UK: governance standards and listed companies - a couple of consultations

A couple of consultations have begun this week relating to listed companies and governance. First, the Financial Conduct Authority (as the UK's Listing Authority) is seeking views on a proposal to create a new premium listed category for sovereign controlled companies, which would see a relaxation of the related party and controlling shareholder rules for such companies: see here (pdf). Second, a review of the AIM Rules has begun and as part of this the London Stock Exchange is seeking views on the appropriateness of the current corporate governance arrangements and requirements: see here (pdf).

UK: FCA consults on changes to the Listing Rules and Prospectus Rules

The Financial Conduct Authority has published a consultation paper in which changes are proposed to the Listing Rules and Prospectus Rules: see here (pdf). Amongst the proposed changes are those relating to the competence of sponsors.

UK: Premium listed companies, controlling shareholders and minority shareholder protection

The Financial Conduct Authority has published a range of proposals to strengthen the position of minority shareholders in premium listed companies where there is a controlling shareholder (holding 30% or more of the votes): see here (pdf). Included are additional voting rights for minority shareholders regarding the appointment of independent directors. It will also be mandatory for premium listed companies with a controlling shareholder to have an agreement in place setting out certain undertakings regarding the independence of the company's business from that of the controlling shareholder.

UK: UKLA Primary Market Bulletin - edition seven published

The Financial Conduct Authority has published the seventh edition of the Primary Market Bulletin: see here (pdf). This explains the role and work of the UK Listing Authority under the new financial regulatory framework introduced in April.

UK: financial regulation reform - responses to Government consultation

HM Treasury has published the responses received in respect of its consultation paper A new approach to financial regulation: judgement, focus and stability: see here. A summary of the responses, and the Government's position on various matters raised in the consultation, is available here (pdf).

The summary confirms that the Government has decided that the UK Listing Authority will remain a part of the successor to the FSA's markets division within the new Consumer Protection and Markets Authority (CPMA). It is also confirmed that the FSA's criminal enforcement powers in relation to market conduct will be retained within the CPMA and will not be transferred to a new Economic Crime Agency.

UK: financial regulation reform and the UKLA

In a contribution to the Financial Times newspaper, the Financial Secretary to the Treasury, Mark Hoban MP, confirmed that the Government has decided that the UK Listing Authority should form part of the proposed Consumer Protection and Markets Authority and will not, therefore, be merged with the Financial Reporting Council: see here.

UK: the future of the FRC - subsumed within a securities regulator?

The chairman of the Financial Reporting Council, Baroness Sarah Hogg, recently commented on whether the UK Listing Authority should be merged with the FRC in an article appearing in the Financial Times newspaper: see here. Baroness Hogg's view was clearly put: she recognised the synergies that would arise from such a merger but argued that the UKLA, FRC and the market division of the FSA should be merged to create a comprehensive markets authority or securities regulator, with consumer interests protected by a separate agency. Debate on this matter began earlier this year with the publication of the Government's consultation paper A New Approach to Financial Regulation (see here).

UK: financial regulation reform consultation - IoD response

The UK's Institute of Directors has offered its views on the proposed changes to the financial regulatory framework: see here. The IoD believes that it does not make sense to separate the UK Listing Authority from the regulatory body that will be responsible for regulating and supervising wholesale capital markets. The IoD also states that the Financial Reporting Council is "currently making an effective and independent contribution in its existing areas of responsibility. Consequently, until there is greater clarity in the overall financial regulatory structure, we do not advocate any changes to the position of the FRC in the regulatory system".

UK: governance reforms - a view from Government

Edward Davey MP, the Department for Business, Innovation and Skills minister with responsibility for corporate governance, delivered a speech yesterday at the ABI Investment Conference: see here. Mr Davey spoke about the Stewardship Code, shareholder empowerment, regulation and takeovers and short-termism. His speech provides a useful overview of the Government's current work in these areas.

Mr Davey observed that owning shares should be seen as a "responsibility" and "companies need to empower shareholders – big and small – by providing the information they need to act as effective stewards". With regard to takeovers, he noted:

... we want the takeover process to be more transparent. Directors to think about their long-term legal duties. Takeovers to be decided on the basis of long term shareholder value, not short-term speculation. And we want all shareholders to be empowered to influence the outcome. So we are committed to reviewing the factors that can be considered by regulators when takeovers are proposed. And which aspects of the framework could be tightened up. These might include higher merger fees. Or a pre-notification requirement for some deals, like those that exist in many other European jurisdictions.

The Takeover Panel has been looking at the way takeover rules operate as part of its review [see here, pdf]. The Government will set out its thinking later this year [and] we will be focusing on three key questions. Do takeovers make economic sense for the bidders? Do target boards too often act as if their sole responsibility is to get the highest price? And are takeover bids decided by investors with short-term horizons?"

UK: FRC seeks views on merger with UKLA

The Financial Reporting Council has published a short statement and an invitation for comment on the Government's proposal to merge the UKLA with the FRC: see here (pdf). To quote from the statement:

The FRC believes that regulation must be undertaken with the greatest possible understanding of how business works, of how to give justified confidence to investors and of how to preserve and develop the international strength of the UK’s capital markets. We take the Government’s proposal as a vote of confidence in the FRC’s model of regulation, which involves close engagement with companies, investors and other market participants.

