Corporate Weekly Highlights—11 November 2016

Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 11 November 2016, which provide news updates and a comprehensive list of dates for your diary. This week’s edition features: various news relating to the UK’s implementation of the Non-Financial Reporting Directive (including the UK government’s response paper to its February 2016 consultation, the draft Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 and FCA updates to the DTRs relating to the requirement to include diversity information in the corporate governance statement); the UK government consultation on implementing the Fourth Money Laundering Directive; the FCA’s latest policy development update; the Pensions and Lifetime Savings Association call for greater transparency around FTSE 350 workplaces; an FRC consultation on procedures for de-registration of third-country auditors; the UK government’s and FRC’s endorsement of the Hampton/Alexander report that calls for greater representation of women in executive positions; case analysis on the decision in Re Easynet Global Services Ltd relating to the jurisdiction requirements for a merger pursuant to the Cross-Border Merger Regulations 2007; analysis on the landmark Brexit decision that the government requires Parliamentary approval to trigger Article 50; and analysis of the subsequent constitutional arguments.

Non-Financial Reporting Directive

BEIS response paper to consultation on Non-Financial Reporting Directive

The Department for Business, Energy and Industrial Strategy (BEIS) has published the UK government’s response to its February 2016 consultation on the implementation of the Non-Financial Reporting Directive 2014/95/EU (Reporting Directive).

The Reporting Directive aims to harmonise non-financial reporting regulations across member states. The consultation sought views on the best way to transpose the Reporting Directive, including how to address differences between the EU and existing UK frameworks and how to use the flexibility that the Reporting Directive offered.

The response paper outlines the government's proposed approach on the following points: placement of information; scope of the Reporting Directive; third party verification of non-financial information; current practice in electronic reporting; and gender reporting.

Draft Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016

BEIS has also published draft regulations which will implement aspects of Reporting Directive on disclosure of non-financial and diversity information by certain large undertakings and groups.

The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 are intended to apply to companies and qualifying partnerships with financial years beginning on or after 1 January 2017. The proposed regulations amend the Companies Act 2006 to require companies and groups of a certain size and which have more than 500 employees to produce a non-financial statement as part of their annual report. The non-financial information statement must contain information necessary for an understanding of the company’s development, performance and position and the impact of its activity, relating to, as a minimum, environmental matters, the company's employees, social matters, respect for human rights, anti-corruption and anti-bribery matters. Some information requirements can be fulfilled by the company publishing the information by means of a national, EU-based or international reporting framework.

FCA published Handbook Notice 38

The Financial Conduct Authority (FCA) has published Handbook Notice 38, which sets out the FCA’s response to feedback to consultation CP16/17. The FCA has also published the Disclosure Guidance and Transparency Rules Sourcebook (Miscellaneous Amendments) Instrument 2016 (2016/70), which implements changes to the Disclosure Guidance and Transparency Rules following the consultation.

The key change for corporate lawyers is the introduction of a new rule in DTR 7.2 to implement the new Reporting Directive requirement for issuers to disclose their diversity policy in the corporate governance statement.

Fourth Money Laundering Directive

BEIS consults on implementing the Fourth Money Laundering Directive

Article 30 of Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Fourth Money Laundering Directive) requires EU member states to maintain a central register of beneficial ownership information of corporate and other legal entities in their territory. Article 30 also requires member states to allow access to the information they hold by law enforcement and other organisations which combat money laundering and other financial crimes. Member states are required to implement it in domestic law by June 2017.

BEIS is seeking views on its discussion paper outlining possible approaches to the transposition of Article 30 of the Fourth Money Laundering Directive.

The UK already has a central register of this kind: companies and other entities are required to maintain a central register of persons with significant control. However, the requirements of the Fourth Money Laundering Directive are different from existing UK legislation and the discussion paper highlights these areas and outlines possible ways for amending the UK requirements to meet the UK's transposing obligations.

The deadline for responses is 16 December 2016.

MiFID II

FCA publishes policy development update for November 2016

The FCA has published its latest policy development update, which provides information on its recent and upcoming publications, including forthcoming consultations on MiFID II. The fourth consultation paper on MiFID II implementation is now expected to be published in late 2016 or early 2017, with policy statements on the first three consultation papers to follow in the first half of 2017.

