Monday 24 December 2012

Season's greetings and best wishes for 2013

Season's greetings and best wishes for 2013 to all blog visitors and those receiving the daily e-mail updates. I hope that you have found the contents useful and interesting over the past year. The first blog post for 2013 will appear on January 2.

Europe: structural reform of the banking sector - Commission publishes summary of consultation responses

The European Commission has published a summary of the responses received in respect of its consultation on the recommendations of the High-level Expert Group on reforming the structure of the EU banking sector: see here (pdf). The Commission notes that banks in general welcomed the Group's analysis but they did not accept that a compelling case had been made for the mandatory separation of proprietary trading from other banking activities. Many respondents did not comment on the Group's corporate governance recommendations, although the importance of good governance was recognised.

OECD Guidelines for Multinational Enterprises - 2012 annual report published

The OECD has published its 2012 Annual Report in respect of its Guidelines for Multinational Enterprises: see here. The report explains the activities undertaken by adhering governments to promote adoption of the Guidelines.

Friday 21 December 2012

Ireland: company law reform - Companies Bill 2012 published

The reform of company law in Ireland moves closer following work begun by the Company Law Review Group. Earlier today a copy of the Companies Bill 2012 as introduced in the Dáil Éireann was published: see here (pdf, 8.8MB) or, separately, Parts 1 to 15 (pdf, 6.7MB) and Parts 16 to 24 (pdf, 2MB). An explanatory memorandum is available here (pdf, 1.5MB) and a much shorter press release, highlighting some of the changes being implemented, is available here. The Bill's progress can be followed here.

The Bill consolidates the existing 16 Companies Acts, dating from 1963 to 2012, into a single Act as well as introducing reforms including the codification of directors' duties, permitting a private company limited by shares to be formed with one director and in certain contexts removing the requirement for court approval. According to the press release published by the Department of Jobs, Enterprise and Innovation, the Bill is the "largest substantive piece of legislation in the history of the State".

UK: Banking Standards Committee recommends 'electrification' of proposed ring-fence for banks

The Parliamentary Commission on Banking Standards has published its first report in which it considers the Government’s draft Financial Services (Banking Reform) Bill and related proposals designed to implement, with some exceptions, the recommendations of the Independent Commission on Banking (ICB): see here (pdf). A summary of the report's conclusions and recommendations is available here. The Commission's report does not, however, represent its final opinion on the Government's proposals because the draft Bill provides only a framework and will be supported by secondary legislation. In the words of the Committee: "Without further information about the secondary legislation, it is not possible for this Commission to assess with any certainty how faithfully the Bill will give effect to the ICB recommendations. The jury is still out on the question of whether the Bill will implement those recommendations in letter and spirit" (para. 124).

With regard to the requirement for banks to ring-fence their retail and investment banking activities, the Committee concludes that the Government's proposals do not go far enough: electrification of the ring fence is proposed, i.e., a reserve power should be included in the legislation providing for full separation of retail and investment banking activities where the regulator concludes that the objectives of the ring-fence would not be met in respect of a particular bank. The Commission also concludes that the draft Bill needs to do more to ensure the independence of ring-fenced banks from other parts of the banking group. Amongst the suggestions made is the introduction of a legal duty on directors to preserve the integrity of the ring-fence.

The report also notes that next year the Commission will consider what contribution changes in areas such as competition, corporate governance, supervision and regulation and the civil and criminal law could make to enhancing standards and culture in banking.

New Zealand: criminalising certain breaches of directors' duties (and other reforms)

The Commerce Committee published its report regarding the Companies and Limited Partnerships Amendment Bill earlier this month: see here (pdf). One of the main aims of the Bill is to amend the Companies Act 1993 with regard to the rules applying to the governance, registration, and reconstruction of companies (the explanatory note accompanying the Bill is available here). The Committee recommended that the Bill should be passed with amendments.

Clause 4 of the Bill provides that certain serious breaches of the duties owed by directors under sections 131 and 135 of the Companies Act 1993 will be criminal offences. This provision received the Committee's support with only drafting amendments proposed. The Committee recommended, however, that further consideration should be given to the drafting of clause 4 to ensure that directors are provided with clear guidance and to avoid the new provisions having a chilling effect on legitimate business risk-taking.

Europe: Commission green paper on shadow banking - summary of responses published

The European Commission has published a summary of the responses received in respect of its shadow banking green paper: see here (pdf). The Commission states that there is general support for its work in this area and a growing consensus that a strengthened regulatory framework is required. The individual responses can be viewed here.

