Thursday 31 May 2012

UK: Statutory audit services market investigation

The Competition Commission is currently undertaking a review of the market for statutory audit services. Over the next few months, according to the Commission's administrative timetable (available here, pdf), working papers are scheduled for publication. Some research has already been published, including an initial review of academic literature (see here, pdf) and a paper outlining the legal and regulatory framework governing the statutory audit (see here, pdf).

UK: Financial Services Bill - First and Second readings

The Financial Services Bill 2012 received its First reading in the House of Lords on 23 May (see here) and is scheduled for Second reading on 11 June. Second reading will provide the first opportunity for the House of Lords to debate the main principles and purpose of the Bill. A copy of the Bill, as introduced at First reading in the Lords, is available here (html) and here (pdf).

Wednesday 30 May 2012

UK: England and Wales: fiduciary duties in the group context

Judgment was given last week in Bank of Ireland v Jaffery [2012] EWHC 1377 (Ch). One of the issues considered by the judge was the existence of fiduciary obligations owed by a senior employee to a subsidiary company where the parent company was the employer. With reference to Shepherds Investments Limited v Walters [2006] EWHC 836 (Ch) the trial judge observed: "It seems to me to be obvious that if the employee of a parent is required by that parent to work for one of its subsidiaries as a banker handling loans and dealing with its financial affairs, the employee must owe fiduciary duties as much to the subsidiary in connection with the financial affairs that the employee is required to handle, as he would to the parent employer in connection with its own financial affairs" (para. [299]).

UK: England and Wales: the football creditor rule and insolvency law

The High Court gave judgment last Friday in HMRC v The Football League Ltd & Anor [2012] EWHC 1372 (Ch). At issue was the operation of the so-called football creditor rule which, HMRC argued, was void because it conflicted with insolvency law, more specifically the pari passu principle and anti-deprivation rule. Whilst the trial judge found that in most circumstances the football creditor rule would not be rendered void by the anti-deprivation rule and/or pari passu principle, he concluded his judgment by stating that the Football League "should not regard the result of this case as an endorsement of its approach to football creditors. It is ... a decision on a challenge brought on a particular legal basis" (para. [189]).

Update (30 May 2012): the ICLR has provided a summary of the decision here.

UK: England and Wales: limited partners' access to partnership books

Last year, in Inversiones Frieira SL & Anor v Colyzeo Investors II LP [2011] EWHC 1762 (Ch), Norris J. set out some of the principles governing a limited partner's right of access to the partnership's books. This judgment was not, however, the end of the matter and a further judgment was delivered earlier this week - Inversiones Frieira SL & Anor v Colyzeo Investors II LP [2012] EWHC 1450 (Ch) - in which Norris J. considered whether access should be granted to specific documents because the parties had failed to reach agreement. In the course of doing so, he stated that the right to inspect partnership books did not require the creation of "partnership books" or papers not already in existence. He also reiterated the point that the books to be produced will vary from case to case, depending on the nature of the partnership business, its governing documents and current business practice.

Tuesday 29 May 2012

UK: banks and the implicit subsidy - a new method of quanitification

The Bank of England has published research paper number fifteen in its financial stability series. This new paper, titled The implicit subsidy of banks and available here (pdf), explores previous estimates of the implicit subsidy and presents a new method of calculation.

Monday 28 May 2012

UK: Gender Diversity on Boards - the Appointment Process and the Role of Executive Search Firms

Last year the Equality and Human Rights Commission (EHRC) commissioned the International Centre for Women Leaders at Cranfield University to examine the operation of the corporate board appointment process and the role of executive search firms. As part of this work, the EHRC has today published a research report titled Gender Diversity on Boards: The Appointment Process and the Role of Executive Search Firms: see here (pdf). An overview of the report's findings is available here. The report's authors conclude that the appointment of women to FTSE350 non-executive directorships is being held back by selection processes which ultimately favour candidates with similar characteristics to existing male dominated boards.

Friday 25 May 2012

Ireland: a code for community, voluntary and charitable organisations

A Code of Practice for Good Governance of Community, Voluntary and Charitable Organisations in Ireland was published earlier this year: see here (pdf). Further background and supporting information is available here.

Thursday 24 May 2012

UK: Enterprise and Regulatory Reform Bill 2012

The Enterprise and Regulatory Reform Bill 2012 was introduced in the House of Commons yesterday and received its First Reading: see here. A copy of the Bill is available here (html) and here (pdf). Explanatory notes are available here (html) and here (pdf). With regard to directors' remuneration, the Bill is, at present, rather limited. This is because, as the Department for Business, Innovation and Skills announced yesterday (see here), the Government "aims to bring forward further detail ... later in the legislative process".

