Friday 29 March 2013

Lithuania: governance code for companies listed on NASDAQ OMX Vilnius added to ECGI directory

The codes and principles directory maintained by the European Corporate Governance Institute was updated yesterday with a copy of the corporate governance code for companies listed on NASDAQ OMX Vilnius: see here.

Albania: Corporate Governance Code for Unlisted Joint-Stock Companies added to ECGI directory

The codes and principles directory maintained by the European Corporate Governance Institute was updated yesterday with a copy of the Corporate Governance Code for Unlisted Joint-Stock Companies in Albania: see here.

Thursday 28 March 2013

UK: Takeover Code amendments published

The Takeover Panel Code Committee has made Instrument 2013/1 which contains, amongst other things, amendments to the Takeover Code to deal with the restructuring of the UK’s financial regulatory framework and the Committee's consultation on PCP 2012/1: see here (pdf). An overview of the amendments, which take effect on 1 April, is available here (pdf).

UK: BIS publishes FAQs for forthcoming remuneration reforms

The Department for Business, Innovation and Skills has published FAQs in respect of the forthcoming changes to the framework governing remuneration disclosure and shareholder voting: see here (pdf).

South Africa: Supreme Court of Appeal considers auditor's liability

The Supreme Court of Appeal gave judgment last week in Cape Empowerment Trust Ltd v Fisher Hoffman Sithole (200/11) [2013] ZASCA 16: see here (pdf). The case concerned a claim against an auditor in respect of negligent misstatement. The Supreme Court held that the auditor's degree of negligence was not relevant when considering whether or not liability should be imposed. A summary of the decision is available here (pdf).

UK: England and Wales: de facto and shadow directorships

Judgment was given earlier this week in Secretary of State for Business, Innovation and Skills v Chohan & Ors [2013] EWHC 680 (Ch). The case concerned an application by the Secretary of State for the disqualification of a director under section 6 of the Company Directors Disqualification Act 1986. The decision contains interesting discussion of the characteristics of de facto and shadow directorships and provides another example of the court accepting the possibility that an individual could act as both a de facto and shadow director. In this regard the trial judge, Hildyard J., stated (at para. [46]): "It is now, I think, clear that (a) the same sort of evidential indicia are likely to be relevant to establishing both shadow and de facto directorship and (b) a person may act as both, the one in fact shading into the other."

Wednesday 27 March 2013

UK: Law Commission project on the fiduciary duties of investment intermediaries

The Law Commission for England and Wales has published information about its new project examining the fiduciary duties of investment intermediaries: see here. The full terms of reference are available here (pdf). At this stage the Commission is seeking views on whether the law of fiduciary duties causes problems in practice. A consultation paper will be published by October 2013 and a final report with recommendations is expected by June 2014.

Tuesday 26 March 2013

UK: entry and expansion in the banking sector

The Bank of England and Financial Services Authority have published the results of their joint review of entry and expansion in the banking sector: see here (pdf). The report also sets out changes to the regulatory requirements and authorisation process which are designed to reduce entry barriers in the banking sector. An overview of these changes is available here.

Spain: CNMV's corporate governance action plan

ComisiĆ³n Nacional del Mercado de Valores, the securities market regulator, has published its corporate governance action plan for 2013: see here (pdf). Increasing transparency is one of the central themes.

Monday 25 March 2013

Europe: Commission publishes green paper on long-term financing of the European economy

The European Commission published a green paper today titled Long-term financing of the European economy, the purpose of which is to begin a debate on how to foster the supply of long-term financing and improve and diversify the system of financial intermediation for long-term investment in Europe: see here (pdf). Amongst the many questions asked were the following concerning corporate governance: what kind of incentives could help promote better long-term shareholder engagement? How can the mandates and incentives given to asset managers be developed to support long-term investment strategies and relationships? Is there a need to revisit the definition of fiduciary duty in the context of long-term financing? The green paper notes one suggestion which could be subject to further consideration: enhanced voting rights or dividends for long-term investors.

