Friday 30 March 2012

UK: APB publishes issues paper on professional scepticism and the audit

The Auditing Practices Board, part of the Financial Reporting Council, has published an issues paper titled Professional Scepticism: Establishing a Common Understanding and Reaffirming its Central Role in Delivering Audit Quality: see here (pdf). According to the accompanying press release, the paper is designed to "provoke new thinking and broaden the understanding of the need for and meaning of scepticism in the context of auditing". This said, it is clear that the APB expects something more concrete because the paper provides the APB's conclusions on various matters and, for example, its expectations of auditors, audit firms and audit committees (the latter should, the APB states, foster appropriate professional scepticism in the external audit).

Malaysia: Securities Commission publishes new corporate governance code

The Securities Commission has published an updated edition of its corporate governance code: see here (pdf). FAQs concerning the revised code are available here.

UK: review of HM Treasury's management response to the financial crisis

HM Treasury has published the results of a review of its management response to the financial crisis: see here (pdf). The review notes that at the start of the financial crisis the Treasury's capability was weak because of the widespread view that systemic risks had been substantially reduced. This has, the report notes, changed but there are areas where improvements can be made. In this regard, various recommendations are made, including giving greater priority to knowledge management and developing a medium term strategy for its roles and responsibilities in relation to financial services.

UK: the future of narrative reporting - Government response published

The Department for Business, Innovation and Skills has published its response in respect of the recent consultation on the future of narrative reporting: see here (pdf). This notes that the Government is "minded" to develop proposals to change the structure of narrative reporting to permit companies to produce a high level Strategic Report and an annual Directors' Statement. Further work, in conjunction with the Financial Reporting Council, will now take place.

Thursday 29 March 2012

Singapore: revised Takeover Code published

Last year the Securities Industry Council published a consultation paper in which amendments to the Takeover Code were proposed: see here (pdf). The conclusions of this consultation have now been published - see here (pdf) - together with a summary of the amendments that are being made: see here. A copy of the amended Code is available here (pdf). Amongst the amendments being made is one which seeks to clarify the sanctions available to the SIC in respect of breaches of the Code and which makes explicit that the SIC may, where there has been what it describes as a 'flagrant' breach of the code, deprive the offender (to use the SIC's words again) from enjoying the facilities of the securities market either temporarily or permanently.

UK: company reporting of greenhouse emissions and the directors' report

Section 85 of the Climate Change Act 2008 requires, no later than 6 April 2012, either [a] the making of Regulations under section 416(4) of the Companies Act 2006 requiring the directors’ report of a company to contain information about emissions of greenhouse gases from activities for which the company is responsible OR [b] the laying before Parliament of a report explaining why such Regulations have not been made. This week the Department for Environment, Food and Rural Affairs published a report explaining why such Regulations have not been made: see here (pdf). The report explains that the Government has not yet reached a decision about whether to make Regulations.

Wednesday 28 March 2012

UK: England and Wales: holding company could be 'trader'

The Court of Appeal gave judgment in Surrey Trading Standards, R (on the application of) v Scottish and Southern Energy Plc [2012] EWCA Crim 539 earlier this month. This is an interesting case in which the court held that a holding company could be regarded as a trader, and therefore liable, in respect of the actions committed by employees in a subsidiary company contrary to regulation 9 of the Consumer Protection from Unfair Trading Regulations 2008. Lord Justice Davis, delivering the court's unanimous opinion, observed (paras. [33] to [35]):

... it is too narrow an approach to the 2008 Regulations to say that because the sales force were directly employed and directly trained by LTD [the subsidiary company] (which had the licence) therefore there could not be any designation of PLC [the holding company] as "trader" under the 2008 Regulations.