Wednesday 23 May 2012

UK: Financial Services Bill 2012 - Report and Third Reading stages passed in Commons

The Financial Services Bill 2012 passed the Report and Third Reading stages in the House of Commons yesterday. The record of debate, Hansard, is available here. The Bill now proceeds to the House of Lords. As part of the debate at Third Reading, the Chairman of the Commons Treasury Select Committee, Andrew Tyrie MP, observed that the Bill was a "big step forward" but more needed to be done to improve it, in particular with regard to the accountability of the new supervisory authorities and the objectives given to the new Financial Conduct Authority: see here.

Tuesday 22 May 2012

UK: Bank of England - independent performance reviews commissioned

The Court of the Bank of England has commissioned three reviews to assess the Bank's performance and current capabilities, focussing on the provision of Emergency Liquidity Assistance in 2008/9, the Bank’s framework for providing liquidity to the banking system as a whole and the Monetary Policy Committee’s forecasting capability. Andrew Tyrie MP, the chairman of the House of Commons Treasury Committee, makes the obvious point (see here): wouldn't it have been better for this work to have been done prior to the Government's embarking on the current reforms to the financial regulatory framework, under which the Bank of England will have a much greater role?

UK: Financial Reporting Council plan and budget 2012/13

The Financial Reporting Council has published its plan and budget for 2012/13: see here (pdf). The plan provides a strong defence of the UK's corporate governance framework but nevertheless identifies the following areas for improvement: the depth of commitment to stewardship by institutional shareholders; the value and accessibility of company reports; and the quality and reporting of boards’ assessment of risk, including the role of the auditor in this.

Monday 21 May 2012

UK: Scotland: directors' disqualification

Lord Hodge delivered his opinion in Secretary of State for Business, Innovation and Skills v Kahn [2012] CSOH 85 last Friday: see here. Amongst other things, he rejected the argument that the specific role and involvement of a particular director was irrelevant when considering the appropriate length of a disqualification order. This argument, which had been made on behalf of the Secretary of State, Lord Hodge described as "surprising and misconceived".

Friday 18 May 2012

Singapore: risk governance guidance published

The Monetary Authority of Singapore has published risk governance guidance for listed company boards: see here (pdf).

Hong Kong: the regulation of sponsors

The Hong Kong Securities and Futures Commission has published a consultation paper concerning the regulation of sponsors: see here (pdf). Concerns with the quality of sponsors' work are noted in the paper, particularly with regard to the completion of due diligence before making a listing application.

Thursday 17 May 2012

Germany: Commission publishes revised code

Following a consultation earlier this year, the Corporate Governance Commission yesterday published a revised edition of its corporate governance code: see here (pdf). A copy of the code in English will follow.

Wednesday 16 May 2012

Armenia: the Ministry of Trade's corporate governance code

The codes and principles directory maintained by the European Corporate Governance Institute has been updated to include a copy, in English, of the corporate governance code published by the Ministry of Trade and Economic Development: see here (pdf).

Europe: binding remuneration votes for shareholders?

In the autumn this year the European Union's Internal Market Commissioner, Michel Barnier, will publish proposals as part of the Commission's review of the EU corporate governance framework. An indication of what these might look is provided in comments made by Mr Barnier in an interview published in today's Financial Times newspaper: see here. Mr Barnier argues that listed company shareholders should be given a binding vote on remuneration.

Tuesday 15 May 2012

Azerbaijan: Corporate Governance Standards

The codes and principles directory maintained by the European Corporate Governance Institute has been updated this week and now includes a copy of the Azerbaijan Corporate Governance Standards published by the Azerbaijani Economic Development Ministry: see here (pdf).

Germany: the corporate governance code - comply or else?

The German Corporate Governance Commission has published the results of a survey of supervisory board and management board chairs of companies listed on the Frankfurt Stock Exchange with regard to the Commission's Corporate Governance Code. An overview of the survey, conducted by the Berlin Center of Corporate Governance, is available here (pdf). The survey found, amongst other things, that around 40% of respondents thought that there was no choice but to comply with all the Code's rules because of pressure from proxy advisors, the media and shareholders.

Monday 14 May 2012

ECGI Annual Lecture: Market Transparency and Corporate Disclosure

The European Corporate Governance Institute Annual Lecture took place at the end of April. This year's lecture, delivered by Professor Marco Pagano, was titled Market Transparency and Corporate Disclosure and can be watched here.

