UK: The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019

The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019 were made earlier this week and, in accordance with regulation 1(2), come into force on exit day*: see here or here (pdf). The accompanying explanatory memorandum is available here (pdf) and this explains that the Regulations set out a new framework for the endorsement and adoption of IFRS after the UK's departure from the EU.

* - Exit day.

Exit day was originally set for tomorrow, 29 March, at 11.00pm: see section 20 ("Interpretation") (as enacted) of the European Union (Withdrawal) Act 2018. However, the European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) Regulations 2019, made today, change this date to either 22 May 2019, 11.00 p.m., or 12 April 2019, 11.00 p.m. The Government has published a short document explaining this legislative process: see here (pdf). An explanatory memorandum has also been prepared for the Regulations: see here (pdf).

UK: Independent review of the prudential supervision of the Co-Operative Bank plc

A little over a year ago, the Government directed the Prudential Regulation Authority to undertake a review of the supervision of the Co-operative Bank between 2008 and 2013: see here and here.  Mark Zelmer, a former Deputy Superintendent of the Office of the Superintendent of Financial Institutions in Canada, was appointed to complete the review. The findings of that review, which makes recommendations for the Bank of England and the Prudential Regulation Authority designed to enhance the current supervisory regime, were published today by HM Treasury: see here (pdf). The Bank and PRA have resonded - see here (pdf) - as has the Financial Conduct Authority: see here.

UK: The Uncertificated Securities (Amendment and EU Exit) Regulations 2019

The Uncertificated Securities (Amendment and EU Exit) Regulations 2019 were made yesterday: see here or here (pdf). Further information about the purpose of the Regulations and the changes they will introduce is available in the explanatory memorandum: see here (pdf). Regulation 1 provides that Parts 1, 2, 3 and 4 come into force today (and are unconnected with the UK's withdrawal from the EU); Part 5 (connected with the UK's withdrawal from the EU) comes into force on exit day.*

* Exit day

The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) Regulations 2019 were laid in draft form before Parliament on Monday and will be debated today in the House of Commons and House of Lords under the draft affirmative procedure: see, respectively, here and here. The purpose of these Regulations is to amend section 20 ("Interpretation") of the European Union (Withdrawal) Act 2018 in order to replace the exit day currently specified therein - 29 March 2019 at 11.00 p.m. - with either 22 May 2019, 11.00 p.m., or 12 April 2019, 11.00 p.m. The Government has published a short document explaining this legislative process: see here (pdf).

IOSCO work programme for 2019

The International Organisation of Securities Commissions has published its work programme for 2019: see here (pdf). The following priority areas identified: (1) Crypto-assets; (2) Artificial Intelligence and Machine Learning; (3) Market Fragmentation; (4) Passive Investing and Index Providers; and (5) Retail Distribution and Digitalization.

UK: BEIS Committee report - 'Executive Rewards: paying for success'

The Business, Energy and Industrial Strategy Committee published its report 'Executive Rewards: paying for success' today: see here or here (pdf). The report is critical of the role played by institutional investors, remuneration committees and the Financial Reporting Council (FRC). The Committee calls for the simplifcation of pay, advocating a structure based on fixed salary plus deferred shares that would vest over a long period (and subject to provisions designed to prevent 'rewards for failure'). It also calls for remuneration committees to have at least one employee representative. 

The Committee is strongly supportive of the creation of the new Audit, Reporting and Governance Authority (ARGA), to replace the FRC, and states that the ARGA should be "a more empowered, aggressive and proactive regulator that has the ability to take decisive action, where necessary, on executive pay and its reporting" (para. 11). Many of the Committee's recommendations are directed at the ARGA, particularly with regard to the revised Stewardship Code and its enforcement, as well as the expectations placed on asset owners. The Committee also recommends that the ARGA should become responsible for monitoring the impact of the new Wates Principles of Corporate Governance for Large Private Companies.

UK: Commons approve the draft International Accounting Standards and European Public Limited-liability Company (Amendment etc) (EU Exit) Regulations 2019

It was, perhaps, easy to miss. Hansard reports that yesterday, at the end of the day, the House of Commons approved the draft International Accounting Standards and European Public Limited-liability Company (Amendment etc) (EU Exit) Regulations 2019: see here. Further information about the Regulations, which set out the framework for the adoption of International Financial Reporting Standards after the UK leaves the European Union, is available in the accompanying explanatory memorandum: see here (pdf). When made, the Regulations will be published here.