For further information see: press release | FAQs | green paper (pdf) | accompanying working document (pdf) |

UK: Financial Conduct Authority - publication of business plan and policy statements

The 2013/14 business plan for the new Financial Conduct Authority, which comes into existence next week on 1 April, has been published: see here (pdf). Additionally several policy statements have been published including: temporary product intervention rules (here, pdf), the regulation and supervision of benchmarks (here, pdf) and complaints against the regulators (here, pdf).

BCBS consults on guidance for the external audits of banks

The Basel Committee on Banking Supervision has published for consultation guidance on the external audits of banks: see here (pdf). The guidance contains 16 principles which represent supervisory expectations with regard to the external audit and audit quality, including the role of the audit committee. It replaces earlier guidance published by the Committee (The relationship between banking supervisors and bank's external auditors, published in 2002, and External audit quality and banking supervision, published in 2008). The Committee has also written to the International Auditing and Assurance Standards Board with recommendations to improve some of the Board's Standards: see here (pdf).

Friday 22 March 2013

UK: transposition of the AIFIM Directive - further consultation papers from the Treasury and FSA

HM Treasury and the Financial Services Authority have each published another consultation paper with regard to the transposition of the Alternative Investment Fund Managers Directive (2011/61/EU): see, respectively, here and here.

UK: company directors, mental health and the model articles

The Mental Health (Discrimination) Act 2013 received Royal Assent last month: see here. A copy of the Act is available here or here (pdf). Section 3 of the Act amends the Companies (Model Articles) Regulations 2008, the RTM Companies (Model Articles) (England) Regulations 2009 and the RTM Companies (Model Articles) (Wales) Regulations 2011, by removing the provision in the articles providing for termination of the director's appointment on grounds of mental health.

Update (5 May 2013) - a short overview of the change has been published by Companies House: see here.

Thursday 21 March 2013

UK: Lords defeat for Government over new employee shareholder status

The Growth and Infrastructure Bill completed the report stage in the House of Lords yesterday. Clause 27 of the Bill was debated: this provides for the introduction of a new type of employment status - 'employee shareholder ' - through which employees receive shares in exchange for surrendering certain employment rights. This proposal has proved controversial. An amendment to remove clause 27 from the Bill was tabled by Lord Pannick, Lord Adonis, Baroness Brinton and the Lord Bishop of Bristol. It was passed following a division of the House (232 content and 178 not content). Hansard, the record of debate, is available here. Third reading of the Bill is scheduled for 26 March after which the House of Lords amendments will be considered by the House of Commons (about which see here).

UK: the new financial regulatory framework - more secondary legislation and MPC/FPC coordination

The Financial Services Act 2012 sets out the structure of the UK's new financial regulatory framework but some matters have been left to secondary legislation. In this regard the following have recently been made:
It is also worth noting that the Government yesterday published an updated remit for the Monetary Policy Committee and this outlined what is expected of the MPC with regard to the new Financial Policy Committee and the coordination of monetary and macro-prudential policy: see here (pdf).

Wednesday 20 March 2013

UK: FRC responds to Competition Commission report and possible remedies regarding the market for statutory audit services

The Financial Reporting Council has published its response to the report and preliminary findings published by the Competition Commission in respect of its statutory audit services inquiry: see here (pdf). Amongst other things, the FRC expresses concerns with some of the possible remedies including mandatory tendering and mandatory audit firm rotation.

UK: consultation on code of practice for the relationship between the external auditor and Financial Conduct Authority

The Financial Services Authority has published for consultation a code of practice for the relationship between its successor, the Financial Conduct Authority, and the external auditor of regulated firms: see here (pdf). A separate code of practice will be published by the new Prudential Regulation Authority.

Tuesday 19 March 2013

Europe: ESMA publishes its second report on the supervision of credit rating agencies

The European Securities and Markets Authority has published its second annual report concerning its supervision of credit rating agencies: see here (pdf). ESMA reports that improvements are required by agencies in several areas including the consistent application and comprehensive presentation of rating methodologies and the reliability of IT infrastructures.

Australia: ASIC reports on dark liquidity and high frequency trading

The Australian Securities and Investments Commission has published a report and consultation paper concerning dark liquidity and high frequency trading: see, respectively, here (pdf) and here (pdf).