BCBS update on Basel III implementation

A few days ago the Basel Committee on Banking Supervision published a short statement concerning Basel III implementation: see here. In its statement the Committee noted that eleven jurisdictions had published final regulations implementing Basel III with effect from 1 January 2013: Australia, Canada, China, Hong Kong SAR, India, Japan, Mexico, Saudi Arabia, Singapore, South Africa and Switzerland. The following seven jurisdictions have published draft regulations and are, according to the BCBS, working on issuing final regulations as quickly as possible: Argentina, Brazil, the European Union, Indonesia, Korea, Russia and the United States. Turkey will be issuing draft regulations in early 2013.

Thursday 20 December 2012

UK: Financial Services Act 2012 published

The Financial Services Act 2012, which received Royal Assent earlier this week, has been published on the website: see here (pdf). Background information is available here.

France: Government publishes banking reforms

The French Government's proposals for the structural reform of the banking sector were published yesterday and include the requirement for banks to ring-fence some proprietary trading activities: see here (pdf, in French). An overview, in English, is available here.

Australia: Treasury consults on governance standards for charities

The Treasury has published a consultation paper in which views are sought on proposals to introduce governance standards for charities registered with the Australian Charities and Not-for-profits Commission: see here (pdf). For the purposes of the paper, governance is defined as "the set of practices and procedures in place to ensure that an entity operates to achieve its objectives in an effective and transparent manner" and six governance standards are proposed which would apply to registered charities from 1 July 2013.

UK: Treasury consults on raising the credit union maximum interest rate cap

HM Treasury has published a consultation paper in which views are sought on raising the maximum monthly interest rate cap that credit unions can charge their members from the current two percent to three percent: see here (pdf). Further information is available here. The consultation has been welcomed by the Association of British Credit Unions: see here.

Hong Kong: the abolition of nominal/par value of shares

The Companies Registry has published a circular explaining the transitional arrangements that will apply in respect of the abolition of the nominal (or par) value of shares as part of the reforms being introduced by the new Companies Ordinance: see here (pdf).

Wednesday 19 December 2012

UK: Financial Services Bill receives Royal Assent

It was announced earlier today in the House of Commons by Deputy Speaker Dawn Primarolo that the Financial Services Bill has received Royal Assent: see here. The Bill becomes the Financial Services Act 2012, a copy of which will be published here shortly. The Act will bring about the creation of the UK's new financial regulatory framework next year. An overview of the changes, published in response to the Bill becoming law, was published today by HM Treasury: see here.

Update (20 December 2012): the Act has been published - see here (pdf).

UK: FRC report considers impact and implementation of the UK Corporate Governance and Stewardship Codes

The Financial Reporting Council has published a report titled Developments in Corporate Goverance 2012 - The impact and implementation of the UK Corporate Governance and Stewardship Codes: see here (pdf). There is much of interest in this report, away from headline findings that half of all FTSE350 companies complied fully with the UK Corporate Governance Code 2010. In particular, the report notes that "market developments create a challenging environment for stewardship" (p. 11) and concerns are raised with regard to the quality of companies' 'comply or explain' disclosures. It is noted, for example, that some companies simply stated that their governance arrangements were appropriate without further elaboration. The FRC also states that it is likely to consult in 2013 on possible changes to the UK Corporate Governance Code 2012 with regard to the procedures by which directors' remuneration is set. With regard to remuneration, the FRC notes that despite references to a 'shareholder spring' this year, suggesting a sea change in investor attitudes, there was not in fact a widespread revolt against excessive remuneration.

India: Lok Sabha passes Companies Bill

The Companies Bill was passed, with amendments, by the Lok Sabha yesterday and now proceeds to the Rajya Sabha. The purpose of the Bill is to modernise the company law framework in India. The record of debate, beginning at page 465, is available here (pdf) and continues here (pdf), here (pdf) and here (pdf).

Amongst other things, the Bill contains provisions that will: [a] limit to five years the auditor's period of tenure, [b] set a maximum that can be paid as directors' remuneration by reference to company profits, [c] require (albeit subject to a 'comply or explain' rule) companies of a certain size to spend a proportion of profits in pursuit of their corporate social responsibility policy. A copy of the Bill, as amended, has not yet been published (an earlier draft is available here).

