UK: Supreme Court judgment in Lehman Brothers - client money

The Supreme Court gave judgment today in Re Lehman Brothers International (Europe) (In Administration) [2012] UKSC 6 (on appeal from [2010] EWCA Civ 917). A summary of the judgment is available here (pdf). One of the issues before the court was the time at which the statutory trust under the FSA Handbook (Client Assets, rule 7.7.2R) arose: was it when funds were received or when they were placed in a segregated client account? The court unanimously held that it arose on receipt.

UK: the Kay Review - interim report published

The Kay Review of UK equity markets and long-term decision making published an interim report today: see here (pdf). The report summarises the representations made to the Review and identifies those issues, including stewardship, to be considered in the second stage of the Review.

UK: financial regulation reform - the Financial Conduct Authority

Last month the Treasury Select Committee published a report regarding the Financial Conduct Authority (FCA), one of the new regulatory authorities within the new financial regulatory framework scheduled to come into existence early next year. The Government's response, together with the Committee's response to the Government, was published today: see here (html) or here (pdf). The Committee has once more expressed its concern with the pace of reform and has called for changes to be made regarding the accountability and objectives of the FCA. Legislation introducing the new framework is currently before Parliament: see here.

UK: the ownership of listed company shares - ONS share register survey report

The Office for National Statistics today published its latest survey of the ownership of listed company shares in the UK: see here (pdf). The report, based on the share register at 31 December 2010, indicates that over 40% of shares are owned by those outside of the UK and that just over half of these shares are owned by those in North America. The proportion of shares owned by insurance companies continues to fall and now stands at 8.6%. The survey reports an increase in the proportion of shares owned by individuals: up from 10.2% (in 2008) to 11.5% (although very much lower than in 1963 when over half of listed company shares were owned by individuals).

Singapore: corporate governance of insurers - MAS proposals

The Monetary Authority of Singapore has published a consultation paper in which it sets out proposals to extend the application of the MAS Insurance (Corporate Governance) Regulations and MAS Guidelines on Corporate Governance for Banks, Financial Holding Companies and Direct Insurers to all locally incorporated insurers and reinsurers: see here (pdf).

Australia: remuneration report voting in 2011

Law firm Blake Dawson has published an analysis of remuneration report voting in 2011, which includes the first votes occurring under the new two strikes and re-election framework: see here. It is noted that approximately 5% of S&P/ASX200 companies with financial years ending between 30 June and 30 September 2011 received a first strike on their remuneration reports.

Journal of Finance: February 2012 edition - some articles on governance and investor protection

The February 2012 issue of The Journal of Finance contains several articles on governance and investor protection including one by Benjamin Hermalin and Michael Weisbach titled 'Information disclosure and corporate governance' in which the authors identify the agency problems caused by increased disclosure and argue that increases in disclosure could, in part, explain increases in CEO compensation. For those unable to access the Journal of Finance article, the authors' work is available on SSRN: see, in particular, here.

Australia: directors' duties, de facto directorship and remedies for fiduciary wrongdoing

The Federal Court of Australia (Full Court) gave judgment earlier this week in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 (on appeal from [2010] FCA 1129). There is much of interest in this important decision concerning de facto directorship, directors' duties and the remedies available where a fiduciary accepts a bribe or secret commission. The differences between English and Australian law are a recurring theme in the decision. For example, with regard to the remedies available in respect of bribes and secret commissions, the Federal Court observed:

Whatever may be the reasons for English law’s continuing adherence to Lister [most recently in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347 and Cadogan Petroleum Plc v Tolley [2011] EWHC 2286 (Ch)], the weight of High Court decision and expressions of judicial opinion across the twentieth century preordain our rejection of it ... We simply note that in the result Australian law matches that of New Zealand (Reid), Singapore (Sumitomo Bank), United States jurisdictions (Carter) and Canada in accepting a proprietary remedy for bribes and secret commissions". 

Europe: structural reform of the EU banking sector - High Level Group membership announced

The membership of the High Level Expert Group which will consider the need for structural reforms of the EU banking sector has been announced by Internal Market Commissioner Barnier: see here (pdf). The Group's mandate is available here (pdf) and this explains that the Group will not be concerned with regulation and supervision but with the structure of individual banks and the market as whole including, for example, whether banks should be prohibited from undertaking certain activities or whether ring-fencing of particular activities should be required.