Monday 18 March 2013

UK: Government responds to Heseltine review recommendations

The Government has published its response to the recommendations made in Lord Heseltine's report "No Stone Unturned in the Pursuit of Growth": see here (pdf). The majority of Lord Heseltine's recommendations have been accepted. The Government has not accepted the seventy third of Lord Heseltine's recommendations: greater intervention with regard to takeovers and foreign ownership and engagement with potential foreign investors to secure commitments regarding research and skills and, exceptionally, to discourage unwanted investment (underpinned by a greater willingness to use existing powers under the Enterprise Act 2002 to intervene in mergers). The Government's response to this recommendation was brief and did not deal with all elements of the recommendation: "The Government is committed to open markets and is equally committed to engaging with companies and investors to promote investment which benefits the UK economy" (para. 1.48).

UK: the new regime for the registration of company charges

The Companies Act 2006 (Amendment of Part 25) Regulations 2013 were made on 12 March and come into force on 6 April 2013. The Regulations bring about the introduction of a new regime for the registration of company charges. The provisions of Chapters 1 and 2 of Part 25 of the Companies Act 2006 are to be repealed and replaced by a new Chapter A1 of Part 25 which sets out a single scheme applying to companies irrespective of their place of registration in the UK. Further information is available in the accompanying explanatory memorandum available here (pdf).

Friday 15 March 2013

UK: Financial Services (Banking Reform) Bill - committee stage amendments tabled

The Financial Services (Banking Reform) Bill received its second reading in the House of Commons earlier this week: see here. The Bill begins the committee stage next week and amendments have already been tabled. Amongst those tabled yesterday - available here or here (pdf) - are several relating to the governance of ring-fenced banks. One amendment sets out a requirement for the Secretary of State to provide by secondary legislation that shareholder approval is required for the appointment of remuneration consultants. Another amendment sets out requirements regarding the composition of the ring-fenced bank's board but is not well drafted: "Half of the board of directors of the ring-fenced body, both executive and non-executive, will be made up of independent persons". Is the intention to require half exactly or (more likely) at least half? Do the words "both executive and non-executive" add anything to the amendment?

UK: ICSA publishes stewardship dialogue guidance

The Institute of Chartered Secretaries and Administrators has published guidance titled Enhancing Stewardship Dialogue, the purpose of which is to facilitate good engagement practices between boards and their shareholders: see here (pdf). Further background information is available here.

UK: Banking Standards Commission publishes report on proprietary trading

The Parliamentary Commission on Banking Standards today published its report concerning proprietary trading: see here or here (pdf). The Commission argues that current and planned reforms do not go far enough to mitigate the risks from proprietary trading. The Commission believes that further measures, including an outright ban, could in principle be desirable.

Australia: listed company boards and gender diversity policies

ASX has published a report analysing disclosure by a selection of listed companies, for financial years ending between 31 December 2011 and 30 December 2012, in respect of the ASX Corporate Governance Council Principles and Recommendations on Diversity: see here (pdf). According to the report the majority of listed companies have a gender diversity policy or are planning to implement one. A summary of the report's findings is available here (pdf).

UK: Bank of England Quarterly Bulletin

The Bank of England published its quarterly bulletin earlier this week: see here. Two chapters within the bulletin are worth noting. The first provides a useful overview of the position of the Bank of England under the new financial regulatory framework which comes into existence next month: see here (pdf). The second considers the potential risks to financial stability from highly leveraged private equity acquisitions: see here (pdf).

