Directors' knowhow is a monthly article, which highlights key rule changes, proposed changes and market updates so that you know what is coming down the track.
The FCA’s role in preparing for Brexit
The FCA has published a statement on its role in preparing for Brexit. It notes that:
- It continues to prepare for a range of scenarios, including one in which the UK leaves the EU on 29 March 2019 without a withdrawal agreement and implementation period having been ratified between the UK Government and the EU.
- The EU (Withdrawal) Act will transfer and convert existing EU law at the point of exit into UK law. The Act will give ministers powers to amend the existing EU law, so that it functions effectively when the UK leaves the EU.
- Accordingly, the FCA's role is to amend and maintain EU binding technical standards, which sit underneath EU regulations and directives, providing technical detail of how those requirements must be met.
- The FCA will also make amendments to the Handbook (to be consulted on in autumn 2018) to ensure it is consistent with changes the Government is making to EU law and it functions effectively when the UK leaves the EU.
You can read the statement in full here.
HMRC provides an update on EMI
Further to our bulletin last month where we confirmed that the European Commission had re-approved the prolongation of the Enterprise Management Incentives scheme under state aid rules until 6 April 2023, HMRC has followed up with an Employment Related Securities Bulletin. The Bulletin states that no changes to the scheme have been made and that it will continue to operate in the same way as described in its current guidance and practice, for employment-related securities options validly granted and exercised as Enterprise Management Incentives share options.
You can now also read the full letter sent by the European Commission to HM Treasury here).
Independent Review of the FRC launches call for evidence
The independent review of the Financial Reporting Council (FRC), led by former HM Treasury official Sir John Kingman, has launched its call for evidence.
The call for evidence covers the FRC's:
- Purpose and function;
- Impact and effectiveness;
- Legal status and relationship with government;
- Governance and leadership;
- Funding, resources and staffing; and
- Role in reducing the risk of major corporate failure.
The deadline for responses is Monday 6 August 2018.
If you have views on how the QCA should respond to the call for evidence, please contact Callum Anderson at firstname.lastname@example.org or 020 7600 3745.
The UK’s largest companies to be required to justify the pay gap between CEOs and their workers
The Department for Business, Energy and Industrial Strategy (BEIS) has laid draft regulations in Parliament which will require UK listed companies with more than 250 employees to annually publish and justify pay differences between chief executives and their staff.
The new regulations form part of the UK’s industrial strategy and aim to increase transparency and accountability of the UK’s largest companies.
Under the government’s plans, directors of all large companies will also have to set out how they are acting in the interests of employees and shareholders, while listed companies will be required to show what effect an increase in share prices will have on executive pay to inform shareholders when voting on long-term incentive plans.
You can also read a summary of the regulations here, and an impact assessment here.
The FCA announces new premium listing category for sovereign-controlled companies
The Financial Conduct Authority (FCA) has published a Policy Statement finalising rules for a new premium listing category open to companies controlled by sovereign countries.
Following consultation on the new rules (you can read the QCA’s response here), the FCA has now included requirements in the following areas:
- Independent votes on independent directors: The election of independent directors must be subject to separate approval by independent shareholders. Moreover, as for all other Premium listed companies, where independent shareholders do not vote in favour of the election, the requirement for a 90-day cooling off period after which the election can proceed without the separate vote of independent shareholders will apply.
Disclosure obligations on related party transactions beyond market abuse regime disclosures: Although neither a sponsor opinion nor the independent shareholder approval requirements under Listing Rule 11's related party rules will apply to sovereign controlled companies, they must announce transactions with their sovereign controlling shareholder as required under Listing Rule 11.
Issuers will be able to seek an admission, or transfer, of securities to this new category from 1 July 2018.
FRC Financial Reporting Lab publishes report on the use of blockchain in corporate reporting
The FRC’s Financial Reporting Lab has published a report on the use of blockchain and the future of corporate reporting.
Blockchain is a type of shared database which creates a permanent record of transactions. It is considered secure because not only is it distributed across a number of participants in a network and therefore not under the control of a single participant, but any changes made to the data are clear to all participants. This ensures that both the data and the network are resilient.
The report considers the extent to which blockchain technology could be used to address some of the challenges faced during a corporate report’s:
- Production – how transactions processed on a blockchain may help to improve the quality and reliability of accounting records;
- Distribution – how a blockchain based European corporate reporting platform (European Financial Transparency Gateway) could enable greater accessibility to corporate reports; and
- Consumption – how blockchain might help to rethink the way that reporting content is defined.
The Lab notes that as blockchain development is at an early stage - especially for accounting and corporate reporting - it needs to be nurtured, in order to take fully realise its opportunities.
It therefore makes two main recommendations going forward:
- Regulators, standard-setters and professional bodies should monitor blockchain developments and consider how they may impact corporate reporting. Establishing a forum would help all stakeholders involved in corporate reporting share knowledge.
- Preparers and users should seek to increase their understanding of blockchain technology. They should also consider experimentation and cautious innovation when costs and benefits are balanced.