Bangladesh: new Companies Act moves closer

The Financial Express reports that the Government is close to finishing the drafting of a new Companies Act: see here.

Friday 11 May 2012

UK: the Company Remuneration Bill

The Company Remuneration Bill received its first reading in the House of Lords yesterday: see here. The Bill was introduced by Lord Gavron as a private members' bill. A copy of the Bill has not yet been published but it seems likely that it will cover the same ground as the Bill Lord Gavron introduced in the last session of Parliament and which did not become law. The current Bill stands little chance of becoming law, not least because provisions relating to directors' remuneration will be included in the Government's Enterprise and Regulatory Reform Bill.

Thursday 10 May 2012

Europe: share capital, freedom of establishment and freedom to provide services

The Court of Justice of the European Union delivered its judgment today in Duomo Gpa Srl and Others v Comune di Baranzate and Others (Cases C-357/10 to C-359/10). A copy of the judgment is available here and a summary is available here (pdf). The court held that Italian legislation requiring certain companies awarded contracts to collect local taxes to have a minimum share capital of ten million euros was an unjustified restriction on the freedom of establishment and the freedom to provide services (within Articles 43 and 49 of the EC Treaty, see here (pdf)).

Wednesday 9 May 2012

UK: the Queen's Speech - the Banking Reform Bill and the Enterprise and Regulatory Reform Bill

The Queen's Speech, marking the start of a new Parliamentary session and setting out the Government's forthcoming legislative programme, was delivered today: see here. Included in the list of proposed Bills is the Enterprise and Regulatory Reform Bill, which will contain, amongst other things, the Government's proposals on directors' remuneration including a binding vote for shareholders in respect of remuneration policy. Also included is a Banking Reform Bill through which the Government will implement the Vickers recommendations. Further information about the purpose and content of these Bills is available in the briefing notes published to accompany the Queen's Speech: see here (pdf).

Tuesday 8 May 2012

Corporate governance, value creation and growth

The OECD has published a collection of essays under the title Corporate governance, value creation and growth: the bridge between finance and enterprise: see here (pdf). Included in the volume is an essay by Professor Colin Mayer titled "Regulating for value creation: What is the link between market confidence and contractual freedom?" in which he argues:

Corporate governance is not about enhancing shareholder value. It is about enhancing economic growth, entrepreneurship, innovation and value creation .. The correct focus of corporate governance therefore should not be on enhancing shareholder value per se, but on how one structures these aspects of corporate governance in terms of ownership, boards and remuneration to achieve the right balance between the degree of control that investors are exercising and the degree of commitment they are showing to firms, with a view to attaining the firms‟ objectives. The implication is that what is suitable for one country is not necessarily suited for another country, what is appropriate for one industry is not for another, and what is suited for one firm within an industry is not for another. What we need is diversity and contractual freedom. Regulation should be designed to enhance markets, but not in the process to undermine the delivery of that contractual freedom. In that regard, prescriptive regulation can be particularly damaging".

Monday 7 May 2012

UK: forthcoming legislation - directors' remuneration and banking reform

On Wednesday this week the Queen's Speech will be delivered in Parliament, in which the Government's forthcoming programme will be set out. Reports in today's Financial Times suggest that the speech will contain, amongst other things, the Government's proposals on directors' remuneration and banking reform. With regard to the latter, The Guardian newspaper reports that a White Paper is expected in June, when the Chancellor delivers his annual Mansion House speech, outlining how the Government intends to implement the Vickers recommendations.

Europe: ESMA's 2012 regulatory programme

The European Securities and Markets Authority has published its annual regulatory programme for this year, setting out its planned technical standards, technical advice and guidelines: see here (pdf).

Friday 4 May 2012

Europe: structural reform of the EU banking sector - High Level Group consultation begins

In February this year a High-level Expert Group was established to consider the need for structural reform to the EU banking sector. This week the Group published a set of questions for consultation: see here (pdf). For further information about the Group's mandate see here (pdf); a list of the Group's members is available here (pdf).

UK: remuneration report votes

The Aviva shareholders' rejection of the company's remuneration report has attracted much attention but at other AGMs there were also sizeable votes against: see here.

Singapore: MAS publishes revised corporate governance code

The Monetary Authority of Singapore has published a revised edition of its corporate governance code: see here (pdf). In updating the code, the MAS has accepted all of the recommendations made by the Corporate Governance Council, about which see here (pdf).