It is important to bear in mind that "trader", for the purpose of the 2008 Regulations, extends to any person who in relation to a commercial practice is acting for purposes relating to his business. The words "any", "in relation to", "acting" and "relating to" are all words of width and elasticity. As to the definition of "commercial practice" that is likewise broadly framed. It is amply sufficient to cover involvement in or supervision or control of training, in appropriate circumstances, as being directly connected with the promotion or sale or supply of a product; and it is also to be noted that the definition of "commercial practice" carefully avoids saying that the promotion or sale or supply has to be made by the trader itself.

Given the circumstances of this case, and given the breadth of the definitions of "trader" and "commercial practice", we therefore conclude that the Judge's ruling was a justified one. The evidence was there, in the circumstances of this case, to show that PLC was capable of being a "trader" for the purpose of the 2008 Regulations. Such a conclusion does not ... do a disservice to the language of the 2008 Regulations or drive a coach and horses through conventional corporate structures or wrongly rend corporate veils. On the contrary, it gives effect to the broad wording of, and purposive approach required to be applied to, the 2008 Regulations".

A summary of the decision has been provided by the ICLR as part of its free WLR Daily service: see here.

Pakistan: governance rules for public sector companies

The Securities and Exchange Commission has published for comment a draft of the Public Sector Companies (Corporate Governance) Regulations 2012, which set out governance rules for all public sector companies: see here (pdf).

Tuesday 27 March 2012

UK: the reform of the Financial Reporting Council

In a joint statement published today, the Department for Business, Innovation and Skills and Financial Reporting Council (FRC) published proposals for the reform of the FRC: see here (pdf). These include changes to the FRC's organisational structure as well as providing the FRC with the power to sanction audit firms for audit shortcomings. It is intended that those reforms requiring implementation through secondary legislation will take effect in early July this year. The FRC has published a statement in which it announces various appointments in respect of its new structure: see here.

UK: Scotland: administration - termination of contracts

Lord Hodge, sitting in the Court of Session (Outer House), gave his opinion last Friday in Clark and Whitehouse (administrators of Rangers Football Club plc) 2012 CSOH 55. The case concerned an application for directions by administrators with regard to the test which they, or the court, should apply in determining whether they could be prevented from causing Rangers to terminate agreements under which Rangers had sold season tickets for the seasons from 2011-2012 to 2014-2015. Lord Hodge observed (at para. [51] to [53]):

While it is not uncommon for an administrator to sell a company's business or assets promptly, there are many administrations which, for various reasons, continue for several years before moving to a creditors' voluntary winding up or directly to dissolution.

It is against this background of statutory provision and practice that the administrator has to decide whether to repudiate a contract. Administration is, as I have said, a flexible process. It can accommodate a circumstance in which a company, which was thought to be or likely to be insolvent, turns out not to be so and can emerge from the administration without having reached a compromise with its creditors. In such a circumstance it is hard to envisage how an administrator could properly repudiate a contract in exercise of his function of attempting to achieve the objective of rescuing the company as a going concern. But where, as in the normal run of administrations, the company is insolvent and will not emerge from administration without a CVA or a scheme of arrangement with its creditors, the administrator has to consider whether he should decline further performance of a contract which would prejudice the achievement of an otherwise achievable statutory objective. In reaching a view on that matter he is under a statutory duty to act in the interests of the company's creditors as a whole: para 3(2) of Schedule B1. Thus he must consider the extent and effect on the company's other creditors of the claim in damages which would arise if a party contracting with the company accepted his repudiation. He must also consider, when addressing the interests of the creditors as a whole, the interests of the contracting party who, if the contract is repudiated, may be a creditor in a claim for damages.

An administrator would not be acting in breach of his duty to the company if he refused to perform a contract having acted reasonably to satisfy himself that the continued performance of the contract (i) would impede his achievement of the objectives of the administration and (ii) was not in the interests of the company's creditors as a body. If he could establish reasonable grounds for being so satisfied, I consider also that he would be likely to have the legal justification which would exclude a personal liability to the counterparty of a company's contract for inducing the company to break that contract."