UK: The Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2019

The Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2019 were made yesterday: see here or here (pdf). Regulation 1 provides that it, and Part 2, come into force today; the remaining regulations come into force on exit day*. Further information is available in the accompanying explanatory memorandum and impact assessment: see, respectively, here (pdf) and here (pdf).

* Exit day

The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) Regulations 2019 were laid in draft form before Parliament yesterday and will be debated in the House of Commons and House of Lords under the draft affirmative procedure. The purpose of these Regulations is to amend section 20 ("Interpretation") of the European Union (Withdrawal) Act 2018 in order to replace the exit day specified therein - 29 March 2019 at 11.00 p.m. - with either 22 May 2019, 11.00 p.m., or 12 April 2019, 11.00 p.m. The Government has published a short document explaining this legislative process: see here (pdf).

UK: The Securitisation (Amendment) (EU Exit) Regulations 2019

The Securitisation (Amendment) (EU Exit) Regulations 2019 were made yesterday: see here or here (pdf). Regulation 1 provides that the Regulations come into force on exit day*, with the exception of Part 3 which comes into force immediately after Part 10 of the Credit Rating Agencies (Amendment, etc.) (EU Exit) Regulations 2019. Further information about the Regulations is available in the accompanying explanatory memorandum: see here (pdf). An impact assessment has also been published: see here (pdf).

* Exit day

The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) Regulations 2019 were laid in draft form before Parliament yesterday and will be debated in the House of Commons and House of Lords under the draft affirmative procedure. The purpose of these Regulations is to amend section 20 ("Interpretation") of the European Union (Withdrawal) Act 2018 in order to replace the exit day specified therein - 29 March 2019 at 11.00 p.m. - with either 22 May 2019, 11.00 p.m., or 12 April 2019, 11.00 p.m. The Government has published a short document explaining this legislative process: see here (pdf).

UK: The Mortgage Credit (Amendment) (EU Exit) Regulations 2019

The Mortgage Credit (Amendment) (EU Exit) Regulations 2019 were made yesterday: see here or here (pdf). In accordance with regulation 1, they come into force on exit day*. Further information about the Regulations is available in the accompanying explanatory memorandum: see here (pdf).

* Exit day

The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) Regulations 2019 were laid in draft form before Parliament yesterday and will be debated in the House of Commons and House of Lords under the draft affirmative procedure. The purpose of these Regulations is to amend section 20 ("Interpretation") of the European Union (Withdrawal) Act 2018 in order to replace the exit day specified therein - 29 March 2019 at 11.00 p.m. - with either 22 May 2019, 11.00 p.m., or 12 April 2019, 11.00 p.m. The Government has published a short document explaining this legislative process: see here (pdf).

UK: The Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019

The Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019 were made yesterday: see here or here (pdf). They come into force on exit day* and are accompanied by an explanatory memorandum and an impact assessment: see, respectively, here (pdf) and here (pdf). The Regulations contain the framework for benchmarks that will apply on exit day should the UK leave the European Union without an implementation period. Further information has also been published by the Financial Conduct Authority, in particular concerning the UK Benchmarks Register: see here.

* Exit day

The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) Regulations 2019 were laid in draft form before Parliament yesterday and will be debated in the House of Commons and House of Lords under the draft affirmative procedure. The purpose of these Regulations is to amend section 20 ("Interpretation") of the European Union (Withdrawal) Act 2018 in order to replace the exit day specified therein - 29 March 2019 at 11.00 p.m. - with either 22 May 2019, 11.00 p.m., or 12 April 2019, 11.00 p.m. The Government has published a short document explaining this legislative process: see here (pdf).

UK: England and Wales: the service of documents on directors, secretaries and others

Section 1140 of the Companies Act 2006 provides, broadly put, that a document may be served on a company director by leaving it at, or sending it by post to, the director's registered address. Decisions concerning this provision are sparse; this said, the operation of section 1140 was one of several matters considered by the High Court in a judgment handed down today - Arcelormittal USA LLC v Essar Steel Ltd [2019] EWHC 724 (Comm) - in the context of a challenge made to the grant of search orders.

