Friday 30 October 2009

UK: England and Wales: corporate manslaughter and health and safety offences causing death

The Chartered Secretary website has alerted me to the publication of a consultation guideline by the Sentencing Guidelines Council concerning the offence of corporate manslaughter. In the accompanying letter to consultees, the Council provides this overview of its proposed approach: 

... the Council is proposing that, in some respects, the guideline should take a different form from that adopted for most other offences. As usual, the proposed guideline sets out the key principles regarding the assessment of the seriousness of an offence. However, rather than setting out specific starting points, it proposes a level below which a fine would not normally be expected to fall [£500,000] supported by a general indication concerning the extent to which a fine should be above that level. In addition, guidance is given concerning the use of the powers to make a publicity order (which the Council considers should ordinarily be imposed in cases of corporate manslaughter) or a remedial order".

Thursday 29 October 2009

UK: narrative reporting - ASB report and review

The Accounting Standards Board has today published 'Rising to the challenge', which reports on its review of narrative reporting by 50 UK listed companies in 2008 and 2009 (the full results are available here). The focus of the review was with companies' compliance with the business review content requirements in Section 417 of the Companies Act (2006); the communication and presentation of content; and areas that are leading to clutter in narrative reporting. 

The ASB found that, overall, most companies provided good content with regard to: financial performance and position; financial key performance indicators (KPIs); and the articulation of strategy. However, the review found that some companies struggled to meet some requirements, particularly the communication of principal risks and non-financial KPIs. In this regard, the ASB's chairman - Ian Mackintosh - has stated:

When reporting principal risks, 66% of the sample was technically compliant but in our view needed to make improvements to meet the spirit of the requirements. A number of companies resorted to simply providing descriptions of generic risks that could be easily cut-and-pasted into many other FTSE annual reports. Thirty-two percent of the sample did not disclose any non-financial KPIs, despite the [Companies Act 2006] requirement to do so where ‘necessary’ and ‘appropriate’."

Wednesday 28 October 2009

UK: implementation of the MPG recommendations - FRC progress report published

The Financial Reporting Council has published its fourth progress report on the implementation of the recommendations of the Market Participants Group regarding choice in the UK audit market. In addition to a summary of recent developments, the report contains a summary of current and previous market concentration statistics and these tell us that as of August 2009, the Big Four audit firms (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers) were responsible for auditing 99% of companies in the FTSE100 and 94% in the FTSE250. By way of background, the report notes:

In October 2006 the FRC established the MPG, which consisted of investors, companies and audit firms, to provide advice on actions that market participants could take to mitigate the risks arising from concentration in the market. The establishment of the MPG was a result of the preference for market‐led solutions expressed by respondents to a discussion paper issued by the FRC in May 2006.

In October 2007, the MPG published 15 recommendations intended to allow the audit market to work more efficiently and, in the medium‐to‐long‐term, to have a positive impact on audit choice in the UK. The recommendations included supply‐side measures intended to encourage non‐Big Four firms to offer audit services to large public interest entities and demand‐side measures, making boards more accountable to shareholders and reducing the perceived risks to directors who choose a non‐Big Four auditor. In addition, the MPG made recommendations on the need to mitigate the risk of a major audit firm leaving the market, and to minimise disruption might be minimised in the event that this were to happen.

The FRC committed to report every six months on progress in implementing these recommendations; previous Progress Reports were published in May 2008, November 2008 and May 2009". 

Tuesday 27 October 2009

UK: financial reporting by banks and other credit institutions

The Financial Services Authority has published a consultation paper titled "Enhancing financial reporting disclosures by UK credit institutions". It has also announced that major UK headquartered banks have agreed to implement what it describes as a "tough" new code for financial reporting disclosure. According to the FSA:

The code forms part of proposals, designed to enhance investors’ confidence in financial reporting and to aid their ability to compare and contrast banks’ performance. It is based on an overarching principle that UK banks are 'committed to providing high quality, meaningful and decision-useful disclosures to users to help them understand the financial position, performance and changes in the financial position of their businesses'. The FSA is inviting views on the application of this code to banks and other credit institutions. In the meantime, the major banks, at the FSA’s request, have agreed to implement the code in their 2009 year end annual reports".