UK: The Capital Requirements (Amendment) Regulations 2012

The Capital Requirements (Amendment) Regulations 2012 were laid before Parliament on 23 March and come into force on 16 April. Their purpose is to amend the Capital Requirements Regulations 2006 in order to implement, in part, Directives 2010/76/EU and 2010/78/EU. An explanatory memorandum is available here (pdf).

Monday 26 March 2012

UK: financial regulation - the FPC's power of direction

The (interim) Financial Policy Committee has published a statement following its policy meeting on March 16: see here (pdf). Under the new regulatory framework, the FPC will have the power of direction over the Financial Conduct Authority and Prudential Regulation Authority. In this regard, the FPC identified in its statement the following macro prudential tools over which its power of direction should extend: the countercyclical capital buffer; sectoral capital requirements and the leverage ratio. The FPC also noted that powers of direction over loan to value and loan to income restrictions could be beneficial for financial stability but did not recommend that these should be available without further reflection and analysis.


Friday 23 March 2012

UK: small business reporting - update from the FRC and Government

Last year the Financial Reporting Council and Department for Business, Innovation and Skills published a consultation paper titled Simpler Reporting for Smaller Businesses setting out proposals to simplify the reporting obligations imposed on small businesses: see here. An update on this work was published today by the FRC - see here - in which it was stated that the Government intends to take advantage of the option now available to European Member States (provided by recently adopted Directive 2012/6/EU: here, pdf) to relax the reporting requirements of so-called micro entities. A further consultation paper will therefore be published in due course.

UK: financial regulation reform - Financial Services Bill 2010-12 update

The Financial Services Bill 2010-12 has completed the Committee Stage in the House of Commons and now proceeds to Report Stage where MPs may, from the floor of the House, propose further amendments. A copy of the Bill, as amended in Committee, is available here or here (pdf)

UK: Plurality, Stewardship and Engagement - Ownership Commission report published

The Ownership Commission has published a report titled Plurality, Stewardship and Engagement - see here (pdf) - in which it makes many recommendations including the widening of directors' duties to include a duty of stewardship, greater disclosure by institutional shareholders in respect of stock lending, and making its easier for shareholders to table resolutions at annual general meetings.

Europe: proxy advisors - ESMA discussion paper

The European Securities and Markets Authority has published a discussion paper in which it seeks views on the operation of the proxy advisory industry and asks if EU level intervention is necessary: see here (pdf).

Europe: ESMA reports on supervision of credit rating agencies

A notable feature of the European System of Financial Supervisors is that one of the European Supervisory Authorities - the European Securities and Markets Authority (ESMA) - has exclusive supervisory responsibility for credit rating agencies (CRAs) in Europe. ESMA has recently published a report in which it provides an overview of its supervisory activities in this regard and the results of its first examination of three groups of CRAs: see here (pdf). Various recommendations are made with regard to control and processes within the CRAs and also with regard to the level of information disclosed by CRAs in respect of the criteria on which ratings are based.

Thursday 22 March 2012

UK: FSA business plan for 2012/13 published

The Financial Services Authority has published its business plan for 2012/13, the last that it will publish before the new regulatory framework is introduced in (it is anticipated) the first half of 2013: see here (pdf). The plan provides a useful overview of how the twin peaks approach to supervision will operate within the FSA prior to the creation of the new regulatory authorities. This overview (on page 14) makes clear that both supervisory groups will be concerned with firms' board and governance processes.

UK: the future role of the Financial Reporting Council - consultation responses published

A consultation on the future role of the Financial Reporting Council closed earlier this year (see here, pdf). The consultation responses have recently been published: see here.

Wednesday 21 March 2012

UK: Budget 2012 - a couple of items

The Government presented its Budget today and, amongst other things, announced its acceptance of the recommendation made in the Aaronson Report that a General Anti-Abuse Rule should be introduced. Further consultation in this regard will take place with the intention of implementing the Rule next year in the Finance Act 2013. The Government also announced the introduction, from April 2013, of a new cash basis for the calculation of tax by small unincorporated businesses, which will include the option to claim a fixed amount for expenses (rather than the actual amounts). Further details are to follow. The full Budget report is available here (pdf) and further supporting documentation is available here.