The trial judge, Mr Justice Jacobs, rejected the argument that it was impermissible for search orders to be served under section 1140, finding that the section was (a) "wide in scope"; (b) expressly permitted the service of "a document"; and (c) applied whatever the purpose of the document in question (para. [130]). He also accepted as correct the view "...that there was 'no requirement under the statute that the director be resident or otherwise present in the jurisdiction in order to be served here'." (para. [132]). This latter point was, in fact, confirmed in an earlier decision of the High Court not cited by Jacobs J: Key Homes Bradford Ltd & Ors v Patel [2014] EWHC B1 (Ch).

OECD study: resolving foreign bribery cases with non-trial resolutions

The OECD has published a study titled Resolving Foreign Bribery Cases with Non-Trial Resolutions: see here. The study covers 27 of the 44 countries to the OECD Anti-Bribery Convention and describes the non-trial resolution mechanisms (often called settlements) available to resolve foreign bribery cases.  It notes that, of the 23 countries to have successfully concluded a foreign bribery action, 15 have used a non-trial mechanism at least once to resolve a foreign bribery case.

UK: England and Wales: the definition of 'managed service company provider'

The Court of Appeal gave judgment earlier this week in Christianuyi Ltd & Ors v Revenue And Customs [2019] EWCA Civ 474. The decision is an important one - now the leading authority - on the definition of managed service companies (MSCs) and MSC providers within the tax anti-avoidance framework, following decisions of the Upper and First-tier Tribunals (see, respectively: [2018] UKUT 10 (TCC) and [2016] UKFTT 272 (TC)).

Specifically, the court considered the definition of MSC provider within section 61B of the Income Tax (Earnings and Pensions) Act 2003 and rejected the argument that, in order for a company to be a MSC provider, it was necessary for that company - in addition to being in the business of promoting or facilitating the use of companies through which individuals provide their services to clients - also to promote or facilitate the services provided by those companies.

Update (25 March 2019) - a summary of the case has been published by the ICLR: see here.

India: National Guidelines on Responsible Business Conduct published

In 2011, the National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business were published. These has now been replaced by the National Guidelines on Responsible Business Conduct, dated 2018, and recently published online by the Ministry of Corporate Affairs: see here (pdf).

The Guidelines set out nine principles, each supported by a short description and what are called 'core elements'. For example, the first principle - that "[b]usinesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent, and accountable" - has nine core elements, the first of which is: "The governance structure should develop and put in place structures, policies and procedures that promote this Principle, prevent its contravention and effect prompt and fair action against any transgressions".

Canada: regulators consult on new regime for benchmark regulation

The Canadian Securities Administrators are consulting on the introduction of a new framework for the regulation of benchmarks. The proposed framework is contained in National Instrument 25-102 Designated Benchmarks and Benchmark Administrators: see here or here (pdf). There is, at present, no specific regulatory framework for benchmarks. The proposed new framework is intended to be equivalent to the EU regime (see EU Regulation 2016/1011).

UK: Supreme Court to hear appeal in charity governance case

Earlier this week the Supreme Court published its permision to appeal decisions for February: see here (pdf). Among the cases for which an appeal has been granted is Lehtimäki v The Children's Investment Fund Foundation (UK) & Ors [2018] EWCA Civ 1605, [2018] 3 WLR 1470, [2018] WLR(D) 423.

The decision considered important aspects of the governance of charities, in the context of a one charity - CIFF - that was a company limited by guarantee. The court held that CIFF's members owed a duty corresponding with that owed by members of charitable incorporated organisations under section 220 of the Charities Act 2011: to exercise their powers in the way that they decide, in good faith, would be most likely to further the purposes of the organisation. The court also held that its inherent jurisdiction in relation to charities did not permit it to order a member of CIFF to exercise his powers in a particular way where there was no breach of duty. As the court put it: "Important though its role in relation to charities is, the Court is not entitled, absent a breach of duty, to substitute its view for that of the fiduciary" (para. [62]).

The court therefore concluded that the Chancellor, Sir Geoffrey Vos, had been wrong, at first instance ([2017] EWHC 1379 (Ch)), to order one of CIFF's members to vote to approve a resolution under section 217 of the Companies Act 2006 in the absence of clear evidence of breach of fiduciary duty by that member.

Australia: directors' duties, distributions and creditor interests

Last week I noted an English decision in which the directors' failure to adopt a dividend policy was regarded as a breach of duty: see here. Today I note an Australian decision - Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354 - also from last week, but one in which the trial judge (White J.) held that directors had acted in breach of duty in adopting, and failing to review and revise, a distribution policy.