Thursday 3 May 2012

UK: the Bank of England Governor on the financial crisis and three Rs to make banking safer

The Governor of the Bank of England, Sir Mervyn King, delivered the 2012 BBC Today programme lecture yesterday. A copy of his speech is available here (pdf) and an audio recording is available here.

In his speech Mr King sought to identify the causes of the financial crisis, the lessons to learn and the changes to make. What did go wrong?  To quote Mr King: "In a nutshell, our banking and financial system overextended itself". Whilst acknowledge that the Bank could have been more vocal in respect of its concerns with the underestimation of risk within financial markets, Mr King suggests that there was little the Bank could have done because it was not (then) responsible for supervising banks. Those wanting more contrition from the Governor will be disappointed.

Elsewhere in his speech Mr King identified what he described as "the three Rs" of a new approach to make banking (and the economy) safer: regulation, resolution and restructuring. With regard to regulation he stated:

Next year, the responsibility for regulating banks will return to the Bank of England. Next time we find ourselves with steady growth and low inflation, but with risks building in the financial sector, we shall be able to do something about it. The Bank’s new Financial Policy Committee will have the power to step in and prevent a hangover by taking away the punchbowl just as the party in the financial system is getting going.

We believe that successful regulation means understanding and guarding against the big risks, not compliance with ever more detailed rules. That means focussing on the wood not the trees, looking not just at individual banks but also at how their fortunes are tied together with other banks and with the rest of the economy. For example, the biggest risk to banks at present stems from the troubles in the euro area. These are far from over. That’s why we’ve been pushing banks to pay out less to their shareholders and employees and instead retain profits as a cushion against possible losses. In future, to protect the rest of the economy from failures in the banking system, we need to ensure that more of banks’ shareholders’ own money is on the line, and banks rely correspondingly less on debt. If banks and their shareholders have more to lose, they will be more careful in choosing to whom they lend. And, when banks make losses, there is more of a cushion before the bank fails, and less chance that the taxpayer will have to foot the bill".

Wednesday 2 May 2012

Europe: EBA consults on proposed Guidelines for assessing the suitability of credit institutions' management body members and key function holders

The European Banking Authority has published for consultation a draft of its proposed Guidelines for assessing the suitability of credit institutions' management body members and key function holders: see here (pdf). The Guidelines seek in particular to harmonise the assessment criteria and to make clear the expectations placed upon Member States' supervisory authorities and credit institutions.

Existing EBA Guidelines, including those relating to internal governance, are available here. Article 16 of the Regulation established the EBA (No 1093/2010 - see here, pdf) outlines the role of Guidelines within the European financial supervisory framework: Member States' Authorities must, within two months of Guidelines being issued, confirm whether they comply (or intend to comply). Where there is non-compliance, or proposed non-compliance, an explanation must be given to the EBA.

Tuesday 1 May 2012

UK: Financial regulation - a quartet of speeches

Perhaps it is the season for speeches. Four have caught my eye. The first began with the words "Elephant seals have got too big for their beaches" and is another interesting and informative speech by Andrew Haldane, the Executive Director for Financial Stability at the Bank of England, in which he considered some of the negative consequences of competition: see here (pdf). The second speech, by David Lawton (the Acting Director of the Markets Division at the Financial Services Authority) was titled Liquidity and the Regulation of Markets: see here. Mr Lawton highlighted current developments concerning the regulation of liquidity and concluded, amongst other things, that whilst liquidity was an important element in a well-funcitoning market it was not a regulatory goal in itself.  Other goals were foremost - including integrity, resiliency, efficiency and investor protection - when designing measures to enhance market confidence.

The next two speeches considered shadow banking. The first, titled Shadow Banking: Thoughts for a Possible Policy Agenda, was delivered by Paul Tucker, a Deputy Governor at the Bank of England: see here (pdf). Mr Tucker argued, amongst other things, for greater transparency and recommended that shadow banking vehicles or funds sponsored or operated by banks should be consolidated on bank balance sheets. The final speech was delivered by Lord (Adair) Turner, the Chairman of the Financial Services Authority, and was titled Securitisation, Shadow Banking and the Value of Financial Innovation,: see here (pdf). Lord Turner sought to identify how financial innovation should be valued and how it differed from innovation in other sectors of the economy. Amongst other things he cautioned against the belief that increased size in the financial sector was a desirable end per se. (It's also worth noting that Lord Turner's book, Economics After the Crisis: Objectives and Means was published last month - further information here).