UK: FCA consults on DTR amendment - delaying the disclosure of inside information

The Financial Conduct Authority has published a consultation paper in which it proposes amending one part of its Handbook: DTR 2.5 ("Delaying the disclosure of inside information"). It is proposed to remove the last sentence of DTR 2.5.5G in order to make clear that an issuer may have a legitimate reason to delay disclosure in circumstances other than the non-exhaustive examples listed in DTR2.5.3R or the circumstances described in DTR2.5.5AR.

UK: FCA quarterly consultation - EU statutory audit framework - proposed DTR changes in respect of audit committees

At the end of last month, the Department for Business, Innovation and Skills published an update in respect of the UK's implementation of the new EU statutory audit framework: see here. This update noted the work being done by the Financial Reporting Council, Prudential Regulation Authority and Financial Conduct Authority. In this regard, the Financial Conduct Authority has today published one of its quarterly consultation papers and this contains, amongst other things, proposed changes to the Disclosure Rules and Transparency Rules (DTR) in respect of the composition of audit committees. The paper also explains that the FCA does not intend to adopt an option requiring annual election by the shareholders of the audit committee chairman. A copy of the paper is available here (pdf).

UK: DTR change and FCA policy statement - removing the requirement to publish interim management statements

The Disclosure Rules and Transparency Rules (DTR) have been amended to remove, from 7 November 2014, the requirement for interim management statements to be published by issuers of shares admitted to trading on a regulated market where the UK acts as home Member State and the DTRs apply.

Further information is available in the policy statement, Removing the Transparency Directive’s requirement to publish interim management statements, that was published last Friday by the Financial Conduct Authority: see here (pdf). The change to the DTR was made by the Disclosure and Transparency Rules (Interim Management Statements) (Amendment) Instrument 2014, a copy of which will be available here soon.

UK: premium listed companies with a controlling shareholder - some proposals from the FSA (and other matters)

Yesterday the Financial Services Authority published a consultation paper titled Enhancing the effectiveness of the listing regime: see here (pdf). The paper is divided into two parts. The first part contains the amendments the FSA proposes to make to the Listing Rules, Prospectus Rules and the Disclosure Rules and Transparency Rules following an earlier consultation. The second part of the paper contains some new proposals for further amendments to the Listing Rules the purpose of which is to enhance the effectiveness of the listing regime. These focus in particular on companies seeking a premium listing where there is a controlling shareholder and, in this regard, four proposals are particularly noteworthy.

First, the FSA proposes that companies with a controlling shareholder seeking a premium listing should be required to have a board where [a] the majority of the directors are independent or [b] an independent chairman and independent directors together comprise at least half the board. This would be a mandatory requirement and a continuing obligation. Second, the FSA proposes that the independent directors of such companies should be subject to a dual voting mechanism whereby their election would be dependent on obtaining the approval of [a] the shareholders as a whole and [b] the independent shareholders. Third, such companies would be required to have a relationship agreement in place to govern the relationship between the company and its controlling shareholder, setting out legally binding requirements regarding the day to day running of the company and the terms of transactions between the company and the shareholder. Fourth, the FSA is proposing changes in respect of the voting rights and powers of premium listed shares. In particular, it is proposed that only those shares that are premium listed should be eligible to participate in a vote that the company is required to undertake by virtue of its premium listing.

UK: FSA seeks views on premium listing regime and proposes other amendments

The Financial Services Authority has published for consultation proposed amendments to the Listing Rules, Prospectus Rules, and the Disclosure Rules and Transparency Rules: see here (pdf). The FSA is also seeking views on the nature of the premium listing standard more generally and whether changes are needed to enhance the protections provided to shareholders regarding, for example, related party transactions, free float requirements and whether it should be a condition of listing that companies with controlling shareholders should be capable of carrying out their business independently of such controlling shareholders.

UK: Photo-Me International plc fined for DTR and Listing Principle breach

The Financial Services Authority today announced the imposition of the largest fine it has imposed in respect of the failure by a listed company to disclose inside information to the market in accordance with Disclosure Rules and Transparency Rules 2.2.1R and Listing Principle 4: see here.