The decision contains a useful review of directors' duties and is noteworthy because of the discussion it contains of the circumstances in which directors are required to consider the interests of creditors. Regarding the latter, the trial judge rejected a narrow interpretation and stated (paras. [209], [708]):

...I do not accept the submission ... to the effect that the directors or officers of a company are required to consider the specific interests of creditors only when their actions are likely, on a balance of probabilities, to lead to the insolvency of the company. That was so, the defendants submitted, because it is only at that point that their decisions are effectively managing assets which belong to the creditors and not to the shareholders. I agree ... that that is one circumstance in which directors and officers of a company will be obliged to consider the interests of the company’s creditors, but the authorities .... indicate that it is not the only circumstance...

.... the authorities ... indicate that test is broader than 'nearing insolvency' or 'doubtful solvency'. They indicate that the duty of directors to consider the interests of creditors is enlivened when there is a 'real and not remote risk of insolvency' and when the objective circumstances require consideration of the interest of creditors".

Note:

Some of the authorities cited by White J. were considered recently at appellate level in England: see BTI 2014 LLC v Sequana S.A. & Ors [2019] EWCA Civ 112, [2019] WLR(D) 68. The Court of Appeal unanimously rejected the view that the creditor interests duty (to adopt its description) should apply in English law where there was a "real risk" of insolvency; the court nevertheless accepted that the duty could be triggered where a company's circumstances fell short of actual insolvency.

UK: England and Wales: relational contracts and good faith

Judgment was delivered last Friday in Bates v Post Office Ltd (No 3) [2019] EWHC 606 (QB). It looks set to become one of the most significant contract and commercial law cases of the year.

The judgment contains clear acceptance of the concept of the 'relational' contract, the trial judge (Mr Justice Fraser) rejecting the view - expressed by Professor Hugh Collins in S. Degeling et. al. (eds), Contract in Commercial Law (Lawbook Co, Thomson Reuters, 2016) - that use of the label was a passing fad by the courts. Moreover, Fraser J. held that where a contract between commercial parties was relational in nature, it became subject to an implied term of good faith. To quote the trial judge (at para. [711]):

...I consider that there is a specie of contracts, which are most usefully termed “relational contracts”, in which there is implied an obligation of good faith (which is also termed “fair dealing” in some of the cases). This means that the parties must refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people. An implied duty of good faith does not mean solely that the parties must be honest".

The trial judge made clear that he was not stating that there was a general duty of good faith in all commercial contracts. As for which contracts would be regarded as relational, he identified the following "specific characteristics that are expected to be present" (para. [725]; direct quotation of the judge's list):

1. There must be no specific express terms in the contract that prevents a duty of good faith being implied into the contract.
2. The contract will be a long-term one, with the mutual intention of the parties being that there will be a long-term relationship.
3. The parties must intend that their respective roles be performed with integrity, and with fidelity to their bargain.
4. The parties will be committed to collaborating with one another in the performance of the contract.
5. The spirits and objectives of their venture may not be capable of being expressed exhaustively in a written contract.
6. They will each repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships.
7. The contract in question will involve a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty. 
8. There may be a degree of significant investment by one party (or both) in the venture. This significant investment may be, in some cases, more accurately described as substantial financial commitment.
9. Exclusivity of the relationship may also be present. 

The judge was hesitant to describe this list as exhaustive (para. [726]) but he did state that none of the above was determinative apart from the first; he noted, as well, that there may be other characteristics shown by relational contracts in other cases on different facts (para. [726]).

UK: England and Wales: unfair prejudice, directors' duties and absence of a dividend policy

Judgment was given earlier this week in Routledge v Skerritt & Ors [2019] EWHC 573 (Ch). A first instance decision involving a petition for unfair prejudice, brought by a shareholder under Part 30 of the Companies Act 2006, would not - now at least - attract much attention. There have been many of them and the core principles are well settled, not least since O'Neill v Phillips [1999] 1 WLR 1092, which celebrates its twentieth anniversary later this year.

This particular judgment is, however, noteworthy for several reasons. Perhaps the most important of these is that it provides an example of directors found to have breached their duty to promote the success of the company under section 172 of the Companies Act 2006. Such cases do not abound. Specifically, the directors' failure to adopt a valid dividend policy was seen as a failure on their part to have regard to "the need to act fairly as between members of the company" as required under section 172(1)(f). A second reason is that the judgment provides an illustration of the consequences for shareholder rights - and how these are determined - where the board failed, as required, to adopt the dividend policy.