UK: decline in number of FTSE100 non-executive directors

Today's Financial Times reports, citing research by Reward Technology Forum, that the "... number of non-executive directors on the boards of FTSE 100 companies has fallen by 16 per cent over the past year ... in 2007-08 there were 753 non-execs on the boards of FTSE 100 companies, but in 2008-09 that number dropped to 631".

Monday 26 October 2009

Europe: corporate governance in financial institutions

Earlier this month the European Commission held a one day seminar on corporate governance in financial institutions. The seminar was split into three panel sessions, video recordings of which are now available (in wmv format):
  • Panel 1: The board of directors - role and competences [wmv | 244 MB]
  • Panel 2: Internal control and risk management - governance issues [wmv | 190 MB]
  • Panel 3: Shareholder control, supervision and external audit [wmv | 267 MB]

UK: FTSE100 chief executive pay - IDS survey

Today's Financial Times reports the results of an Incomes Data Services survey of FTSE100 chief executives' pay. The report begins:

FTSE 100 chief executives have received inflation-busting pay rises averaging 7.4 per cent over the past year, almost making up for a 29 per cent drop in their bonuses, according to a report published Monday. Incomes Data Services, the pay research group, said company chiefs’ salaries were growing twice as fast as the pay of shop-floor workers. Their total remuneration fell just 1.5 per cent in spite of collapsing profits in one of the deepest postwar recessions, it said. Chief executives were still earning, on average, as much as in 2006, when the economy was booming".

Friday 23 October 2009

UK: submissions to the Walker Review

Submissions to the Walker Review on the governance of banks and other financial institutions have been published: see here.

USA: Federal Reserve publishes proposed guidance on sound incentive compensation policies

Yesterday the Federal Reserve Board (FRB) published for comment proposed guidance on sound incentive compensation policies for banks. This guidance is based on the following three principles, which provide that incentive compensation arrangements at banks should (to quote directly from the proposed guidance):
  • Provide employees incentives that do not encourage excessive risk-taking beyond the organization’s ability to effectively identify and manage risk;
  • Be compatible with effective controls and risk management; and
  • Be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. 
The FRB also announced that it is to begin two supervisory initiatives, as follows (to quote from its press release): 

One, applicable to 28 large, complex banking organizations, will review each firm's policies and practices to determine their consistency with the principles for risk-appropriate incentive compensation set forth in the proposal. These firm-specific policies will be assessed by supervisors in a special 'horizontal review,' a coordinated examination of practices at the 28 firms. The policies and implementing practices adopted by these firms in response to the final supervisory principles will become a part of the supervisory expectations for each firm and will be monitored for compliance.

Second, supervisors will review compensation practices at regional, community, and other banking organizations not classified as large and complex as part of the regular, risk-focused examination process. These reviews will be tailored to take account of the size, complexity, and other characteristics of the banking organization".

For comment see here (Financial Times), here (Wall Street Journal) and here (New York Times). 

UK: Companies House - issue 71 of Register published

Issue 71 (October 2009) of Register, the Companies House magazine, has been published: see here (pdf). It includes a short article titled "Companies and the Law" in which Professor Brenda Hannigan writes on the rectification and construction of the articles of association as well as the changes introduced by the Companies Act (2006) with regard to the memorandum and articles. 

Montenegro: the Stock Exchange Corporate Governance Code

The codes and principles directory maintained by the ECGI has been updated to include a copy, in English, of the Montenegro Stock Exchange's Corporate Governance Code, which was published earlier this year. 

Finland: compliance with the corporate governance code

NASDAQ OMX Helsinki has published its Corporate Governance Review. This reports that two thirds of listed companies comply with the recommendations in the Finnish Code

Thursday 22 October 2009

UK: the Company, Limited Liability Partnership and Business Names (Public Authorities) Regulations 2009

A draft copy of the Company, Limited Liability Partnership and Business Names (Public Authorities) Regulations 2009 was published on OPSI earlier this week: see here (html) and here (pdf). The accompanying explanatory memorandum explains:

The Regulation specifies 26 public authorities and, for each, the body that must be consulted by a person wishing to adopt a name that suggests a connection to it. These public authorities are all independent of HM Government and are thus not covered by the continuing requirement for prior approval for names that suggest connection to HM Government under section 54(1)(a) or 1193(1)(a) of the [Companies Act] 2006".