The fine was £ 500,000 and it was imposed on Photo-Me International plc in respect of its failure to disclose that it was no longer engaged in exclusive negotiations for a contract when the contract was re-tendered and the company was in competition with others. Photo-Me issued a statement today - see here - in which it stated that it would not be challenging the FSA's decision and reaffirmed its position that "the FSA has underestimated the real-time difficulties faced by the Company in updating the market on the possible outcome of the relevant complex contractual negotiations".

UK: developments in corporate governance affecting the responsibilities of auditors of UK companies

The Auditing Practices Board has today published Bulletin 2009/4: Developments in Corporate Governance Affecting the Responsibilities of Auditors of UK Companies: see here (pdf). The bulletin considers the directors' statement on going concern, the corporate governance statement required by the Disclosure Rules and Transparency Rules, and changes to the structure of the listing regime.

UK: issue 22 of LIST! published - UKLA reminder on compliance with the Listing Principles

Issue 22 of LIST! - the UK Listing Authority newsletter - was published at the end of August. The newsletter adopts a question and answer format to deal with some of the issues raised in the course of the UKLA's work. The newsletter also provide a reminder concerning compliance with the Listing Principles:

We sometimes get queries about the interaction between the Listing Principles (set out in LR7) and the Disclosure & Transparency Rules (DTRs) and Prospectus Rules (PRs).We therefore thought it would be helpful to remind issuers of the approach we take regarding compliance with the Listing Principles. The Principles are a general statement of the fundamental obligations of listed companies. They were introduced to ensure adherence to the spirit as well as the letter of the various rules, including the DTRs and PRs, comprising the listing regime.

Issuers should therefore be aware of the importance we place on compliance with the Principles on an ongoing basis. As our Handbook notes, a breach of a Listing Principle will make a listed company liable to disciplinary action by the FSA. While cases may be brought in conjunction with action for a breach of a specific rule or rules, the FSA is prepared to take enforcement action on the basis of the Principles alone, taking account of the standard of conduct required by the Listing Principle in question".

UK: using shares as security - FSA clarification

The Financial Services Authority has today issued a statement in which it clarifies the operation of Disclosure and Transparency Rule 3.1 and the Model Code with regard to using shares as security. The operation of these rules has proved controversial, following the resignation in December 2008 of David Ross, deputy chairman of Carphone Warehouse Group plc, for his failure to disclose (see here and here). 

DTR 3.1 requires persons discharging managerial responsibilities (e.g., directors) to disclose transactions conducted on their own account in shares of the issuer, or derivatives or any other financial instrument relating to those shares. With regard to this rule, the FSA states that it includes grants of security over shares (e.g., pledges, mortgages and charges). The FSA nevertheless notes:

"we recognise that we are implementing a European regime [the Market Abusive Directive 2004/72/EC] and it has become clear that there are differing approaches in some other Member States, based in part on local practices and structures or procedures for granting security over shares, including the circumstances in which legal title to shares transfers. We are therefore seeking to reach a common understanding on the detail of the MAD requirements in this area with the European Commission and our counterparts in the Committee of European Securities Regulators".

In the statement, the FSA also reminds listed companies of their obligations under the Model Code (Annex 1 to Chapter 9 of the Listing Rules) and, in particular, the obligation on directors to obtain clearance (in accordance with paragraph 4 of the Code) before using the issuer's shares as security. In this regard, the FSA warns:

"... we can see no basis on which a director could have a legitimate excuse for not seeking clearance in advance where the company’s securities are to be used as collateral for a financing transaction. We expect listed issuers to deal with Model Code breaches by their directors".

UK: delayed disclosure of liquidity support - FSA consultation

The UK's Financial Services Authority has published a consultation paper in which it proposes amending the Disclosure and Transparency Rules (DTR) in order to clarify that, in a limited set of circumstances, financial institutions admitted to trading on a regulated market and in receipt of liquidity support from the Bank of England can delay disclosure of this fact.

There is unlikely to be unanimous support for this proposal, not least because of the argument that the proposal (which is clearly designed to support financial stability) undermines the transparency of the market. The FSA nevertheless states in its consultation paper that its proposal is consistent with Article 3 of the European Market Abuse Directive (2003/124/EC) which recognises certain circumstances in which delayed disclosure can be justified. These circumstances are reflected in the current version of DTR 2.5. 