UK: the corporate criminal offences of the failure to prevent the facilitation of tax evasion - awareness and impact

HMRC has published research undertaken by Ipsos MORI regarding the new corporate criminal offences relating to the failure to prevent the facilitation of tax evasion (as found in Part 3 of the Criminal Finances Act 2017): see here (pdf).

Given that these offences were, according to the report, designed to "drive a cultural and behavioural shift among companies and partnerships to take an active and increased responsibility for preventing the facilitation of tax evasion" it seems disappointing that over two-thirds of those interviewed - 72% in fact - were unaware of the new offences. Only 12% of respondents - and there were 1,002 in the survey - were aware of the new offences and the implication of them for their business.

Note:

The Government has provided information and guidance about the offences here.

UK: The Companies Act 2006 (Extension of Takeover Panel Provisions) (Isle of Man) Order 2019

The Companies Act 2006 (Extension of Takeover Panel Provisions) (Isle of Man) Order 2019 was made yesterday by Her Majesty in Council and comes into force on exit day: see here or here (pdf).

The Order is being made, the explanatory note accompanying it explains, in response to the UK's withdrawal from the EU and changes in responsibility for company registration on the Isle of Man. Article 2 of the Order extends Chapter 1 ("The Takeover Panel") of Part 28 ("Takeovers etc") of the Companies Act 2006 to the Isle of Man subject to the modification contained in the Schedule. Article 3 revokes the Companies Act 2006 (Extension of Takeover Panel Provisions) (Isle of Man) Order 2008 and the Companies Act 2006 (Extension of Takeover Panel Provisions) (Isle of Man) Order 2009.

UK: administrators must deduct income tax when paying rule 14.23(7) interest

The Supreme Court gave judgment today in Revenue and Customs v Joint Administrators of Lehman Brothers International (Europe) [2019] UKSC 12 (on appeal from [2017] EWCA Civ 2124): see here or here (pdf). A summary of the decision is available here (pdf).

The court unanimously held that interest payable under rule 14.23(7) of the Insolvency Rules 2016 was "yearly interest" under section 874 of the Income Tax Act 2007. As such, the administrators were required to deduct income tax before paying the interest to the creditors.

UK: replacing the FRC with the new Audit, Reporting and Governance Authority

The Government, through the Department for Business, Energy and Industrial Strategy, has published a consultation paper in respect of the recommendations made by the Kingman Review of the Financial Reporting Council: see here (pdf).

The Government has, amongst other things, accepted the Review's recommendation that the FRC should be replaced by a new regulator to be called the Audit, Reporting and Governance Authority. The new Authority's powers, purpose and objectives will be contained in legislation and complemented by a remit letter from the Government. Ahead of the new Authority's creation through legislation, the paper explains that the FRC has voluntarily agreed to become bound by a remit letter from the Government and that such a letter has been issued.

Whilst primary legislation will also be required in respect of the new Authority's board, the Government has decided to make some changes to the current board of the FRC, including the appointment of a new chair and deputy chair; those appointed will, in due course, hold these positions with the new Authority.

The Government also states that it will work with the FRC as part of the current consultation on updating the UK Stewardship Code to ensure that the revised Code addresses the concerns raised in the Kingman Review. According to the Government, the UK Stewardship Code must be "demonstrably improved".

UK: The Local Audit (England and Wales) (Amendment) (EU Exit) Regulations 2019

The Local Audit (England and Wales) (Amendment) (EU Exit) Regulations 2019 were made last week: see here or here (pdf). The Regulations come into force on exit day, subject to a couple of exceptions: regulation 2 and regulation 6(1)(a)(i)(bb) and (ii) come into force on 1st January 2021. The purpose of the Regulations is explained in the accompanying explanatory memorandum (here, pdf) as follows (paras. 2.4 and 2.5):

This instrument ensures that upon the UK’s exit from the EU, the local audit regime will align as necessary with the approach being taken for the statutory audit regime (as amended by the Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019).

It will set out transitional arrangements enabling EEA auditors currently working in the local audit regime to apply to have their qualifications recognised in the UK until 1st January 2021 but will allow them to continue to practise in the UK until then, whilst ensuring that, longer term, they meet new UK requirements.  It also ensures that the future recognition of third country auditors wishing to work in the UK audit market is fair and equal".