The FRC is keen that such proposals can be implemented effectively if the Government decides to proceed. It therefore welcomes the views of its stakeholders on the Government’s proposal to help it prepare its own response to the consultation. The FRC believes it is important that any such change is achieved as efficiently as possible and that the current strengths of both organisations are preserved".

UK: the UKLA, FRC and companies regulation

As noted yesterday, HM Treasury has published a consultation paper setting out in more detail its proposals for reform of the UK financial regulatory structure: see here (pdf). The paper has raised an interesting question about the role of the Financial Reporting Council and the regulation of companies. To quote from paras. 5.21 and 5.22:

The Government believes that the functions of the UKLA [currently performed by the FSA] could be merged with other regulatory functions relating to companies and corporate information, notably those of the Financial Reporting Council (FRC). This would have the benefit of bringing the UKLA’s regulation of primary market activity alongside FRC functions relating to company reporting, audit and corporate governance. The Government is therefore considering whether the UKLA should be merged with the FRC under the Department for Business, Innovation and Skills (BIS), or whether it should remain within the [proposed] CPMA markets division.

The Government believes that, within the proposed new regulatory architecture, there is a strong case for a powerful companies regulator established with responsibilities for regulating corporate governance, corporate information and its disclosure, and the stewardship of companies by institutional shareholders. This is a matter on which BIS will bring forward detailed proposals for consultation in due course, but the merger of the UKLA and FRC would be an important step towards such a reform".

UK: the new listing regime

Changes to the Listing Regime come into effect today, with the creation of two segments: premium and standard. For further information see here. The revised Listing Rules are available here. Overseas companies with a premium listing of equity shares will be required to 'comply or explain' against the UK's Combined Code on Corporate Governance.

UK: the listing regime review - FSA publishes policy statement and final rules

The Financial Services Authority has published a policy statement marking the end of its three year review of the listing regime: see here (pdf). The statement contains final rules which will restructure the regime into two listing segments: standard (based on EU minimum standards) and premium (denoting more stringent super-equivalent requirements). Further information about the review is available here.

UK: issue 22 of LIST! published - UKLA reminder on compliance with the Listing Principles

Issue 22 of LIST! - the UK Listing Authority newsletter - was published at the end of August. The newsletter adopts a question and answer format to deal with some of the issues raised in the course of the UKLA's work. The newsletter also provide a reminder concerning compliance with the Listing Principles:

We sometimes get queries about the interaction between the Listing Principles (set out in LR7) and the Disclosure & Transparency Rules (DTRs) and Prospectus Rules (PRs).We therefore thought it would be helpful to remind issuers of the approach we take regarding compliance with the Listing Principles. The Principles are a general statement of the fundamental obligations of listed companies. They were introduced to ensure adherence to the spirit as well as the letter of the various rules, including the DTRs and PRs, comprising the listing regime.

Issuers should therefore be aware of the importance we place on compliance with the Principles on an ongoing basis. As our Handbook notes, a breach of a Listing Principle will make a listed company liable to disciplinary action by the FSA. While cases may be brought in conjunction with action for a breach of a specific rule or rules, the FSA is prepared to take enforcement action on the basis of the Principles alone, taking account of the standard of conduct required by the Listing Principle in question".

UK: January LIST! published

The Financial Services Authority, as UK Listing Authority, has published the January edition of its newsletter LIST!

UK: corporate ownership and control

Over ten years ago research was published by La Porta, Lopez-de-Silanes, Sheifer and Vishny, which revealed the differences between common law and civil law countries with regard to the legal protection provided to shareholders. This work suggested that dispersed share ownership in common law countries could be explained by reference to the legal protection provided to minority shareholders; concentrated ownership in civilian countries is therefore the result of weak protection. 

The UK proves problematic for this thesis because share ownership became dispersed in the absence of strong legal protection. Indeed, La Porta et. al. have recognised the difficulties posed by the UK example in an article published earlier this year in the Journal of Economic Literature (and available here on ssrn). 

Against this background, the publication of Professor Brian Cheffins' book - Corporate Ownership and Control: British Business Transformed - is timely. Cheffins provides a rich, historical analysis of the separation of ownership and control within the UK from the seventeenth century to today. His book is providing the departure point for an interdisciplinary, one day conference being held in Cambridge on Monday, January 12.  Further information is available here. 

UK: FSA quarterly consultation - sponsor regime changes proposed

In its July 2008 quarterly consultation the UK's Financial Services Authority outlined proposed changes to the FSA Handbook including the following changes to the Listing Rules with regard to the sponsor regime:

• Requiring an issuer to appoint a sponsor satisfying the requirement to be independent.
• Giving the UKLA the ability to require a sponsor to disclose information to the UKLA that it reasonably requires.
• Making the appointment of an independent sponsor an approval condition for a circular. 

For further information see:
Consultation paper | Newsletter | FSA Handbook | Listing Rules | Sponsors |