Tuesday 20 March 2012

Hong Kong: Bill to abolish capital duty published in Gazette

The Ordinance (Amendment of Eighth Schedule) Order 2012 has been published in the Gazette: see here. Its purpose is to abolish the capital duty paid by Hong Kong companies on their incorporation (and calculated with reference to their authorised share capital). The Order will be considered by the Legislative Council tomorrow and is likely to come into force on 1 June 2012.

Monday 19 March 2012

Europe: Commission publishes shadow banking green paper

The European Commission today published a green paper on shadow banking: see here (pdf). Views are sought on a variety of issues including, for example, the definition of shadow banking, the risks and benefits associated with shadow banking and the need for stricter monitoring and regulation.

UK: reform of the competition regime and the creation of the Competition and Markets Authority

The Government has confirmed its plans for the reform of the competition regime, including the creation of the Competition and Markets Authority: see here (pdf).

UK: the enlightened shareholder -clarifying investors' fiduciary duties

FairPensions - a charity established to promote responsible investment practices by pension providers and fund managers - last year published a report titled Protecting our best interests: rediscovering fiduciary obligation (here, pdf), in which it called for a fundamental review of the fiduciary obligations of investors and recommended the introduction of a provision parallel to section 172 of the Companies Act 2006 for institutional investors. Last week a follow up report was published, in which this recommendation was further explored and refined: see here (pdf).

Friday 16 March 2012

UK: England and Wales: managing director lacked authority to remove the company chairman

The Court of Appeal gave judgment yesterday in Smith v Butler [2012] EWCA Civ 314. The case concerned a company with two shareholders: Mr Butler and Mr Smith, owning, respectively, 31.2% and 68.8% of the shares. Mr Butler was the managing director and Mr Smith was chairman. Relying on his authority as managing director, Mr Butler suspended Mr Smith as chairman. Mr Smith then applied to the court for a declaration that Mr Butler had acted outside his powers as managing director and for an order under section 306 of the Companies Act 2006 convening a shareholders meeting in order to remove Mr Butler under section 178 of the 2006 Act.

At first instance ([2011] EWHC 2301 (Ch)), the trial judge granted Mr Smith's applications, holding, amongst other things, that Mr Butler's implied powers as managing director did not extend to the suspension of the company's chairman, Mr Smith. The Court of Appeal agreed, Arden LJ observing (paras. [30] to [31]):

The holder of the office of managing director might today more usually be called a chief executive officer in (at least) a public company. He or she has generally to work on the basis that his appointment does not supplant that of the role of the board and that he will have to refer back to the board for authority on matters on which the board has not clearly laid out the company's strategy. He or she would thus be expected to work within the strategy the board had actually set.

In this case, however, it was clear that the strategy of the board was that Mr Smith should be executive chairman. Therefore, his suspension was clearly a matter for the board, and not for Mr Butler acting alone. To my mind it is inconceivable that Mr Butler did not need the instructions of the board on the question of the suspension of the chairman of the board. The fact that Mr Smith has special rights as a director and shareholder under the quorum provisions in the Company's articles reinforces this conclusion, but my conclusion does not rest on those provisions".

Thursday 15 March 2012

UK: shadow banking and financial stability - speech by Lord Turner

Lord Turner, the chairman of the Financial Services Authority, delivered a speech yesterday titled Shadow Banking and Financial Instability: see here (text, pdf) and here (slides, pdf). Lord Turner provided a review of what amounts to shadow banking and possible policy responses. He stated that shadow banking must be understood as something deeply intertwined with the core banking system and not separate or parallel from it. He argued that regulatory responses should be biased towards prudence and against, amongst other things, complex interconnectivity and procyclical market contracts.