Update (2 January 2013): a copy of the Bill, as passed by the Lok Sabha, has been published by the Ministry of Corporate Affairs: see here (pdf).

UK: financial regulation reform - creating the FCA's Handbook

The Financial Services Authority published a consultation paper yesterday titled The Financial Services Bill - Implementing markets powers, decision making procedures and penalties policies: see here (pdf). The paper contains proposed amendments to the FSA Handbook as part of the preparations for the creation of the Financial Conduct Authority's Handbook. For general information about the changes being made to the FSA Handbook, and the creation of new Handbooks for the Financial Conduct Authority and Prudential Regulation Authority, see here.

Europe: ESMA's consultation on guidelines for remuneration policies and practices

The European Securities and Markets Authority has published the responses received in respect of its consultation on draft ESMA guidelines on remuneration policies and practices (in the context of MiFID rules on conflicts of interest and conduct of business): see here.

UK: the supervision of financial market infrastructure

The Bank of England has published a document in which it sets out its approach to the supervision of financial market infrastructure (e.g., securities settlement systems and central counterparties) under the new regulatory framework being introduced next spring: see here (pdf). In addition, a draft memorandum of understanding has been published which sets out the framework the Bank, the Financial Conduct Authority and the Prudential Regulation Authority will follow in their cooperation over markets and market infrastructure: see here (pdf).

Tuesday 18 December 2012

New Zealand: financial market regulation reform - discussion paper published

The Ministry of Business, Innovation and Employment has published a discussion paper seeking views on regulations to be made under the Financial Markets Conduct Act (currently a Bill before Parliament, the principal policy objective of which is to facilitate capital market activity): see here (pdf). The paper seeks views on, amongst other things, disclosure requirements including the content of product disclosure statements.

Europe: EBA opinion on the recommendations of the High-level Expert Group on Reforming the Structure of the EU Banking Sector

The European Banking Authority has published an opinion in respect of the recommendations made by the High-level Expert Group on reforming the structure of the EU banking sector: see here (pdf). In its opinion the EBA welcomes the Group's report, makes specific comments about some of the recommendations and identifies those areas where the EBA is willing to make a contribution.

UK: client assets and EMIR - FSA policy statement and final rules

The Financial Services Authority has published a policy statement containing final rules which make changes to the client assets sourcebook (CASS): see here (pdf). The changes are necessitated by Regulation (EU) no 648/2012 on OTC derivatives, central counterparties and trade repositories (commonly referred to as the European Market Infrastructure Regulation (EMIR)).

Monday 17 December 2012

Australia: ASX Corporate Governance Council announces review of its Corporate Governance Principles and Recommendations

The Australian Securities Exchange Corporate Governance Council has announced a review of its Corporate Governance Principles and Recommendations: see here (pdf). A consultation paper and exposure draft will be published in the middle of next year and proposals are expected with regard to the manner in which governance disclosures are made, the issues raised by the Australia in the Asian Century white paper and companies' disclosure of activities that make a positive contribution to society (the employment of people with disability is given as an example).

UK: ABI publishes board effectiveness report

The Association of British Insurers has published its second report on board effectiveness: see here (pdf). Based on an analysis of FTSE350 company reports, a survey of FTSE350 company secretaries and interviews with company chairmen, the ABI finds that boards are making clear progress on diversity and the use of external evaluation but need to do more on disclosing their approach to succession planning.

Friday 14 December 2012

UK: financial regulation reform - the role and approach of the Prudential Regulation Authority

The Bank of England has published a bulletin (here, pdf) and a short video (below and here) regarding the role and supervisory approach of the new Prudential Regulation Authority. The legislation which will introduce the new framework - the Financial Services Bill - is currently awaiting Royal Assent.

UK: ABI report 'Comply or explain - investor expectations and current practices'

The Association of British Insurers has published a report titled Comply or Explain - Investor expectations and current practices: see here (pdf). In the report the ABI states that many 'comply or explain' disclosures under the UK Corporate Governance Code fail to meet investor needs. In order to help improve this situation, the ABI identifies in its report six criteria to assist companies in preparing their Code disclosures.

Hong Kong: Exchange proceeds with board diversity amendments

Earlier this year the Hong Kong Stock Exchange published a consultation paper in which it sought views on proposed amendments to the Corporate Governance Code and Corporate Governance Report with regard to board diversity: see here (pdf). The results of the consultation, and the Exchange's proposals, were published this week: see here (pdf). The Exchange is proceeding with amendments which will require, amongst other things, the board (or nomination committee) to have a policy on board diversity which should be disclosed in the corporate governance report. Further information is available in the FAQs published here. The responses to the consultation are available here.