Thursday 14 March 2013

UK: England and Wales: sole director could not claim for company's breach of health and safety obligation

The Court of Appeal gave judgment today in Brumder v Motornet Service and Repairs Ltd & Anor [2013] EWCA Civ 195. The case concerned an an injury suffered by the sole director and shareholder of a company. The injury arose because of a breach by the company of its statutory obligation to maintain equipment in efficient working order (as required by regulation 5(1) of the Provision and Use of Work Equipment Regulations 1998 SI 1998 No. 2306). At issue was whether the director could bring a claim against the company where his breach of duty under section 174 of the Companies Act 2006 to exercise reasonable care had prevented the company from meeting its statutory obligation. The court unanimously held that he could not. Lord Justice Longmore, agreeing with the lead judgment delivered by Lord Justice Beatson, stated (para. [62]):

The Provision and Use of Work Equipment Regulations 1998 impose an absolute obligation that machinery in the workplace is to be adequately maintained. I understand the policy behind the imposition of the absolute obligation primarily to be, as Beatson LJ has explained, to protect the weaker party in the employer/employee relationship but also to encourage the highest standards of compliance on the part of the directors and others responsible for the performance of the company's absolute obligation. If the very director responsible for performing the company's obligation can himself sue the company for breach of that obligation, that policy will be significantly undermined."

Update (18 March 2013) - the ICLR has provided a summary of the decision: see here.

Hong Kong: Companies Ordinance briefing notes published

The Companies Registry has published briefing notes for the new Companies Ordinance (No 28 of 2012): see here.

USA: the annual election of directors

The Shareholder Rights Project reports, in its March 2013 bulletin published yesterday, the results of its campaign seeking annual election of company directors: approximately three quarters of the S&P 500 and Fortune 500 companies that received proposals in 2012, 2013 or both, have agreed to move towards annual elections.

It's worth noting that the UK's Corporate Governance Code, in code provision B.7.1, provides that all directors of FTSE350 companies should be subject to annual election by the shareholders. This provision was introduced in 2010 and is subject to 'comply or explain'. Annual election has, however, become the norm with the Financial Reporting Council reporting last December that over 95% of FTSE350 companies are holding annual elections: see here (pdf).

UK: Financial Reporting Standard 102 issued by Financial Reporting Council

The Financial Reporting Council has published Financial Reporting Standard 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland: see here (pdf). This standard applies to the financial statements of entities that are not applying EU-adopted International Financial Reporting Standards, FRS 101 or the FRSSE (but note that under Irish company law certain companies are permitted to use accounting standards not issued by the FRC).

Wednesday 13 March 2013

UK: The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013

The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 were laid before Parliament on 7 March and come into force on 1 April 2013, immediately after the coming into force of section 6 of the Financial Services Act 2012: see here or here (pdf). The Regulations amend the Financial Services and Markets Act 2000 in order to repeal provisions which are inconsistent with the European Market Infrastructure Regulation (No 648/2012) ("EMIR") or are no longer required. Further information in respect of the Regulations is available in the accompanying explanatory memorandum: see here (pdf). Further information about EMIR, and the technical standards produced by the European Supervisory Authorities and adopted by the Commission without modification, is available here.

UK: Remuneration reporting and voting - further consultation on draft legislation and debate in Parliament

The Department for Business, Innovation and Skills has published for consultation a second draft of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013: see here (pdf). These Regulations bring about new disclosure requirements in respect of remuneration including a summary statement by the chairman of the remuneration committee, a report concerning remuneration in the last financial year and a statement of remuneration policy. Further background information is available here.

The provision introducing the new binding shareholder vote in respect of remuneration policy is contained within the Enterprise and Regulatory Reform Bill (see clause 71) that is currently before the House of Lords, and which was debated earlier this week at report stage: see here. Several amendments to clause 71 were tabled (but not passed) including requiring the new binding shareholder vote on remuneration policy to be held annually and made subject to a higher voting threshold (a special resolution rather than an ordinary resolution). As presently drafted, the binding vote would be held once every three years where policy remains unchanged; changes to policy would require shareholder approval by way of an ordinary resolution.

Tuesday 12 March 2013

UK: Financial Services (Banking Reform) Bill receives second reading in House of Commons

The Financial Services (Banking Reform) Bill received its second reading in the House of Commons yesterday and now proceeds to the committee stage. Hansard, the record of debate, is available here.

Barbados: Central Bank's Corporate Governance Guideline

The codes and principles directory maintained by the European Corporate Governance Institute has been updated this week to include a copy of the Corporate Governance Guideline published last month by the Central Bank of Barbados: see here.