UK: the Statutory Auditors and Third Country Auditors (Amendment) Regulations 2009

A copy of the Statutory Auditors and Third Country Auditors (Amendment) Regulations 2009 has been published on OPSI: see here (html) and here (pdf). The Regulations were laid before Parliament on 20 October and came into force on 21 October. In the accompanying explanatory memorandum it is explained that the effect of the Regulations will be to apply, from 21 October, the controls in Sections 1253D and 1253E of the Companies Act (2006) to papers relating to all audits regardless of their date.

Colombia: codes added to the ECGI directory

The codes and principles directory maintained by the ECGI now includes Colombia. A couple of codes have been added, including the Code of Best Corporate Practice published by the Colombian Confederation of Chambers of Commerce, available here (French) and here (Spanish). 

Wednesday 21 October 2009

UK: Deloitte survey of narrative reporting and Combined Code compliance

Deloitte has published a report titled "A telling performance" which contains the the results of its study of narrative reporting (including corporate governance statements) in the annual reports of 130 listed companies (including 30 investment trusts). The reports consulted were those published between 1 August 2008 and 31 July 2009. A summary of the report is available here. Deloitte found that 35% of companies in its sample complied fully with the Combined Code on Corporate Governance.

Tuesday 20 October 2009

UK: England and Wales: the statutory derivative action

Part 11 of the Companies Act (2006) introduced a statutory derivative action (known in Scotland as derivative proceedings). The operation of the new regime has been considered by Mr Justice Lewison in Iesini & Others v Westrip Holdings Ltd. [2009] EWHC 2526 (Ch), a decision handed down last Friday. 

S. 261 provides that a shareholder bringing a derivative claim must apply to the court for permission to continue it. Under s. 263(2)(a), permission must be refused if the court is satisfied “that a person acting in accordance with section 172 [Companies Act (2006)](duty to promote the success of the company) would not seek to continue the claim”. Lewison J. held that s. 263(2)(a) would apply only where the court is satisfied that no director acting in accordance with s. 172 would seek to continue the claim.

UK: England and Wales: the RTM Companies (Model Articles) (England) Regulations 2009

The RTM Companies (Model Articles) (England) Regulations 2009 were laid before Parliament yesterday and come into force on 9 November 2009. A copy of the Regulations is available on OPSI: see here (html) and here (pdf). In the accompanying explanatory memorandum (pdf) the following background information is provided: 

The Commonhold and Leasehold Reform Act 2002 s 73 and s 74 provided for the establishment of RTM [right to manage] companies. These are private companies limited by guarantee enabling long leaseholders in blocks of flats to take over the management of their building irrespective of any fault on the part of their landlord. Leaseholders must form a company to exercise the management functions.

The [Companies] 2006 Act introduced changes to the required constitutional documents of companies. It abolished the requirement for companies to have a separate memorandum of association and for companies to specify their objects. Objects formerly set out the purpose for which the company was created. It has been decided to keep objects for RTM companies as they should be restricted to RTM functions only.

All RTM companies are private companies limited by guarantee. Their memorandum and articles are currently prescribed by the RTM Companies (Memorandum and Articles of Association) (England) Regulations 2003 (SI 2003/2120.) The new regulations revoke this instrument, subject to transitional provisions which enable RTM companies incorporated before 9 November 2009 to use the old articles until 30 September 2010. Such companies are free to adopt the new articles before this date if they choose".

Monday 19 October 2009

Europe: does Community law provide a general principle of equal treatment for shareholders?

The European Court of Justice (Fourth Chamber) has given its judgment in Audiolux SA v Groupe Bruxelles Lambert SA (Case C-101/08, 15 October 2009). The court held - in a reference for a preliminary ruling under Article 234 of the EC Treaty from the Cour de cassation in Luxembourg - that Community law does not provide a general principle of equality of treatment for shareholders. More specifically, the court ruled:

Community law does not include any general principle of law under which minority shareholders are protected by an obligation on the dominant shareholder, when acquiring or exercising control of a company, to offer to buy their shares under the same conditions as those agreed when a shareholding conferring or strengthening the control of the dominant shareholder was acquired".