PLSA

PLSA calls for greater transparency around FTSE 350 workplaces

The Pensions and Lifetime Savings Association (PLSA) has written to the chair of every FTSE 350 company asking them to share details about the culture and working practices of their workforce. Currently less than half of FTSE 100 companies detail their level of staff turnover in their annual report. The PLSA has said the management and engagement of employees can have a material effect on a company's performance over the long term, and investors should therefore have access to such information.

Auditors

FRC consults on procedures for de-registration of third-country auditors

The Financial Reporting Council (FRC) is looking to introduce a more consistent and transparent procedure for investigating third-country auditors (TCAs) who may be at risk of removal from the register. TCAs are non-EU auditors of companies incorporated outside the European Economic Area that have issued securities on UK regulated markets (usually on the main market of the London Stock Exchange). TCAs are required to register with the FRC and renew their registration on an annual basis. The consultation closes on 16 December 2016.

Women in executive positions

Government backs call for greater female representation in executive positions

The UK government and the FRC have welcomed a report that calls for FTSE 100 companies to have a voluntary target of at least 33% representation of women in executive pipeline positions by 2020. The independent review is pressing ahead with proposals to ensure talented women at the top of business are recognised, promoted and rewarded. The focus of the review is on senior women below the company board.

The review, headed up by Sir Philip Hampton and Dame Helen Alexander, also recommends that the FRC amends the UK Corporate Governance Code so that FTSE 350 companies disclose the gender balance of their executive committees and direct reports to make sure there is transparency around how many women are in senior positions.

Mergers—case analysis

Easynet caught out by purposive interpretation of Cross-Border Merger Regulations (Re Easynet Global Services Ltd)

This analysis considers the decision in Re Easynet Global Services Ltd EWHC 2681 (Ch). In this case the High Court considered whether a UK company could effect a merger pursuant to the Cross-Border Merger Regulations 2007 (Cross-Border Regulations) where the only non-UK EEA company involved in the transaction was a dormant entity.

The decision shows that the courts will look beyond the strict letter of the law and consider whether the transaction is of a kind which the Cross-Border Regulations was intended to facilitate. Where a proposed merger only satisfies the jurisdiction requirements as a result of the inclusion of a dormant company, the courts will look to see whether this is a 'device' to bring the transaction within the framework of the Cross-Border Regulations.

Relevant updates from other practice areas

Public Law

Brexit judgment—landmark ruling on limits of prerogative powers

Following the landmark judgment in which the High Court ruled that the government could not use prerogative powers to give notice under Article 50 TEU without Parliamentary approval, the UK’s Brexit process enters a new phase. In this analysis Greg Callus, barrister at 5RB and constitutional law blogger at ‘A typo in the Constitution’, explains the parameters of a complex constitutional situation, with possible outcomes that draw on a range of issues spanning from international law, to processes and conventions in the Houses of Parliament, to the tricky matter of the Fixed-term Parliaments Act 2011.

Article 50 litigation—putting a spotlight on the UK's constitution

With government arguing that the principles of international law allow prerogative powers to unmake treaties, and claimants defending the sovereignty of Parliament, Article 50 TEU has thrown light onto the UK constitution. In this analysis James Libson and Katy Colton of Mishcon de Reya survey the arguments already heard, and what might lie ahead in the government’s appeal.

Dates for your diary

Date Subjects covered
10 November 2016 The deadline for comments on HM Treasury's consultation paper regarding the transposition of the Money Laundering Directive into UK law. The consultation paper was published by HM Treasury in September 2016.
6 December 2016 Member states are required to transpose the Reporting Directive into national law by 6 December 2016. The Reporting Directive amended the EU Accounting Directive 2013/34/EC as regards disclosure of non-financial and diversity information by certain large undertakings and groups. In the UK, this introduces disclosure requirements in relation to anti-corruption and bribery issues in the strategic report, which must be transposed into UK law by 6 December 2016.

Relevant Articles
Area of Interest