Monday 11 March 2013

UK: implementing structural reform of the banking sector

The Parliamentary Commission on Banking Standards published its second report of the 2012-13 session today: see here or here (pdf). Titled Banking reform: towards the right structure, the report considers the Government's response to the Commission's first report and provides suggested amendments in respect of the Financial Services (Banking Reform) Bill which receives its second reading in the House of Commons today and contains provisions requiring the ring-fencing of banks' activities following recommendations made by the Independent Commission on Banking.

Whilst welcoming some of the Government's responses the Commission nevertheless believes that the Government has not gone far enough. The Commission states, for example, that provision for full separation should be included in the Bill and it also expresses concern with the Government's failure to accept the recommendation that banks be subject to higher leverage ratio (something to which the Commission will return in its final report).

UK: England and Wales: employee owed fiduciary duties

The High Court gave judgment last week in IG Index Plc v Colley & Ors [2013] EWHC 478 (QB) and noted that whilst there was no general fiduciary duty owed by an employee to his employer, circumstances may arise whereby the employee owes fiduciary duties. The court held that this was so in the current case where an employee manipulated the prices being quoted by his employer, IG Index, a spread betting company.

UK: The new financial regulatory framework - draft PRA and FCA Handbooks published

Next month, on 1 April, the UK's new financial regulatory framework comes into existence, including the creation of the Financial Conduct Authority and Prudential Regulation Authority. Ahead of this time, draft handbooks for each of these regulators have been published on the FSA website: see here.

Friday 8 March 2013

UK: England and Wales: duties of care and credit reference agencies

The Court of Appeal gave judgment last month in Smeaton v Equifax Plc [2013] EWCA Civ 108. This is an important decision on the liability of credit reference agencies. At first instance the trial judge held that credit reference agencies owed a tortious duty of care to consumers at common law that was co-extensive with the duties arising under data protection legislation (see [2012] EWHC 2322 (QB)). The trial judge also held that credit reference agencies assumed responsibility towards every member of the public by choosing to operate as credit reference agencies. The Court of Appeal rejected these findings and held that a co-extensive duty of care was not owed for several reasons including the finding that its imposition would not be fair, just or reasonable.

UK: FInancial Services (Banking Reform) Bill - draft secondary legislation

The Government announced yesterday that it had published for the benefit of parliamentarians draft secondary legislation that will be made under the Financial Services (Banking Reform) Bill (the Bill receives its second reading next week): see here. These include the draft Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order; the draft Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order; and the draft Financial Services and Markets Act 2000 (Fees and Prescribed International Organisations) Order. Drafts for public consultation will be published later this year.

Thursday 7 March 2013

UK: Government proposals for consumer credit regulation

The Government yesterday published its proposals for the transfer of responsibility for the regulation of consumer credit from the Office of Fair Trading to the new Financial Conduct Authority in April 2014: see here (pdf). A consultation paper was also published by the Financial Services Authority, on behalf of the FCA which will come into existence on 1 April 2013, with respect to the manner in which the FCA will carry out its new functions and powers: see here (pdf).

Yesterday also saw the publication by the Government of its response to research concerning the impact on business and consumers of a cap on the total cost of credit and a payday lending compliance review undertaken by the OFT: see here (pdf). The Government has decided that a cap on the total cost of credit would not, at the moment, be the best solution to the problems that have been identified. Alternative approaches are instead outlined including advertising restrictions and OFT enforcement action where lenders fail to respond to the issues that have been identified.

Wednesday 6 March 2013

UK: FSA chairman appears before the Parliamentary Banking Standards Committee

Lord Turner, the chairman of the Financial Services Authority, appeared before the Parliamentary Committee on Banking Standards last week. A transcript of his evidence has been published: see here. The Committee's questions were wide-ranging and Lord Turner repeated many of the points he has made before, including his view about the value (or lack thereof) of some activities undertaken by banks. He also said something about the impact of disclosure on directors' remuneration:

If you go back to the mid-1990s and the debates that broke out extensively about top-level remuneration at that stage, particularly in relation to utilities-we had the Greenbury report and so on-it is a reasonable interpretation, in retrospect, that transparency of executive directors’ pay probably drove a further increase in top executive remuneration. It made it easier for remuneration consultants to say, "Look, your chief executive is not being paid in the top quartile. Surely you want a top-quartile chief executive".