Friday 16 October 2009

Ireland: Combined Code principles to be placed on statutory footing

A Renewed Programme for Government has been agreed by the Government partners (Fianna Fáil and the Green Party). It contains measures concerning corporate governance, most notably the following objective (at p. 13):

We will put the principles of the 'Combined Code' of [sic] Corporate Governance on a legislative footing for all banks, public companies and state-sponsored bodies to deal with the following key areas of governance of institutions: board composition and independence; segregation of CEO and Chair; clear definition of executive and non executive responsibilities; audit committee composition, independence, role and function; responsibilities and composition of board committees; segregation of committee chairs; risk management; selection of non-executive directors; and sanctions for non-compliance".

Australia: Downer EDI remuneration report rejected

To follow up an earlier posting on shareholder voting: at the Downer EDI annual general meeting earlier this week, a majority of votes were cast against the company's remuneration report. The company's response, and a summary of the votes cast, is available here.

Thursday 15 October 2009

UK: FRC publishes revised guidance for directors on going concern assessments and disclosures

The Financial Reporting Council has today published revised guidance for directors on going concern assessments and disclosures. The guidance applies to accounting periods ending on or after 31 December 2009 and brings together the requirements of company law, accounting standards and the Listing Rules on going concern and liquidity risk for the directors of small, medium and large UK companies. It replaces the guidance issued in 1994 for directors of listed companies and extends the application of the guidance to all sizes of company in respect of annual and, where required, half year financial statements. In the accompanying press release the FRC notes that the revised guidance had reduced some of the inconsistencies between UK GAAP and IFRS but some differences remain. Further information is available here.

UK: FSA clarifies SIF approval and supervision approach

The Financial Services Authority has published a Dear CEO letter in which it clarifies its approach regarding the approval and supervision of persons performing significant influence functions (SIFs). Executive and non-executive directors fall into this category. The letter makes clear, inter alia, the FSA's expectation that firms subject to close and continuous monitoring should engage with the FSA at the short listing stage when recruiting for the roles of chair, chief executive and senior independent director.

In the press release accompanying publication of the letter, the FSA states: 

The enhanced SIF regime is one of the FSA’s responses to the financial crisis, which exposed governance and risk management shortcomings across numerous firms in roles such as chair, CEO, and finance or risk director. In the 12 months since October 2008 the FSA has conducted 172 SIF interviews, resulting in 18 candidates withdrawing their applications which shows there is considerable scope for some firms to be more robust in their own recruitment processes".

UK: England and Wales: the accountant, legal professional privilege and tax law

Yesterday, in Prudential Plc & Anor, R (on the application of) v Special Commissioner of Income Tax & Anor [2009] EWHC 2494 (Admin), Mr Justice Charles held that where a person obtained skilled legal advice about tax law from an accountant, that advice was not subject to legal professional privilege (LPP). Disclosure of that advice could not, therefore, be resisted where this was sought by HMRC using its powers of investigation in respect of a commercially marketed tax avoidance scheme. His Lordship observed (paras [44], [64] to [67]):

... in my view the present law as developed, applied and understood is that for LPP to apply to legal advice and assistance it has to be given by a member of the legal profession with exceptions or extensions when the right or privilege arises in litigation, or when litigation is contemplated ...

In my view Prudential have put forward a compelling, and indeed unanswerable, case that in modern conditions accountants have the expertise to advise on tax law and it is firms of accountants, rather than firms of solicitors, who do give such advice and represent clients in disputes with the Revenue on many aspects of their tax affairs. Further many firms of accountants now employ lawyers to advise on tax and what they, and qualified accountants in the same firm, do in this context is the same ...

So, in my view, Prudential have shown that accountants do what lawyers are described as doing in the cases that establish LPP. This has been the case for some time and in my view an equivalent position can be said to exist in respect of other professions.

But, for the reasons I have set out, I have concluded that the cases do not provide existing authority that clients of accountants and other professions (apart for lawyers) have a right to claim LPP on the basis of legal advice privilege. Indeed it is accepted by Prudential that if I was to hold that accountants have such privilege this would be a first.

