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Welcome to the latest edition of Corporate Update, our fortnightly bulletin offering a two-minute read of the latest developments which we consider relevant to corporate counsel. Please get in touch with your usual contact if you want to explore any of the topics covered in more detail. If you would like to subscribe to this bulletin as a regular email, please click here.
In this issue
News
Chancellor announces major reforms to the financial services sector
On 9 December 2022, the Chancellor, Jeremy Hunt, made a statement to Parliament setting out the ‘Edinburgh reforms’, a set of reforms to regulation of the UK financial services sector. A full list of the proposals can be found here. Most of the reforms have been trailed or announced previously. They include:
- A relaxation of ring-fencing rules, which currently require lenders with more than £25 billion in deposits to separate consumer operations from investment banking arms, with the threshold increased to £35 billion.
- A review of the senior managers’ regime which requires senior executives at banks, building societies and credit unions to take personal responsibility for infractions which took place under their watch if they did not take “reasonable steps” to prevent them.
- The repeal and revocation of EU retained law on financial services generally, which is already in progress via the Financial Services and Markets Bill currently making its way through Parliament.
- Giving the financial regulators (the FCA and PRA) a “secondary objective” of delivering growth and competitiveness in the sector.
- Reforms to the prospectus regime as set out in HM Treasury’s Policy Statement published in March 2021 and a commitment to deliver the outcomes of the Secondary Capital Raising Review (published June 2022) led by Mark Austin which set out various recommendations to improve secondary capital raising processes for UK listed companies.
The government will be holding a series of consultations and calls for evidence in relation to the proposed reforms throughout 2023. For further detail on the impact of the reforms on the UK financial services sector, see “Publications” below.
FCA publishes Primary Market Bulletin 42
On 12 December 2022, the Financial Conduct Authority (FCA) published the 42nd edition of its Primary Market Bulletin. Among other things, this edition covers:
- the FCA's guidance and expectations in relation to Taskforce on Climate-related Financial Disclosures (TCFD) aligned climate-related financial disclosures for annual financial reports to be published from January 2023: this serves as a reminder to companies ahead of the requirement for standard listed companies to make climate-related financial disclosures for accounting periods beginning on or after 1 January 2022. The guidance seeks to help issuers address common reporting gaps and areas for improvement highlighted in the FCA's first review of TCFD-aligned disclosures by premium listed companies and FRC thematic review (published July 2022).
- the interaction between the UK Market Abuse Regulation (UK MAR), the Listing Rules and the National Security and Investment Act 2021: This includes a reminder that companies need to consider their obligations under UK MAR when acquisitions are subject to review or assessment under the NS&I regime and
- key features of the FCA's decision against Sir Christopher Gent relating to unlawful disclosure of inside information: The FCA highlights some key issues relating to unlawful disclosure of inside information arising from the decision and certain situations where particular risks of unlawful disclosure arise in the context of social media, mainstream media, fundraisings and analyst and media briefings. In relation to concerns raised on the extent to which engagement by shareholders with a company might contravene UK MAR, the FCA notes that this will ultimately depend on the circumstances. Any analysis is likely to focus primarily on the nature of the information that is shared and the rationale for doing so, rather than on the number of shareholders involved in the discussion.
FRC publishes report on what makes a good annual report and accounts
Following the publication of its annual review of the current state of UK corporate reporting in October 2022, the Financial Reporting Council (FRC) has, on 13 December 2022, published Report: What makes a good annual report and accounts, which sets out its view of the key attributes of a high quality annual report and accounts (ARA). The report considers that a good ARA needs to take into account good corporate reporting principles (overarching qualitative characteristics of a good ARA) as well as effective communication principles (how information is delivered). Companies should consider materiality in applying both sets of principles. A number of key principles that make a high quality report are identified, including:
- the need for the ARA to be accurate, reflecting statutory requirements for accounts to give a true and fair view and for the ARA to be fair, balanced and understandable;
- consistency of the package of reports with effective linkage between different parts;
- the completeness of the ARA as standalone document which should contain all information (both positive and negative) needed to understand the company's transactions, financial performance and position, liquidity status and future prospects;
- timeliness of publication of the ARA and ensuring that adequate time be given to its preparation and audit;
- accessibility of the ARA which should be easy to navigate, with detailed contents pages, clear titles and specific hyperlinked cross references; and
- transparency of the ARA in representing faithfully the economic substance of a company's transactions – this means disclosure of any significant judgements taken and including any additional disclosures over and above stated requirements if necessary for users to fully understand the transactions entered into.