The Group is expected to present its final report to the European Commission by the end of the summer following hearings and consultations.

France: listed company general meetings - AMF working group report published

Autorité des marchés financiers (AMF), the financial regulator, formed a working group last year to consider the functioning of listed company general meetings in France. The group's report and recommendations were published earlier this month: see here (pdf, in French). A summary in English is available here (pdf). Amongst the recommendations is for there to be greater explanations to support the resolutions on which shareholders are asked to vote and that French law should permit shareholders to abstain rather than voting for or against.

UK: financial regulation - early intervention and the Financial Conduct Authority

In a speech delivered yesterday, Tracey McDermott, the acting director of the Enforcement and Financial Crime Division at the Financial Services Authority, gave some examples of how the new Financial Conduct Authority would exercise its early intervention powers: see here. More specifically, she stated:

Early intervention can take many different forms. The area which has attracted most attention – and which is likely to be the most controversial – is the proposed power for the FCA to ban products where we consider the risk of mis-selling those products significantly outweighs any benefit. We will, of course, also be able to prevent individual firms from selling products that seem perfectly useful, where that firm’s sales processes look likely to lead to significant mis-selling. But it may also include a willingness to take action – supervisory or enforcement – earlier in the cycle. So you might expect to see the FCA taking action, including Enforcement action, where our judgement is that a particular aspect of the firm’s business model – its product selection, its remuneration practices, its training or recruitment, for instance – is likely to give rise to poor consumer outcomes. We won’t wait to see if those outcomes occur". 

UK: the narrative reporting framework - update from BIS

Last year the Department for Business, Innovation and Skills published a consultation paper setting out proposals for a new narrative reporting framework (here, pdf). In a short statement published this week on the narrative reporting page of its website, BIS announced that its initial analysis showed support for its proposed changes. The changes will not, however, come into force in October 2012 as originally planned but in April 2013. A formal response to the consultation will be published next month.

UK: Financial Services Bill - Committee stage deliberations begin

The Financial Services Bill reached the Committee stage in the House of Commons on Tuesday this week. The record of the first day's proceedings - which took place in two sittings - can be read here and here (or watched here and here on Parliament TV). The record for all sittings of the Committee will be available here.

Amongst the matters discussed in the first sitting was the governance of the Bank of England. In the course of debate the Financial Secretary to the Treasury (Mark Hoban MP) stated that the proposed Oversight Committee of the Bank would be able to "look at the substance of policy making ... I think the oversight committee will provide an effective challenge, and because it will have the power to commission both internal and external reviews, it will be able to scrutinise and hold to account the Bank’s executives and its committees in a way that represents a major step forward in accountability" (see column 16 here). The emphasis on substance appears to go beyond the process focussed role envisaged for the Oversight Committee by the Bank: see here (pdf).

The Committee meets again this morning.

Europe: Council adopts Regulation on short-selling and certain aspects of credit default swaps

The Council of the European Union, at a meeting of the Economic and Financial Affairs Council, yesterday adopted a Regulation on short-selling and certain aspects of credit default swaps (the United Kingdom delegation abstained). A copy of the Regulation is available here (pdf) and further background information is available here.

Australia: is foreign currency money?

In Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCA 75, the Federal Court of Australia considered, amongst other things, whether foreign currency was "money' for the purposes of regulation 7.8.03(6) of the Corporations Regulations 2001. The court held that it was, referring to English authorities including Miliangos v George Frank (Textiles) Ltd [1976] AC 443 and The Halcyon The Great [1975] 1 WLR 515.

Bangladesh: SEC proposes amendments to its Corporate Governance Guidelines

The Bangladesh Securities and Exchange Commission has proposed various amendments to its Corporate Governance Guidelines: see here (pdf). Under the proposals, certain recommendations in the Guidelines will cease to operate on a comply or explain basis and will become mandatory, including those relating to board composition and size. The SEC's Guidelines apply to all companies listed on exchanges in Bangladesh.

Europe: company law - Commission consultation launched

The European Commission launched a wide ranging consultation yesterday on the future of European company law. Amongst the matters on which views are sought are the objectives and scope of European company law, the relationship between company law and corporate governance, the future of European company law entities, cross border mobility, corporate groups and the minimum capital and capital maintenance regimes. For further information see: Commission press release | FAQs | Background information | Questionnaire (for online completion) | Questionnaire (pdf) |.