UK: England and Wales: the avoidance of floating charges under section 245 of the Insolvency Act 1986

Judgment was given earlier today in Crumpler & Anor (Liquidators of Peak Hotels And Resorts Ltd) v Candey Ltd [2019] EWCA Civ 345, on appeal from [2017] EWHC 3388 (Ch). The case is an important one on the operation of section 245 ("Avoidance of certain floating charges") of the Insolvency Act 1986.

In broad outline, section 245 invalidates floating charges (but not the underlying debt) where created in a relevant period prior to the onset of insolvency; but the charge (or part thereof) remains valid in several circumstances, including (under section 245(2)(a)) in respect of "the value of so much of the consideration for the creation of the charge as consists of money paid, or goods or services supplied, to the company at the same time as, or after, the creation of the charge". The value of goods or services so supplied is fixed by section 245(6) as "the amount in money which at the time they were supplied could reasonably have been expected to be obtained for supplying the goods or services in the ordinary course of business and on the same terms (apart from the consideration) as those on which they were supplied to the company" (emphasis added).

In the case before the court, a fixed fee agreement was agreed whereby Candey would supply legal services to PHRL. Candey received a floating charge as security; the charge had been created at a time when PHRL was unable to pay its debts (within the meaning found in section 123 of the 1986 Act). PHRL later entered liquidation. Amongst the issues to arise was the extent of the floating charge's validity and how to value the services.

Lord Justice Henderson (with whom Underhill and Moylan LJJ agreed) held that for the purposes of section 245, the question was not what sum was contractually due between the parties but what was the value of the services actually supplied as calculated in accordance with section 245(6). This was, Hendersen LJ stated, "...the measure laid down by Parliament to ensure a fair balance between the interests of Candey as the holder of a floating charge, on the one hand, and the interests of the general body of unsecured creditors (including Candey, to the extent that the charge is invalid) on the other hand. It has nothing whatever to do with the commercial fairness, as between Candey and PHRL, of the contractual terms of the Fixed Fee Agreement" (para. 36).

This valuation process in section 245(6) required, Henderson LJ stated, the obligation to pay the fixed fee to be ignored because this was a term relating to "the consideration" (para. 38). Indeed, his Lordship added that "the whole concept of the provision of the services in return for a fixed fee has to be disregarded, because such a concept is incompatible with the exercise which section 245(6) requires to be performed ... the exercise required by section 245 ... is retrospective, and requires a valuation with the benefit of hindsight of the work which has actually been done. Only to that extent may Candey be regarded as a validly secured creditor" (para. 39).

UK: Treasury Committee report - economic crime, anti-money laundering supervision and sanctions

The Treasury Committee today published its report Economic Crime - Anti-money laundering supervision and sanctions implementations: see here or here (pdf). The accompanying press release is available here. The report's conclusions and recommendations can be read here. The Committee notes that the scale of economic crime is uncertain and that it is difficult to measure. It nevertheless recommends that the Government undertakes more analysis and research concerning the scale and size of economic crime and individual sectors' exposure to it.

There is much in the report, but what can be noted here is what is said about company formation and the weaknesses associated with current procedures at the companies registry, Companies House. To quote directly from the report (at para. 63):

The UK cannot extol the virtue of a public register of beneficial ownership and yet not carry out the necessary rigorous checks of the information on that register. The Government must urgently consider reform of Companies House to ensure it has the statutory duties and powers to ensure it plays no role in helping those undertaking economic crime, whether here or abroad. It is welcome that the Economic Secretary has noted that BEIS is considering reform in this area, but the Government should move quickly and now publish detail of this reform by summer 2019".

UK: Takeover Panel response statements - asset valuations and the UK withdrawal from the EU

The Takeover Panel Code Committee yesterday published two response statements in respect of proposed changes to the City Code on Takeovers and Mergers that have been the subject of consultation.

The first, RS 2018/1: Asset Valuations (pdf), explains that the Committee had adopted its proposed amendments (pdf) but with certain modifications. These changes will come into force on 1 April and the Instrument making them is available here (pdf).

The second, RS 2018/2: The UK's withdrawal from the EU (pdf), explains that the Committee will adopt its proposed amendments (pdf) and will make an Instrument bringing them into effect when more is known about the date and manner in which the UK will leave the EU. The amendments will come into effect at 11pm on 29 March 2019 at the earliest - but only if the UK leaves the EU on this date without a withdrawal agreement including a transition period.

