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Directors' knowhow is a monthly article which highlights changes and updates of relevance to small and mid-sized quoted companies.

QCA/Peel Hunt Investor Survey


The QCA, in partnership with Peel Hunt and YouGov, published the findings of its Mid and Small-cap Investor Survey at the beginning of February. The survey brings together the views of 102 UK-based fund managers and 105 small and mid-sized quoted companies on their feelings towards MiFID II.


Overall, the survey indicates an increasing sense of pessimism towards MiFID II, since its implementation over a year ago. Both broking houses and the investor community are encountering periods of considerable change as a result of MiFID II. The majority of the investor community have seen a reduction in the availability of research providers, something of which they expect to see further reductions of in the future. As well as this, the report points to a feeling amongst fund managers that they expect the quantity of broking houses to be decreased, both in the immediate and long-term. In last year’s survey, around half of participants highlighted a decrease in the volume of research on mid and small-cap companies being provided; this year, nearly two thirds said the same. Something of which will have a consequential perceived impact on liquidity


Some of the key findings of the survey include:

  • 62% of investors report that there is less research being produced on small and mid-caps since MiFID II came into effect.
  • 86% of investors expect there to be fewer broking houses in the next 12 months as a result of MiFID II.
  • Companies are taking action – 90% say they either have, or plan to, develop their corporate website to improve visibility to investors. Investors say that holding a capital markets day is the best way to improve visibility.

You can read the full report here.


Policy consultation responses


At the end of January 2019, the QCA’s Corporate Governance and Financial Reporting Expert Groups contributed to the response to the Financial Conduct Authority’s (FCA) consultation on Climate Change and Green Finance. See the response here.


Additionally, the QCA is currently seeking member input on the following consultations:

If you have any comments you wish to contribute on any of these consultations, please get in touch with Jack Marshall, Policy Adviser,


Financial Services (Implementation of Legislation) Bill


The Financial Services (Implementation of Legislation) Bill had its third reading in the House of Lords at the beginning of February. The third reading provided an opportunity for the Lords to tidy up the bill and make any necessary amendments to it. Following the completion of the third reading, the bill has since had its first and second readings in the House of Commons.


The bill aims to provide the government with powers to implement and make changes to ‘in flight’ files of EU financial services legislation. ‘In flight’ refers to pieces of EU legislation that:

  • have been adopted by the EU but not yet enacted, and so would not apply under the European Union (Withdrawal) Act 2018
  • are currently in negotiation and may be adopted up to two years following EU withdrawal


The powers would last for two years after the UK leaves the EU, in the event of a ‘no-deal’ scenario.


Additionally, during the third reading of the bill in the House of Lords, Lord Leigh of Hurley mentioned the QCA when speaking about how smaller quoted companies have successfully achieved amendments that have ensured proportionality. Lord Leigh of Hurley said:


“The Commission has reacted positively to direct approaches by representative bodies, such as the Quoted Companies Alliance, or QCA, seeking proportionate application of MiFID II rules to smaller companies.”


More details of the bill can be found here.

The transcript of the House of Lords reading (including Lord Leigh of Hurley's reference to the QCA) can be found here


European Commission consultation on update of guidelines on non-financial reporting 


On 20 February 2019, the European Commission published for a consultation on the proposed revision of non-financial reporting with regards to climate-related information. The consultation document sets out the Commissions non-binding guidelines on non-financial reporting and expects to publish the update as a supplement to the existing guidelines. The Commission encourages companies to integrate climate-related information with other financial and non-financial information as appropriate in their reports.


The draft guidelines propose climate-related disclosures for each of the five reporting areas in the Non-Financial Reporting Directive: (a) business model (b) policies and due diligence (c) outcome of policies (d) risks and risk management and (e) key performance indicators. The proposed disclosures are divided into two types:


  • Type 1: disclosures that a company should consider if climate-related information is necessary for an understanding of its development, performance, position and impact of its activities.
  • Type 2: additional disclosures that companies may consider in order to provide more enhanced information. The Commission states that the decision on whether or not to use the type 2 disclosures is likely to depend on, amongst other factors, the size of climate-related risks and opportunities that the company identifies.


More details can be found here.


Chair of the Business, Energy and Industrial Strategy Select Committee comments on Grant Thornton audit response


Rachel Reeves MP has commented on correspondence from Grant Thornton, following their appearance in front of the BEIS Committee’s inquiry on the future of audit on 30 January 2019. The issues raised during the evidence session include an auditors responsibilities in detecting fraud, and the enforcement of sanctions and the levying of fines for when auditors fail.