Although I acknowledge that the courts have power to develop the common law by the application of existing principle to modern conditions I am of the view that the conclusions I have reached and set out above mean that the doctrine of precedent excludes me from so developing the law".

Wednesday 14 October 2009

UK: APB issues new ISAs (UK and Ireland)

Yesterday the Auditing Practices Board issued 33 new International Standards on Auditing (UK and Ireland), a new International Standard on Quality Control (UK and Ireland) 1 and a revised statement of the scope and authority of APB pronouncements.

The new standards, which incorporate the clarified international standards issued by the International Auditing and Assurance Standards Board, replace the existing ISAs (UK and Ireland) and ISQC (UK and Ireland) 1 and apply to audits of financial statements for periods ending on or after 15 December 2010 (the existing standards continue to apply to accounting periods ending before this date). The new standards adopt a different format from the existing ISAs and contain some new requirements and guidance. A summary of the main changes is available here (pdf). 

Tuesday 13 October 2009

UK: England and Wales: Court of Appeal confirms FSA's right of private prosecution

The Court of Appeal has handed down an important decision concerning the powers of the Financial Services Authority. In Rollins, R. v [2009] EWCA Crim 1941, it was argued that the FSA's power to prosecute criminal offences was limited to the offences referred to in Sections 401 and 402 of the Financial Services and Markets Act (2000) and that the FSA could not, therefore, prosecute offences of money laundering contrary to Sections 327 and 328 of the Proceeds of Crime Act (2002).

The court rejected this argument and held that the FSA enjoyed the right of private prosecution. Richards LJ (delivering the opinion of the court) observed (at paras. [30] and [32]):

... we can see no reason why the general right of private prosecution should not be enjoyed by the FSA. The right is not excluded by FSMA 2000 or any other statutory provision to which our attention has been drawn, and the powers conferred on the FSA by its Memorandum of Association are easily wide enough to cover the institution of criminal proceedings within the scope of its objects.

The right of private prosecution does not depend upon the enjoyment of corresponding powers of investigation, and it will frequently be the case that a private prosecutor lacks relevant statutory powers of investigation. The fact that the FSA does not claim to enjoy statutory powers of investigation in relation to the offences under POCA 2002 therefore tells one nothing about its power to prosecute those offences. If offences under POCA 2002 come to its attention in the course of investigations carried out in the exercise of the powers that it does enjoy under section 168 of FSMA 2000, then in our judgment it can prosecute those offences notwithstanding that they fall outside the scope of the statutory powers of investigation".

Update (14 October 2009): the decision has been reported here by the ICLR as part of its WLR Daily service (this summary will be removed should the ICLR report the decision in one of its series of law reports).

Update (28 July 2010): the Supreme Court has upheld the Court of Appeal's decision: see here.

UK: ICSA responds to FRC Combined Code and Walker reviews

The Institute of Chartered Secretaries and Administrators has published its response to the FRC's review of the effectiveness of the Combined Code and Sir David Walker's review of bank governance. Whilst welcoming in broad terms the work of the FRC and Sir David, ICSA makes clear that some of Sir David's recommendations should not be applied to all listed companies. For example, Sir David's seventh recommendation - the chairman should be expected to commit a substantial proportion of his or her time, probably not less than two-thirds, to the business - is described by ICSA as "too prescriptive" to apply to all listed companies.

Note: Sir David will be publishing final recommendations on November 26th. 

Monday 12 October 2009

UK: compulsory education for disqualified directors?

A report in yesterday's Sunday Times newspaper indicated that the (opposition) Conservative Party is exploring the suggestion that disqualified directors should receive compulsory education on topics including their legal duties. The shadow business minister, John Penrose MP, is quoted:

I would favour an emphasis on rehabilitation and re-education, rather than boot-camp-style punishments ... This idea may have real potential for personal insolvencies as well as business insolvencies. Providing people with education on household budgeting, how to assess the loan market and other personal finance issues could have real value”

Australia: shareholder voting

A report in today's Sydney Morning Herald contains some interesting data on shareholder voting in Australia and information on forthcoming AGMs where significant votes against company remuneration reports are expected. The report notes that "Last year was a watershed for protest votes on remuneration. Among the top 200 companies, a record number of eight 'no' votes of more than 50 per cent were recorded...".