Note:
 
The Prime Minister stated last month that Parliament would vote on the withdrawal agreement by March 12.

Belgium: a new Companies and Associations Code

A new companies code was approved at the end of February and will bring about dramatic changes, including (in due course) the abolition of some of the current corporate forms. A copy of the new Code, in Dutch and French, is available here (pdf).

UK: FRC position paper for the revision of Auditing and Ethical Standards

The Financial Reporting Council has today published a position paper explaining its proposed timetable for the revision of its Auditing and Ethical Standards: see here (pdf). This follows a consultation that concluded last month (about which see here, pdf).

The FRC states that a public consultation on the revised text of the standards will start in July 2019, in order that the revised standards can apply to financial periods beginning on or after 15 December 2019. The FRC also explains how it will address some of the issues raised by the Kingman Review and the on-going Competition and Markets Authority review of the UK statutory audit market.

The position paper also explains the implications for certain independence requirements in the current standards should the UK leave the European Union without a withdrawal agreement or transition period (see further the Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2018). These implications are also covered in the letters the FRC has sent to Heads of Audit and CEOs: see, respectively, here (pdf) and here (pdf).

BCBS to publish high-level supervisory expectations concerning crypto-assets

The Basel Committee on Banking Supervision met at the end of February. A summary of what was discussed and agreed is available here. The Committee announced that it would publish, this month, high-level supervisory expectations relating to crypto-assets.

UK: FRC consults on revised going concern standard for auditors

The Financial Reporting Council has published for consultation proposed revisions to its current standard on going concern (ISA UK 570, pdf). A copy of the revised standard is available here (pdf) and the accompanying exposure draft is available here (pdf).

The FRC states, in its press release, that its proposals will "... increase the work required of auditors when assessing whether an entity is a going concern. The consultation ... follows concerns about the quality and rigour of audit and well-publicised corporate failures where the auditor’s report failed to highlight concerns about the prospects of entities which collapsed shortly after as well as findings recent FRC Enforcement cases.  In proposing these revisions, requirements on UK auditors will be significantly stronger than those required by international standards".

South Africa: the draft Conduct of Financial Institutions Bill

The National Treasury is seeking views on the draft Conduct of Financial Institutions Bill, following the introduction, less than a year ago, of two regulators - the Prudential Authority and the Financial Sector Conduct Authority - as part of the new twin peaks regulatory framework.

A copy of the draft Bill is available here (pdf). Chapter 3 of the Bill is titled "Culture and Governance" and this sets out the principles that financial institutions should follow, as well as requiring the adoption of a governance policy to ensure adherence to these principles. Published alongside the Bill are a policy paper and impact assessment: see, respectively, here (pdf) and here (pdf). An overview of the Bill, together with further information on how to submit a consultation response ahead of the 1 April deadline, is available here (pdf).

EU: EBA publishes revised guidelines on outsourcing arrangements

The European Banking Authority has published revised guidelines on outsourcing arrangements, which have a heavy focus on governance: see here (pdf). The guidelines enter into force on 30 September 2019 and operate alongside the EBA's guidelines on internal governance.

UK: The Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019

The Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019 were made yesterday and come into force on exit day: see here or here (pdf). The accompanying explanatory memorandum - available here (pdf) - explains the purpose of the Regulations as follows (paras. 2.1 to 2.3):

...to address deficiencies in retained EU law in relation to the prudential regulation of the insurance sector arising from the withdrawal of the United Kingdom (UK) from the European Union (EU), ensuring the legislation continues to operate effectively once the UK leaves the EU.

The Solvency II Directive (Directive 2009/138/EC) and Delegated Regulation EU No. 2015/35 implemented a harmonised prudential framework for insurance and reinsurance firms in the EU. It is designed to provide a high level of protection for policy holders by requiring firms to provide a market-consistent valuation of their assets and liabilities, understand the risks they are exposed to, and to hold capital that is sufficient to absorb shocks. Solvency II was transposed into UK law by the Solvency II Regulations 2015 (No. 575) and through the Prudential Regulation Authority (PRA) Rulebook.

Current UK Solvency II legislation is drafted on the basis that the UK is a member of the EU, and treats countries in the EEA differently to other third countries. Once the UK has left the EU, this will no longer be appropriate. To ensure that Solvency II regulation continues to operate effectively once the UK is outside of the EU, certain deficiency fixes to the legislation are necessary".