Rachel Reeves MP said:

"Auditors are often quick to explain away shortcomings in audits as the inevitable consequence of an ‘expectation gap’ where auditors are apparently unable to provide what investors or other stakeholders might expect to see in an audit. But the very least we should demand is that auditors have robust measures in place to pick up blatant cooking of the books. Grant Thornton’s latest correspondence adds to the impression given by their public evidence that they are too accepting from the outset that their audits won’t be capable of picking up fraud."


More details can be found here.


Investment Association publish guidelines on irredeemable preference shares


On 19 February 2019, the Investment Association published its guidelines on the redemption or cancellation of irredeemable preference shares. The guidelines are intended to be of general application for listed companies. The central principle of the guidelines is that Issuers must follow a fair process and have regard for a fair market price to redeem or cancel irredeemable preference shares. Other principles in the guidelines include:

  • As part of ensuring a fair process, consultation by an Issuer should be designed such that the irredeemable preference shareholders have sufficient time and information to enable them to reach a properly informed decision on the proposed redemptions or cancellations.
  • The Issuer should use this consultation with irredeemable preference shareholders to inform the Issuer’s decision as to the fair market price to be offered to the irredeemable preference shareholders as compensation for any subsequent redemption or cancellation.
  • Issuer will need to respect the position of its ordinary shareholders and consult them equally with regard to the fair process and fair market value to be offered to preference shareholders as compensation for any subsequent redemption or cancellation.


Market Abuse (Amendment) (EU Exit) Regulations published 


On 19 February 2019, the Market Abuse (Amendment) (EU Exit) Regulations 2019 were published. The regulations are due to come into effect on exit day, with the exceptions of regulations 1, 2, 3 and 6, which have already come into force.


The regulations intend to address inadequacies in retained EU law in relation to potential market abuse that could arise upon the UK’s withdrawal from the EU. The main pillars of the regulation will amend EU Market Abuse Regulation and the tertiary legislation made under it and the UK legislation which complements it, so as to ensure that Market Abuse Regulation continues to operate effectively when the UK leaves the EU.


FRC published proposed revisions to the UK Stewardship Code


The FRC consulted over 170 members of the investment community, company organisations and representative bodies to produce the proposed revisions to the 2012 UK Stewardship Code. The new Code aims to increase demand for more effective stewardship and investment decision-making, which will enhance the overall quality of engagement between investors and companies.


The proposed revisions cover the definition, structure, guidance, application and reporting of the Stewardship Code, amongst others. The new Code also aims to take on-board the recommendations from Sir John Kingman’s review of the FRC.


FCA published a Primary Market Bulletin advising on new regulatory obligations under a ‘no-deal’ Brexit


The FCA’s Primary Market Bulletin advises market makers and issuers of regulatory obligations that they will need to implement for the Short Selling Regulation (SSR) and Market Abuse Regulation (MAR) if  the UK leaves the EU on 29 March 2019 without an implementation period (a ‘no-deal’ scenario).


HM Treasury have drawn up Statutory Instruments for SSR and MAR that create new obligations as a result of changes to convert EU law into UK law, following the European Union (Withdrawal) Act 2018. The majority of the new obligations would apply immediately from exit day, should the UK leave the EU without a deal. However, there are certain obligations, such as for firms using the market maker exemption under the SSR, who may need to take action before exit day.  


FRC and BEIS accounting and audit ‘no deal’ letters


The FRC and BEIS have jointly published letters for auditors and accountants to share information in case a ‘no-deal’ Brexit scenario materialises. The letters set out important information in relation to the future of audit, accounting and corporate reporting that companies will need to consider in light of the UK leaving the EU on 29 March 2019. The content of the letters are relevant only in the context of the UK leaving the EU without a deal, but provide useful information on recommended actions to ensure companies are prepared, and is particularly relevant for UK and EEA listed companies and AIM companies.


For Auditors see:

For Accountants see:


Chief Executive of the FCA speech on MiFID II 


Andrew Bailey, Chief Executive of the FCA, gave a speech on 25 February 2019 at the European Independent Research Providers Association on the FCA’s thoughts surrounding MiFID II. During the speech, Bailey declared that the FCA maintains its support for the MiFID II reforms, stating that the overall impact of the rule changes have been positive.

Despite this, Bailey acknowledges that there have been some overarching challenges as a result of the implementation of MiFID II. Predominantly, these are concerned with MiFID II’s scope and pricing, but also other unintended consequences, such as the impact on the research coverage of smaller companies and the liquidity of their shares on secondary markets.


The speech can be found here.


QCA in the news


Selected media coverage of the QCA this month has included:




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