Friday 9 October 2009

UK: Scotland: fiduciary duties and the non-executive director

The Court of Session (Inner House) has considered the scope of a non-executive director's fiduciary duties in Commonwealth Oil and Gas Co. Ltd. v Baxter [2009] CSIH 75. This is an important decision because there are few recent cases considering non-executive directors' duties. Their Lordships held that the non-executive director owed the same duties to the company as its executive directors. The decision will be of interest in England and other jurisdictions, not least because their Lordships discussed a broader conceptual question: are fiduciary duties proscriptive or prescriptive?

Thursday 8 October 2009

USA: Section 404 of the Sarbanes-Oxley Act 2002 and small public companies

The Securities and Exchange Commission has announced the extension of Section 404 of the Sarbanes-Oxley Act (2002) to small public companies in respect of annual reports ending on or after June 15, 2010. Such companies and their auditors will therefore be required to report on the effectiveness of internal controls. Further information is available here.

Wednesday 7 October 2009

UK: long association with the audit engagement - APB issues revised Ethical Standard 3

The Auditing Practices Board has published a revised version of Ethical Standard 3 - Long Association with the Audit Engagement. The revised standard increases the audit engagement partner's maximum period of association with the audit engagement from five to seven years in circumstances where (to quote directly from the standard):

... the audit committee (or equivalent) of the audited entity decide that a degree of flexibility over the timing of rotation is necessary to safeguard the quality of the audit and the audit firm agrees, the audit engagement partner may continue in this position for an additional period of up to two years, so that no longer than seven years in total is spent in the position of audit engagement partner. An audit committee and the audit firm may consider that such flexibility safeguards the quality of the audit, for example, where:
  • substantial change has recently been made or will soon be made to the nature or structure of the audited entity’s business; or
  • there are unexpected changes in the senior management of the audited entity. 
In these circumstances alternative safeguards are applied to reduce any threats to an acceptable level. Such safeguards may include ensuring that an expanded review of the audit work is undertaken by the engagement quality control reviewer or an audit partner, who is not involved in the audit engagement".

Tuesday 6 October 2009

UK: audit firms' provision of non-audit services to the listed companies they audit - FRC consultation paper

The Auditing Practices Board - part of the Financial Reporting Council - has today published a consultation paper concerning audit firms' provision of non-audit services to the listed companies they audit. The consultation paper is being published following a recommendation made by the Treasury Select Committee. The Committee stated in its report Banking Crisis: Reforming Corporate Governance and Pay in the City (May 2009) (see para. 237 in chapter 6):

We strongly believe that investor confidence, and trust in audit would be enhanced by a prohibition on audit firms conducting non-audit work for the same company, and recommend that the Financial Reporting Council consult on this proposal at the earliest opportunity".

The APB's consultation paper provides: an overview of the non-audit services provided by auditors and the reasons why this can undermine auditor independence; a description of the approach taken by the APB with regard to auditor independence since 2004 and subsequent developments; and a summary of the approach taken in Europe, France and the USA.

Against this background, the APB seeks responses to several general questions including whether the provision of non-audit services to audit clients impacts confidence in the independence of auditors and, if so, which non-audit services are of concern. Views are also sought on the APB's current approach and whether change is needed through, for example, increased disclosure or the pre-approval by the board or audit committee of non-audit service engagements.

UK: reduction of share capital by a private company - solvency statement guidance

The Company Law Committee of the City of London Law Society has published a short memorandum concerning the reduction of share capital by private companies where the directors make a solvency statement. The memorandum - available here (Word) - records some consensus views of members of the Committee regarding the practical steps that directors can take before making a solvency statement in order to reduce the risk of committing an offence under Section 643(4) of the Companies Act (2006).

UK: NAPF responds to the Walker Review

The National Association of Pension Funds has published its response to Sir David Walker's review of the governance of banks and other financial institutions. NAPF comments on each of Sir David's proposals and makes this general point:

... all of the changes and innovations proposed should be designed with the object of changing the behaviour of companies and investors so that they focus more on the creation of value over the longer term. This is a complex issue and there will be many views on definition as well as the route to achieving that goal, but pension funds and their members have not been well served by the concentration in the financial sector on short term gains which have been made at the obvious expense of the longer term and at significant cost to shareholders".