The report includes examples demonstrating particular characteristics of a high quality ARA.
ISS announces updates to proxy voting guidelines for 2023
On 1 December 2022, the Institutional Shareholder Services (ISS) announced the release of updates to its 2023 ISS benchmark proxy voting policies. An executive summary of the benchmark policy updates can be found here. The amendments to the guidelines are substantially similar to those consulted on in November. For the UK, key policy changes include:
- Clarification that keeping directors’ annual salary increases low, and ideally below increases awarded to the wider workforce, is considered good market practice.
- Potential recommendations of votes against nomination committee chairs who fail to achieve board diversity targets set out by the Listing Rules.
- Noting where FTSE 350 companies have held four or fewer audit committee meetings during the reporting period.
- Updates to policies relating to authority to allot equity on a pre-emptive basis to reflect changes to the Pre-Emption Group Principles.
These policies will generally apply to shareholder meetings taking place on or after 1 February 2023.
UK workers to be able to request flexible working from day one of their employment
Following its response to the 2021 Consultation on Making Flexible Working the Default, on 5 December 2022, the government announced its plans to introduce secondary legislation enabling millions of UK employees to request flexible working from day one of their employment. These measures will remove the existing 26-week qualifying period currently in operation, as well as allowing employees to make 2 flexible working requests in any 12 month period and introducing new consultation obligations for employers.
Takeover Panel Code Committee publishes Response Statement RS 2022/2 on presumptions to the definition of acting in concert
On 14 December 2022, the Takeover Panel Code Committee announced publication of Response Statement RS 2022/2 finalising the proposals that were consulted on in its May 2022 consultation paper PCP 2022/2 relating to amendments to the presumptions of the definition of “acting in concert” and related provisions of the Takeover Code. Broadly, the Code Committee has adopted the proposed amendments, subject to certain modifications. The amendments will be implemented through Instrument 2022/6 and will take effect on 20 February 2023.
Legislation
EU Corporate Sustainability Reporting Directive (CSRD) approved by European Council
On 28 November 2022, the Council of the European Union gave its final approval to the Corporate Sustainability Reporting Directive. The Directive will enter into force 20 days after publication in the Official Journal, with Members States required to implement the new rules within 18 months.
The new rules will require companies to publish detailed information on sustainability matters on a “double materiality” basis, such as how their business model affects their sustainability and how their activities are influenced by sustainability factors such as human rights and climate change issues. The rules are due to start applying between 2024 and 2028, depending on the size of the company in question. The Directive has extra-territorial application and may apply to third country/ non-EU (including UK) undertakings which are EU-listed or which have significant activity in the EU.
Market Insights
ONS publishes 2022 Q3 data on UK M&A activity
The Office of National Statistics (ONS) has published its latest bulletin on UK M&A activity for of the third quarter (Q3) of 2022 (July -September). Key highlights include:
- The total number of monthly domestic and cross-border M&A activity has been relatively consistent from January 2022 to September 2022, in line with pre-pandemic levels.
- During Q3 2022 there were a total of 459 completed domestic and cross-border mergers and acquisitions, an increase from Q2 2022, but a marked decrease from the same period in 2021
Publications
UK Financial Services – The Next Chapter
Slaughter and May has published a briefing on the “Edinburgh reforms” – the set of reforms recently announced by the Chancellor intended to drive growth and competitiveness in the UK financial services sector.