Tuesday 5 March 2013

UK: British business and short-termism - Cox Review report and recommendations published

Last year the Labour Party commissioned Sir George Cox to undertake a review concerning short-termism in British business. The review and recommendations were published today: see here (pdf). Amongst other things, recommendations are made regarding the operation of takeovers and the content of the UK Corporate Governance Code 2012 with regard to the remuneration of directors.

UK: Supreme Court hears argument in Petrodel case

In the Supreme Court today and tomorrow a panel of seven judges will hear argument in what looks set to be one of the most important company law cases of recent years. The proceedings will be broadcast live: see here. The issue for the court, as outlined in its summary of the case, is as follows: is it open to the court in ancillary relief proceedings to treat the assets of a company of which a spouse is the sole controller as being assets to which that spouse is ‘entitled’ for the purposes of section 24(1)(a) of the Matrimonial Causes Act 1973.

In the Court of Appeal the majority (Rimer and Patten LJJ; Thorpe LJ dissenting) provided a strong endorsement of the company's separate legal personality: see [2012] EWCA Civ 1395. Rimer LJ stated: "... the separate corporate identity of a company is a fact of legal life that all courts are required to recognise and respect, whatever jurisdiction they are exercising" (para. [155]). Patten LJ stated that section 24(1)(a) did not give the court the power to disapply the established principles of legal and beneficial ownership or of company law (para. [160]).

UK: Transparency and the Financial Conduct Authority

On 1 April this year the new Financial Conduct Authority comes into existence. Section 6(1) of the Financial Services Act 2012 amends the Financial Services and Markets Act 2000 and sets out how the FCA will be created: the body corporate known as the Financial Services Authority will be renamed the Financial Conduct Authority. Section 6(1) also sets out the regulatory principles to which the FCA (and the new Prudential Regulation Authority) must have regard in the discharge of their general functions. Included in the list of principles are the following:
  • The desirability in appropriate cases of each regulator publishing information relating to persons on whom requirements are imposed by or under this Act, or requiring such persons to publish information, as a means of contributing to the advancement by each regulator of its objectives.
  • Regulators should exercise their functions as transparently as possible.
In respect of these two principles the Financial Services Authority has published a consultation paper the purpose of which is to begin a discussion regarding the information that the FCA and firms should release: see here (pdf).

UK: FInancial Services Act 2012 - more Regulations and Orders made

Further Regulations and Orders have been made under the Financial Services Act 2012 ahead of the introduction of the new financial regulatory framework on 1 April, including:
An explanatory memorandum for the three Orders is available here (pdf). An explanatory memorandum for the Regulations is available here (pdf). 

Monday 4 March 2013

Switzerland: results of the corporate governance referendum

A referendum was held yesterday in Switzerland and one of the proposals on which votes were cast concerned corporate governance. Under the so-called "Minder initiative", after the instigator of the referendum Thomas Minder, voters were asked to approve changes to the law to require the annual election of listed company directors, an annual binding vote on remuneration and certain limits on remuneration. A majority of votes were cast in favour of introducing these changes: see here.

Friday 1 March 2013

Switzerland: a referendum on corporate governance reforms

A referendum is being held on Sunday. Voters are being asked to consider three proposals, one of which - the so-called "Minder initiative" - concerns corporate governance: see here. The vote on this proposal has been instigated under the popular initiative mechanism and contains measures to require listed companies to hold an annual binding vote on directors' remuneration and subject directors to annual election. Restrictions on certain forms of remuneration are also included. Further background information, in English, is available here and here.

UK: introducing the new financial regulatory structure

The Financial Services Act 2012 (Commencement No. 2) Order 2013 was made on 26 February. The Order sets out which provisions in the Financial Services Act 2012 will come into force on 1 April 2013 and also provides that Schedule 4 of the 2012 Act came into force on 26 February for the purpose of making Orders or Regulations.