transparent about the number of women in their top positions. Chief executives have been asked to supply data for an independent review on increasing female representation in business, with FTSE 350 companies being requested to supply data on the number of men and women in the executive pipeline.

Margot James is expected to chair the first ever meeting of the Business Diversity and Inclusion Group in the forthcoming months, which will promote cooperation between the Government and industry leaders. The group will bring together Sir Phillip Hampton and Dame Helen Alexander of the Hampton-Alexander Review, Baroness McGregor-Smith, who led a review into Black and Minority Ethnic (BME) participation and progression in the workplace, Sir John Parker, leader of the review into diversity on boards and Jayne-Anne Gadhia, a champion for women in the finance sector.

The latest statistics on gender representation at the top of business are expected to be published later in 2017.

(BEIS, Margot James on gender transparency, 02.07.17)

FRC: Approach to changes in IFRS

On June 30, 2017 the Financial Reporting Council (FRC) published a Feedback Statement ‘Triennial review of UK and Ireland accounting standards: Approach to changes in IFRS’. The Feedback Statement summarises respondents’ comments to its consultation document on updating Financial Reporting Standards (FRS) 102 for changes in IFRS, published in September 2016.

The consultation document asked for views on whether FRS 102 should be kept up to date with IFRS as IFRS changes, particularly in relation to major new standards that have been issued. It outlined a timetable for the possible changes in relation to financial instruments, revenue and leases.

The Feedback Statement shows that almost all respondents agree with the proposed revised principles (set out in FRED 67: Draft amendments to FRS 102, March 2017). However questions were raised over the proposed timetable and implementation. Respondents felt that more IFRS implementation experience is needed before assessing if and how requirements based on these standards should be incorporated.

The FRC agrees that further evidence-gathering and analysis needs to be undertaken before a second FRED is issued. Currently there is no effective date for any changes to FRS 102 or FRS 103 and the FRC will consult on any detailed proposals in due course.

(FRC, Feedback Statement: Approach to changes in IFRS, 30.06.17)

ESMA’s call for volunteers: Electronic reporting

On June 28, 2017 the European Securities and Markets Authority (ESMA) announced open trials for the production of financial statements in the European Single Electronic Format (ESEF).

After carrying out a consultation, ESMA published a Feedback Statement in which it set out the main decisions taken. These are as follows:

  • All annual financial reports will have to be prepared in XHTML;
  • Where the annual financial report contains IFRS consolidated financial statements, they must be marked-up with XBRL tags according to the IFRS Taxonomy;
  • The XBRL tags must be embedded in the XHTML document through the Inline XBRL technology.  

ESMA has called for volunteers to test the ESEF in which annual financial reports have to be prepared. ESMA is seeking participation from issuers on European regulated markets from all industries who prepare IFRS consolidated financial statements and from software vendors offering solutions allowing the creation of  Inline XBRL reports.

Workshops will take place over the summer and applications are due by July 14, 2017.

(ESMA, Call for Volunteers, 28.06.17)

Financial Reporting Lab: Quarterly update

The Financial Reporting Lab (Lab) published its quarterly newsletter on June 30, 2017. The newsletter highlights the Lab’s most recent activities over the last three months:

  • Lab Stakeholder survey – launched in April 2017, the survey asked for feedback on previous projects and sought views on topics the Lab might undertake going forward. The response was continued support for the Lab’s series of projects on the strategic report. The Lab plans to prioritise annual reports and remuneration reporting over the coming months.
  • Digital Future – in May 2017, the first in a series of reports on the Digital Future Project was released. It set out a framework of 12 characteristics which are important to consider in any future (or current) system of digitally enabled reporting. The Lab invites people with the relevant skills or experience in digital reporting to join their workshops over the summer and autumn in London.
  • Risk and viability reporting – the Lab is currently working on a project on risk and viability reporting, which follows its 2016 report on business models. The Lab is currently obtaining the views of members of the investment community in a private investor survey.
  • Improvements in dividend disclosures – in June 2017, the Lab decided to review developments in dividend disclosures following on from its implementation study which was released in December 2016.

(The Financial Reporting Lab, Quarterly newsletter, 30.06.17)

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