Wednesday 14 March 2012

UK: consultation on shareholder rights and remuneration

Earlier this year proposals for enhanced shareholder voting rights in respect of directors' remuneration, including a binding vote on remuneration policy, were outlined by the Department for Business, Innovation and Skills. The consultation on these proposals began yesterday with the publication of a consultation paper: see here (pdf).

UK: insurance regulation and Solvency II concerns

In a speech delivered earlier this week, Paul Tucker, an executive director of the Bank of England, spoke about the regulation of the insurance industry and noted concerns with Solvency II (the new European capital adequacy regime for insurers): see here (pdf). In particular, he noted that Solvency II, like Basel II for banks, risked being too complicated in its introduction of a risk sensitive regime. See here and here for further information about the implementation of Solvency II in the UK.

UK: the new financial regulatory framework - the role of the Financial Policy Committee

Paul Fisher, an executive director of the Bank of England, delivered a speech earlier this week in which he reflected on the role and responsibilities of the Financial Policy Committee (FPC) under the Government's new financial regulatory framework: see here (pdf). Amongst other things, Mr Fisher explained why he believed that conflict between the policies of the Monetary Policy Committee (MPC) and those of the FPC was unlikely; this did not, he added, mean that there would not be difficult choices and trade offs for each of the committees. Mr Fisher also noted that some people affected by the actions of the FPC were still not fully aware of its existence.

Tuesday 13 March 2012

UK: women on boards - Cranfield's Female FTSE100 Report 2012

Cranfield School of Management has published its Female FTSE100 Board Report 2012: see here (pdf). This reports that there has been a "step change" in the number of women appointed to FTSE100 boards following the publication of the Davies report in 2011. The proportion of female directors on FTSE100 company boards at the end of February 2012 was 15%. The report's authors predict that if the changes seen in the past year continue, just under 27% of directors will be female by 2015, exceeding the target set by Lord Davies.

Update (15 March 2012): Lord Davies has published a progress report (here, pdf).

Monday 12 March 2012

UK: The Financial Institutions (Reform) Bill 2010-12

The Financial Institutions (Reform) Bill 2010-12 was introduced in Parliament late in February, as a Private Member's Bill under the Ten Minute Rule. The Bill has several aims, including the introduction of a strict liability regime for directors of financial institutions and requiring such directors to provide personal bonds as additional bank capital. There is little chance that the Bill will become law. This said, the Government will be consulting later this year on the liability regime for bank directors, an issue that was highlighted by the Financial Services Authority in its report on the failure of Royal Bank of Scotland and one which has attracted recent attention from policymakers and academics (see, e.g., here and here).

Friday 9 March 2012

UK: FSA quarterly consultation

The Financial Services Authority has published its quarterly consultation paper: see here (pdf). Minor changes to the liquidity regime and changes to the Listing Rules are amongst the proposals on which views are sought.

Netherlands: company law update

A very useful update, in English, of forthcoming company law changes has been published by the law firm NautaDutilh: see here. The update reports that 1 July 2012 is the expected date for the coming into force of legislation providing for single tier boards and the simplification of the rules applicable to private limited companies.

Thursday 8 March 2012

UK: women on company boards

The House of Commons Library has published a research note titled Women in public life, the professions and the boardroom, which reports that in February 2012, 12.5% of FTSE100 company directors were women: see here (pdf). In the FTSE250, 9.6% of directors were women. According to research recently published by the OECD, women held 10% of board posts in listed companies in OECD countries in 2009: see here. An update is expected next week from the Cranfield School of Management regarding the recommendations made by Lord Davies in 2011, one of which was that FTSE100 boards should aim to have a minimum of 25% female directors by 2015.

UK: third country auditors - monitoring proposals published by Professional Oversight Board

The Professional Oversight Board, part of the Financial Reporting Council, has published for consultation its proposals for the monitoring of third country auditors: see here (pdf). Such monitoring is required by the Statutory Audit Directive (2006/43/EC), about which see here.