Revised Hedge Fund Standards published by HFSB

The Hedge Fund Standards Board has published a revised edition of its Standards following a consultation last year: see here (pdf). An explanation of the revisions, which includes the introduction of a new governance Standard, is available here (pdf).

FATF Recommendations: International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation

At a plenary meeting last week the Financial Action Taskforce (FATF) approved a new edition of the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation, The FATF Recommendations: see here (pdf). The European Commission has announced that the changes made will be implemented in the European framework: see here.

UK: reforming bank governance - some suggestions from Andrew Haldane

The current issue of the London Review of Books contains an article by Andrew Haldane, the Executive Director for Financial Stability at the Bank of England, titled The Doom Loop: see here. Mr Haldane writes on a topic about which he has already spoken over the past year or so: the governance of banks and the appropriateness of vesting control rights in shareholders where equity represents a small proportion of bank balance sheets. He makes several suggestions, including extending voting rights across a wider group of stakeholders in order to curb the profit-seeking incentives of the equity minority.

Singapore: the meaning of 'creditor' for the purposes of section 210 of the Companies Act

At the end of last month the Singapore Court of Appeal gave judgment in SAAG Oilfield Engineering (S) Pte Ltd (formerly known as Derrick Services Singapore Pte Ltd) v Shaik Abu Bakar bin Abdul Sukol and another and another appeal [2012] SGCA 7. This is an important case in which the court considered the meaning of 'creditor' for the purposes of Section 210 ('Power to compromise with creditors and members') of the Companies Act (Cap 50, 2006 Rev Ed). The court held, reversing the decision of the trial judge, that the fact that a creditor's claim was covered by insurance did not mean that the creditor could not be a creditor for the purposes of Section 210.

UK: comply or explain - FRC report published

The Financial Reporting Council has published a short report titled What constitutes an explanation under comply-or-explain? Report of discussions between companies and investors: see here (pdf).

Ireland: Takeover Panel proposes takeover rule amendments

The Irish Takeover Panel has published a consultation paper in which it sets out amendments to various takeover rules: see here (pdf).

UK: pre-pack sales in insolvency

In a written ministerial statement given late last month, Edward Davey MP (then a minister in the Department for Business, Innovation and Skills) announced that the Government no longer intends to introduce new legislative controls on pre-pack sales which were announced last year: see here.

Oman: Code of Corporate Governance for Public Listed Companies

The codes and principles directory maintained by the European Corporate Governance Institute was updated last Friday and now includes a copy of the Code of Corporate Governance for Public Listed Companies published by the Sultanate of Oman Capital Market Authority: see here.

UK: women on boards - Prime Minister has not ruled out quotas

The UK's Prime Minister made comments yesterday at the Northern Future Forum in Stockholm regarding board diversity and said that whilst he did not favour quotas the Government had not ruled out their introduction: see here and here. The countries taking part in the meeting - Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway, Sweden and the UK - have contributed to a document which provides some interesting information on board diversity and measures that have been taken: see here (pdf).

Europe: Commission proposals for European Foundation statute

The European Commission has published proposals for a European Foundation statute: see here (pdf). Foundations will have legal personality and a public benefit purpose. There must be a cross-border dimension to their objectives (or an objective to carry out activities in at least two Member States). Profits are to be used for the pursuit of a public benefit purpose (or purposes) and the assets on formation must be equivalent to at least 25,000 euros.

For further information see: FAQs | Commission press release | Impact assessment: summary (pdf) and full version (pdf) | 2009 consultation information |

Ireland: IFIA's Corporate Governance Code for Collective Investment Schemes and Management Companies

The Irish Funds Industry Association has published a Corporate Governance Code for Collective Investment Schemes and Management Companies: see here (pdf). Accompanying the Code is a document containing FAQs: see here (pdf).

Bermuda: BMA consults on governance code for banks

The Bermuda Monetary Authority has published for consultation a Corporate Governance Code for Banks: see here (pdf). The Code contains principles and underlying guidance. The BMA expects all banks to comply with the principles although there is discretion with regard to the manner in which compliance is achieved.