Note: see here for further NAPF corporate governance publications.

Monday 5 October 2009

UK: FRC quarterly strategic progress and planning report

The Financial Reporting Council has today published its latest quarterly strategic progress and planning report. This provides a summary of the FRC's actions in the past quarter and states that in the next quarter the FRC will publish:

UK: the Turner Review - FSA statement

The Financial Services Authority has published a statement in which it analyses the feedback received in respect of the Turner Review and accompanying discussion paper. The statement notes respondents' general agreement with the analysis of the Turner Review and the approach it proposed. The statement also outlines the actions the FSA has taken since March.

In the press release accompanying the statement, the FSA explains that a second discussion paper will be published this month dealing with the identification of 'systemically important firms' and the design of so-called 'living wills'. The discussion paper will also discuss the cumulative impact of capital and liquidity reforms.

UK: the FSA's listing regime review

The Financial Services Authority has published a policy statement and consultation paper with regard to its restructuring of the listing regime into premium and standard segments. The issues for consultation concern the draft rule requiring overseas companies in the premium segment to offer pre-emption rights to shareholders and the rule clarifying that equity securities with a standard listing must be admitted to trading on a regulated market. For background information see here

Friday 2 October 2009

UK: vetting bank directors

Today's Financial Times newspaper reports: "The City is to revive some of its old ways of doing business by setting up a regulatory committee to vet the appointment of directors to Britain’s banks. According to people close to the process, experienced bankers such as Sir Brian Pitman, the former chief executive of Lloyds, and Sir Peter Middleton, a former Barclays chairman, have been lined up by the Financial Services Authority to serve on the committee. The FSA aims to have the new panel operating by the end of the year".

UK: whistle blowing and the FRC

The Public Interest Disclosure (Prescribed Persons) (Amendment) Order 2009 came into force yesterday. Its effect is to extend the protection provided to whistle blowing employees by Part IVA of the Employment Rights Act (1996) in respect of disclosure to the Financial Reporting Council and three of its operating bodies (the Professional Oversight Board, the Financial Reporting Review Panel and the Accountancy and Actuarial Discipline Board).

For further information see: explanatory memorandum for the Order (pdf) | FRC press release | 

UK: short selling - FSA wants disclosure in respect of all equities

The Financial Services Authority published a feedback statement yesterday in which it set out its policy stance on short selling. The FSA explained that it wishes to see the disclosure of significant short positions in all equities. There are, however, no immediate plans to introduce such a regime because the FSA's preferred course is to work towards agreeing such a framework at an international level. 

The FSA continues to believe that short selling is desirable; to quote from the feedback statement

We continue to hold the view that short selling plays an important and positive role in normal market conditions and we are convinced that a blanket ban, other than in emergency circumstances, would have an undesirable negative impact on market efficiency .... We do not consider naked short selling to be illegitimate activity in itself: it can provide valuable liquidity to the markets and is necessary as part of market making activity ... we would be concerned about any naked short selling carried out with no intent or reasonable plan for delivery of the shares on the intended settlement date, and would be prepared to pursue action against such conduct". 

Note: for a summary of the actions taken by regulators and/or Governments across Europe in respect of short selling, see the summary produced by the Committee of European Securities Regulators.

Thursday 1 October 2009

UK: the Companies Act (2006) final implementation

In March 1998 the Department for Trade and Industry published Modern Company Law for a Competitive Economy, the consultation paper which launched the reform of company law which culminated today in the final implementation of the Companies Act (2006)

Whilst much of the 2006 Act has already been implemented, the provisions coming into force today include, inter alia, those concerning company formation, capacity and name; the company's constitution; company members and share capital; the annual return and company charges. For a general overview, see the implementation timetable published by the Department for Business, Innovation and Skills. Specific guidance has recently been published by DBIS concerning the changes to constitutional documents and the model articles. Further information is also available in the FAQ section of the DBIS website

Reflecting the final implementation of the 2006 Act, a revised edition of the Takeover Code code comes force today. Changes have also been made to the FSA Handbook. Certain provisions of earlier Acts - including the Companies Act (1985) and Companies Act (1989) - remain in force: see here for an overview.