Wednesday 7 March 2012

Europe: Commission publishes securities settlement proposals

The European Commission has published legislative proposals for the reform of the securities settlement process. The harmonisation of the timing and conduct of securities settlement in Europe is proposed, including a maximum settlement period of two days after the trading day. The dematerialisation of most securities by 1 January 2010 is also proposed. For further information see: Commission press release | FAQs | Proposed Regulation (pdf) | Impact assessment: summary (pdf) and full text (pdf) |

UK: BIS Committee publishes debt management report

The House of Commons Business, Innovation and Skills Committee today published its debt management report: see here or here (pdf). The report calls for improvements in the regulation of the debt and credit industry. It also expresses concern with the Government's failure to reach a decision on whether consumer credit regulation should be transferred from the Office of Fair Trading to the new Financial Conduct Authority. The Financial Services Bill, introduced in Parliament earlier this year, contains provisions enabling the transfer of regulation to the FCA but the Government stated, in the White Paper accompanying the Bill (here, pdf), that the transfer would take place "if and when it [the Government] has identified a model of FCA regulation that is proportionate for the different segments of the consumer credit market" (para. 4.22).

Tuesday 6 March 2012

UK: audit exemptions and the accounting framework - summary of responses to BIS consultation published

The Department for Business, Innovation and Skills has published a summary of the responses received in respect of its recent consultation on audit exemptions and changes in company accounting frameworks: see here (pdf). The Government's own response will be published in the next few months.

Monday 5 March 2012

Europe: gender balance on company boards - Commission report and consultation paper

The Commissioner for Justice, Viviane Reding, today presented a progress report on the representation of women on listed company boards: see here (pdf). The report notes that in January 2012, women represented 13.7% of directors of the largest listed companies in the EU. Accompanying the report is a consultation paper in which the Commission seeks views on possible EU wide measures to address the gender imbalance: see here (doc).

UK: FRC consults on draft plan and budget 2012/13

The Financial Reporting Council is consulting on its draft plan and budget for 2012/13: see here (pdf). The Plan notes that the FRC Board and Government are close to reaching conclusions on the reform of the FRC, following a consultation which closed in January (responses for which are available here). These proposals are not considered in the Plan, which instead focuses on the FRC's activities for the year ahead. These include consultations on revised versions of the Corporate Governance Code and Stewardship Code as well as consultations concerning [a] the depth of commitment to stewardship by owners and institutional shareholders, [b] the value of company reports, and [c] the quality and reporting of the board’s assessment of risk (including the role of the auditor in this regard).

Friday 2 March 2012

UK: the strategic objective of the Financial Conduct Authority

The Financial Services Bill continues to be debated at Committee Stage in the House of Commons. One of the amendments considered yesterday by the Committee concerned the strategic objective of the new Financial Conduct Authority. The Bill as introduced to Parliament provides, in clause 5, that the FCA's strategic objective is to ensure that relevant markets "function well". It was suggested that this should be made clearer by the inclusion of the words "fairly, efficiently and transparently".  This was not accepted and the amendment was withdrawn. It is likely, nevertheless, that this issue will be further discussed at the Bill's Report Stage.

Thursday 1 March 2012

Germany: amendments to the 2010 corporate governance code

In early February, as noted here, the German Corporate Governance Commission published proposals to amend the 2010 edition of its corporate governance code. Details of the proposed revisions, together with a marked-up copy of the revised code, have now been published in English: see, respectively, here (pdf) and here (pdf).

Australia: remuneration disclosure - ASIC survey and Government proposals

The Australian Securities and Investments Commission has published the results of its recent survey of remuneration disclosure by 50 ASX300 companies: see here. ASIC has called for improvements in disclosure, especially with regard to the reasons why particular remuneration arrangements have been adopted. The publication of ASIC's research follows the publication earlier this month by the Australian Government of legislative proposals to increase listed companies' disclosure of remuneration matters including the clawing back of bonuses and golden handshakes. The Government's announcement, available here, also outlines its response to the recommendations made by the Corporations and Markets Advisory Committee last year in a report on executive remuneration (available here, pdf).