UK: Financial Services Bill - Second Reading in the House of Commons

The Financial Services Bill received its Second Reading in the House of Commons yesterday. This provided the opportunity for Parliamentary debate of the main principles of the Bill before more detailed consideration in Committee. Other motions were passed in respect of the Bill, including a carry over motion to permit the Bill to be carried over into the next session of Parliament and a programme motion under which it was agreed that proceedings in Committee should conclude on 20 March 2012 (if not already concluded). Hansard, the record of debate, is available here. The debate can be watched here. The Bill has been the subject of a recently published House of Commons Library research paper: see here (pdf).

UK: financial regulation reform - update from FSA chief executive

Hector Sants, the chief executive of the Financial Services Authority, delivered a speech today in which he explained the operation of the twin peaks model of regulation, which the FSA will be adopting from 2 April 2012: see here. Mr Sants also explained the further work the FSA will be undertaking in preparation for the dismantling of the FSA and the creation of the Prudential Regulation Authority and Financial Conduct Authority.

UK: England and Wales: fixed share partner was not employee of LLP

The ICLR, as part of its free case summary service, has provided a summary for the decision given last week by the Court of Appeal in Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35: see here. The court held that a fixed share partner in a limited liability partnership was not an employee and in doing so considered the operation of Section 4(4) of the Limited Liability Partnerships Act 2000.  To quote the first paragraph of the summary:

Section 4(4) of the Limited Liability Partnerships Act 2000 required an assumption that the business of the limited liability partnership had been carried on by two or more of its members as partners and upon that assumption, required an inquiry as to whether or not the person whose status was in question would have been one of the partners. If the answer to that inquiry was that he would have been a partner then he could not have been an employee of the partnership; if the answer was that he would not have been a partner there would have to be further inquiry as to whether his relationship would have been that of an employee. It was implicit that the primary source material for the purpose of answering those questions would be the members’ agreement although that would not necessarily represent the totality of what might be looked at".

UK: the devolution of corporation tax setting powers

The Institute for Fiscal Studies published its Green Budget 2012 earlier this week: see here. This includes a chapter on corporate tax setting - see here (pdf) - in which the IFS states that there are compelling reasons to maintain a single rate of corporation tax across the UK, including administrative simplicity and the reduced potential for harmful tax competition. These points are made against the background of debate about whether the the power to set the rate of corporation tax should be devolved in Northern Ireland and Scotland.

UK: Prime Minister rejects call for employee membership on remuneration committees

During Prime Minister's Question in Parliament yesterday, the Prime Minister rejected the suggestion that the membership of the remuneration committee should be broadened to include at least one "ordinary employee" arguing that this would would break "an important principle of not having people on a remuneration committee who will have their own pay determined". But when did remuneration committees start determining the pay of individual, "ordinary" employees? Hansard, the record of debate, is available here.

Germany: amendments to Code proposed by Commission

The German Corporate Governance Commission has proposed various amendments to its 2010 corporate governance code regarding, for example, supervisory board remuneration and independence. A revised version of the code incorporating (and highlighting) these proposed amendments has been published (in German but not yet in English): see here (pdf). The consultation runs for the next month or so and it is expected that the changes will be confirmed in a revised code published in May.

UK: BIS seeks views on various company law matters

As part of a wider review of legislation (known as the "red tape challenge"), the Department for Business, Innovation and Skills has published a consultation paper in which it seeks views on several company law matters including business names, the register of members, filing obligations and the role of penalties and enforcement: see here (pdf). Responses can be made (and read) online: see here.

OECD: The role of institutional investors in promoting good corporate governance

The OECD has published a report titled The role of institutional investors in promoting good corporate governance: see here (pdf). This contains much interesting data regarding share ownership in OECD countries and research regarding the existence of codes of best practice and legal rules applicable to institutional investors.

Australia: the definition of derivative

In 2010 the Corporations and Markets Advisory Committee (CAMAC) was asked to consider the legal definition of derivative (the terms of reference are available here, pdf). CAMAC's report was released earlier this year: see here (pdf). CAMAC has concluded that the definition of derivative within Section 761D of the Corporations Act (2001) aligns with market and regulatory perceptions of what constitutes a derivative and that no change in the statutory definition is required.