Guernsey: Scrutiny Committee to consider financial regulation policy making

The States of Guernsey Scrutiny Committee has begun an inquiry to consider the relationship between the States and the Guernsey Financial Services Commission and the manner in which financial regulation policy is developed and implemented by the States. The full terms of reference are available here (pdf).

Thursday 13 December 2012

Europe: Council reaches agreement on single supervisory mechanism for credit institutions

In a statement published earlier today, the Council of the European Union stated that agreement had been reached with regard to the single supervisory mechanism for credit institutions within the Euro zone: see here (pdf). Under the single supervisory mechanism, the European Central Bank will have direct supervisory responsibility for the largest credit institutions in the Euro zone countries.

Europe: the Commission's action plan for company law and corporate governance

The European Commission published its company law and corporate governance action plan yesterday: see here (pdf). Nothing revolutionary in approach is proposed: national corporate governance codes, and the dominant 'comply or explain' approach, will remain. There are, instead, proposals within three broad areas which build on the current framework: increased transparency; more shareholder engagement; and exploring ways to support economic growth particularly in the cross-border context. Amongst the Commission's proposals are the following:
  • Increase disclosure of board diversity policy and of risk management arrangements.
  • Improve the visibility of shareholdings in listed companies in Europe.
  • Improve the quality of corporate governance reports (in particular the quality of explanations provided by companies departing from corporate governance code provisions).
  • Disclosure of voting and engagement policies as well as voting records by institutional investors.
  • Improving transparency on remuneration policies and individual remuneration of directors, and granting shareholders the right to vote on the remuneration policy.
  • Improve shareholder control over related party transactions.
  • Improve the transparency and the conflict of interest frameworks applicable to proxy advisors.
  • Work closely with competent national authorities and the European Securities and Markets Authority to develop guidance to increase legal certainty as regards the relationship between investor cooperation on corporate governance issues and the rules on acting in concert.
  • Increase awareness of the European Company (SE) Statute (including employees' involvement) and possibly of the European Cooperative (SCE) Statute.
  • Identify obstacles to employee share ownership in Member States.
  • Further investigate the rules on the cross-border transfer of a company's registered office.
  • Revise the rules on cross-border mergers.
  • Investigate further rules on cross-border divisions.
  • Codify the major company law Directives.
  • Improve the information available on groups and recognition of the concept of ‘group interest’.

Europe: the future of European insolvency law - Commission proposals published

Earlier this year the European Commission consulted on the future of European insolvency law. The Commission's proposals were published yesterday: see here. A new Regulation is proposed to make cross-border insolvency proceedings more efficient and to facilitate corporate rescue.

India: company law reform - Companies Bill tabled in Lok Sabha

Reform of India's company law may be moving closer, after several years in which Bills have been tabled but failed to become law. At today's meeting of the Lok Sabha, the agenda for which is available here (pdf), the Companies Bill has been tabled for consideration of amendments and passing.

Update (18 December 2012) - the Bill was passed on 18 December: see here.

Update (2 January 2013) - a copy of the Bill, as passed, is available here (pdf).

Wednesday 12 December 2012

Europe: Commission publishes company law and corporate governance action plan

The European Commission has published its company law and corporate governance action plan: see here (pdf). FAQs are available here and the accompanying press release is available here. More to follow tomorrow ...

Hong Kong: SFC strengthens sponsor regulation

The Securities and Futures Commission has published, following a recent consultation, its proposals for strengthening the regulation of IPO sponsors: see here (pdf). An overview of the reforms is available here.

UK: Finance Bill 2013 - draft published for consultation

HM Treasury yesterday published for consultation a draft of the Finance Bill 2013, which includes the clauses comprising the new general anti-abuse rule: see here (pdf). An overview of the legislation is available here (pdf).

Tuesday 11 December 2012

USA: PCAOB expresses concerns over audit quality

The Public Company Accounting Oversight Board has published its 2010 inspection report, in which it notes in particular concerns regarding the quality of firms' auditing of internal control over financial reporting: see here (pdf).

Macedonia: Corporate Governance Code for Companies Listed on the Macedonian Stock Exchange

The codes and principles directory maintained by the European Corporate Governance Institute has recently been updated to include a copy of the Corporate Governance Code for Companies Listed on the Macedonian Stock Exchange: see here.