For further information see:

FSA press release | FSA newsletter | FSA consultation paper | Online response form | 

UK: contracts for difference - general disclosure regime proposed by the FSA in respect of long positions

In November 2007 the FSA published a consultation paper titled "Disclosure of Contracts for Difference", which discussed the possible market failures (inefficient price formation, distorted market for takeovers and diminished market confidence) arising from non-disclosure of Contracts for Difference (CfDs) and the regulatory options available to address those failures. In this paper the FSA noted (at para. 1.8):

Despite the growth in the market, CfDs mostly remain outside the regulatory framework governing disclosure. This framework exists primarily to provide to the public accurate, comprehensive and timely information about changes in major shareholdings in companies issuing shares. The current disclosure requirements are therefore referenced to direct and indirect control of voting rights attaching to a share".

The FSA has today published a statement explaining its position following the end of the consultation period. In this statement the FSA explains:

We have concluded that our objective of addressing the market failures the [consultation paper] identified in relation to voting rights and corporate control can best be addressed through a general disclosure regime. Therefore we have decided to implement a general disclosure regime of long CfD positions, based on Option 3 in the consultation paper, but with two significant modifications: [1] in relation to aggregation and disclosure thresholds; and [2] in relation to an exemption for CfD intermediaries".

The FSA proposes setting the disclosure threshold at 3%., which is in line with the existing requirement with regard to voting rights in listed securities found within DTR Rule 5.1.2 (part of the Vote Holder and Issuer Notification Rules (DTR 5) within the FSA Handbook). A further consultation period has begun - on the technicalities of the proposals - and the FSA plans to publish a further statement and draft rules in September. The final rules will be published in February 2009.

For further information see:
FSA press release | FSA policy statement | November 2007 consultation paper | November 2007 consultation newsletter | FSA Handbook: DTR5 | Financial Times newspaper article | Times newspaper article | 

UK: comply or explain and corporate governance statements

The Financial Services Authority has today published a policy statement in which it announces a change to the "comply or explain" statement required by listed companies with regard to their compliance with the Combined Code on Corporate Governance. The FSA is modifying Listing Rule 9.8.6R(5) so that listed companies will be required to report on how they have applied "the main principles" set out in Section 1 of the Combined Code. This change will come into force on 29 June 2008 for financial reporting periods beginning on or after this date. At present, rule 9.8.6R(5) requires companies to state how they have applied "the principles" in Section 1. With regard to this change, the FSA explains:

Where a company has applied the Code’s Main Principles by complying with the associated provisions it should be sufficient for the company simply to report that it has done so. However, where a company has taken additional actions to apply the principles or otherwise improve its governance, it would be helpful to shareholders to describe these in the annual report. We do not expect this to have any cost implications, and modification will benefit smaller companies by cutting back the amount of boiler-plate"

This change is one of many being made as part of the FSA's implementation of the Statutory Audit Directive (2006/43/EC) and the Company Reporting Directive (2006/46/EC). The latter requires companies whose securities are admitted to trading on a regulated market to produce a corporate governance statement in their annual reports. This statement must explain which corporate governance code the company has followed and the extent to which it has complied with the code. The UK rules governing the corporate governance statement will be introduced in new rule DTR 7 within the FSA Handbook and will come into force on 29 June 2008 for financial reporting periods beginning on or after this date. 

For further information see:
FSA policy statement | FSA newsletter | FSA consultation paper (Dec 2007) | FSA Handbook | Listing Rules | DTR 7 - corporate governance statements | Statutory Audit Directive | Company Reporting Directive |

UK: publishing the annual report and accounts - listed companies missing the new deadline

Under Disclosure and Transparency Rule (DTR) 4.1 listed companies are required to publish their annual report and accounts within 4 months of their financial year end. This rule implements Article 4(1) of the European Transparency Directive (2004/109/EC) and applies to companies with year ends after 20 January 2008. According to the FSA (acting as the UK Listing Authority):

Our recent experience, with the first issuers required to comply with these new rules, suggests that some companies have mistakenly believed that publishing Preliminary Results (required previously under the Listing Rules) within this period was enough to fulfil their obligations under DTR 4.1. This is not the case. We would remind issuers that we are able to suspend the listing of, or even take enforcement action against, companies who do not publish the required financial information within the required deadlines, and may employ this where necessary in the future".

For further information see this update.