Monday 10 December 2012

UK: Resolution strategies for large and complex firms

The Bank of England, in conjunction with with the Federal Deposit Insurance Corporation in the United States, has released a joint paper outlining possible resolution strategies to be adopted by a single authority in a cross-border context with respect to the parent company of a financial group: see here (pdf).

Italy: Corporate Governance Committee publishes annual report

The Corporate Governance Committee formed in 2011 by Borsa Italiana has published its first annual report: see here (pdf). The report contains an overview of the amendments introduced in the 2011 Corporate Governance Code as well as recent governance related legislative changes in Italy.

Isle of Man: Bribery Bill receives first reading

The Bribery Bill 2012 received its first reading last week in the House of Keys. Hansard, the record of debate, is available here (pdf). A copy of the Bill as introduced is available here (pdf) and explanatory notes are available here (pdf). The bill contains a new offence, similar to that found in sections 7 to 9 of the UK's Bribery Act 2010: the failure by a commercial organisation to prevent bribery.

The IFSB's Guiding Principles on Corporate Governance for Institutions offering only Islamic Financial Services

The codes and principles directory maintained by the European Corporate Governance Institute has recently been updated to include a copy of the Guiding Principles on Corporate Governance for Institutions Offering Only Islamic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds) published by the Islamic Financial Services Board: see here.

Friday 7 December 2012

Europe: Commission action plan on company law and corporate governance

The European Commission will publish its company law and corporate governance action plan next Wednesday: see here.

UK: NAPF's Corporate Governance Policy and Voting Guidelines

The National Association of Pension Funds has updated its Corporate Governance Policy and Voting Guidelines: see here (pdf). It has also updated its guidelines in respect of smaller companies (here, pdf) and investment companies (here, pdf).

Bosnia and Herzegovina: the Sarajevo Stock Exchange Corporate Governance Code

The codes and principles directory maintained by the European Corporate Governance Institute has recently been updated to include a copy of the Sarajevo Stock Exchange Corporate Governance Code: see here.

USA: PCAOB issues professional scepticism alert

The Public Company Accounting Oversight Board has published a practice alert to remind auditors of the importance of professional scepticism: see here (pdf). In the alert the PCAOB notes that its oversight activities continue to raise concerns regarding auditors' consistent and diligent application of professional scepticism.

Germany: new rules for high frequency trading

BaFin, the Federal Financial Supervisory Authority, has published (in English) information regarding the draft High Frequency Trading Act: see here. The Act will, amongst other things, require high frequency traders to be authorised by BaFin if they are not currently within BaFin's supervisory remit. The Act also contains rules regarding algorithmic trading.

Thursday 6 December 2012

UK: Government proceeds with introduction of new 'employee shareholder' employment status

Clause 23 in the Growth and Infrastructure Bill currently before Parliament contains provisions to introduce a new type of employment status originally known as 'employee owner' but now known as 'employee shareholder'. The practical operation of this new status - which involves the surrender of certain employment rights in return for shares with preferential tax treatment - was the subject of a consultation exercise earlier this year, the Government's response to which was published this week: see here (pdf). The consultation revealed little enthusiasm for the proposal; the Government intends to proceed nevertheless and its response provides further information about the operation of the new status.

UK: FSA consults on the regulation and supervision of benchmarks

The Financial Services Authority yesterday published for consultation its proposals for the regulation and supervision of benchmarks (initially LIBOR), which will fall under the remit of the new Financial Conduct Authority from April 2013: see here (pdf).

UK: FInancial Services Bill completes third reading in the House of Lords

The Financial Services Bill completed the third reading stage in the House of Lords yesterday. An overview of the debate is available here. Consideration of amendments (including Ping Pong) is timetabled for next Monday and once Royal Assent is given the Bill will become an Act. The Act will introduce a new financial regulatory framework in the UK with the creation of the Prudential Regulation Authority and Financial Conduct Authority (these new authorities, which will replace the Financial Services Authority, are expected to come into existence on 1 April 2013).

Wednesday 5 December 2012

Europe: Council fails to reach agreement over single supervisory mechanism for eurozone banks

At yesterday's meeting of the Council of the European Union agreement was not reached in respect of the proposed single supervisory mechanism for banks in the eurozone. A further meeting has been scheduled for later this month. Further information is available here (pdf).