Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 16 December 2016, which provide news updates and a comprehensive list of dates for your diary. This week’s edition features: the newly agreed prospectus regulation; the guidance from the London Stock Exchange (LSE) stating that disclosure by social media is no substitution for the disclosure requirements under AIM Rules 10 and 11; the publication of SI 2016/1194 Companies Act 2006 (Distributions of Insurance Companies) Regulations 2016; the publication of SI 2016/1192 Venture Capital Trust (Amendment) Regulations 2016; the consultation by the Financial Reporting Council (FRC) on draft amendments to FRS 101; the FRC’s amendments to FRS 101 and 102; the International Accounting Standards Board’s minor changes to IFRS Standards; the Private Equity Reporting Group’s annual report; the European Parliament briefing on Brexit and EU financial services; and analysis on the recent changes to the Investment Association principles of remuneration. Headlines (News updates & analysis) Equity capital markets Revamped EU prospectus regulation A new set of EU prospectus rules to support companies raising money on capital markets to invest and grow has been agreed by the European Parliament, the Council and the Commission. It will also help investors to make better and more informed decisions. Firstly, the new rules will exempt the smallest capital raisings from the burden of producing a lengthy and expensive prospectus. Secondly, member states will be able to set higher thresholds to support growth in their domestic markets, increasing from €5m to €8m. Thirdly, for small companies who want to raise money across the EU, a new EU growth prospectus will be created for use by small and medium-sized companies and mid-caps. The reform was proposed by the Commission on 30 November 2015 as part of its Capital Markets Union Action Plan in order to improve access to finance for companies and simplify information for investors. Disclosure by social media no substitution for AIM Rules requirements The London Stock Exchange (LSE) has released guidance to provide assistance to the AIM community on the interaction of social media with disclosure obligations. The guidance confirms the regulator's view that: disclosure by social media is not a substitution for the disclosure requirements under AIM Rules 10 and 11; AIM companies who use social media, should consult with their nominated advisers on how the dissemination of information is supervised and monitored to ensure compliance with its disclosure obligations under the AIM Rules; and the systems, procedures and controls an AIM company puts in place (as required by AIM Rule 31) should take into account the use of social media and other forms of electronic communication used by the company in order to manage its disclosure obligations under the AIM Rules. Insurance companies SI 2016/1194 Companies Act 2006 (Distributions of Insurance Companies) Regulations 2016 SI 2016/1194 Companies Act 2006 (Distributions of Insurance Companies) Regulations 2016 were made on 7 December 2016. HM Treasury consulted on a draft of the regulations between October and November 2016. The Regulations amend CA 2006, Part 23, which restricts the amount of assets which a company may distribute to its shareholders. The amendments reflect the coming into force of Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (the Solvency II Directive). The Regulations insert a new section 833A into Part 23 for life insurance companies regulated in accordance with the Solvency II Directive and make various other minor amendments to Part 23. They set out a new methodology for insurers to segregate life and non-life business to ensure that firms only make distributions out of realised profits. Under the new rules, the concept of a ‘long-term fund’, as contained in the Companies Act 2006, can no longer be used. The Regulations come into force on 30 December 2016 and have effect for distributions made on or after that date by reference to relevant accounts prepared for any period ending on or after 1 January 2016. Venture capital SI 2016/1192 Venture Capital Trust (Amendment) Regulations 2016 Under SI 2016/1192 Venture Capital Trust (Amendment) Regulations 2016 venture capital trusts (VCT) will be required to provide HMRC with additional information concerning the VCT and its investments when making their annual return to HMRC for accounting periods ending on or after 31 December 2016. This information is necessary to comply with EU state aid rules, following changes introduced by Finance (No 2) Act 2015 to focus the VCT scheme on higher-risk, newer companies. The record-keeping requirement will also be extended from 6 to 10 years, to meet EU rules. Accounts and reports FRC consults on draft amendments to FRS 101 The Financial Reporting Council (FRC) has launched a consultation on proposed amendments to FRS 101—Reduced Disclosure Framework following its 2016/2017 annual review. In the consultation paper, Financial Reporting Exposure Draft (FRED) 66, the FRC proposes limited amendments to FRS 101 in relation to IFRS 16 Leases. FRED 66 asks respondents whether they agree that qualifying entities should be required to continue to provide detailed analyses of leases. The proposed amendments are designed to ensure that FRS 101 continues to be effective in providing disclosure reductions when compared with EU-adopted IFRS and maintains consistency with company law. The deadline for comments on the proposals is 31 March 2017. FRC amends FRS 101 and 102 The FRC has made amendments to FRS 101—Reduced Disclosure Framework and FRS 102—The Financial Reporting Standard applicable in the UK and the Republic of Ireland. The amendments remove the requirement for a qualifying entity to notify its shareholders in writing that it intends to take advantage of the disclosure exemptions in FRS 101 and FRS 102. The amendments apply to accounting periods beginning on or after 1 January 2016. They are in relation to the requirement to notify shareholders of the proposed use of disclosure exemptions and will reduce the costs of complying with FRS 101 and the reduced disclosures for subsidiaries in FRS 102 and eliminate an area of inconsistency in practice. Minor changes made to IFRS Standards The International Accounting Standards Board has issued several amendments to IFRS Standards and an Interpretation, which clarifies the requirements in particular Standards. The changes are part of the Board’s process to maintain IFRS Standards. The changes include: annual improvements to IFRS Standards; an IFRIC Interpretation; and a narrow scope amendment to an existing Standard which clarifies the aspects of the Standards. Private equity Private Equity Reporting Group annual report The Private Equity Reporting Group (PERG) has published its ninth annual report, which provides a summary of the private equity industry’s conformity with the Disclosure and Transparency in Private Equity (Guidelines). PERG identified the following key findings of the 2016 review: compliance with the Guidelines fell to 88% from 95%; the quality of disclosures fell substantially from 95% to 57% of the sample reviewed achieving an overall good or excellent/best in class rating; there has been a decrease in the number of companies required to comply with the Guidelines; the number of private equity firms managing or advising funds which owned the portfolio companies within scope increased by one to 66; no portfolio company has significantly improved the quality of disclosure in any one Guidelines’ criterion; almost half of the sample did not initially include a human rights and/or gender diversity disclosures in their annual report but disclosed such information on the company’s website; only 40% of companies have included a specific statement of compliance with the Guidelines in the annual report and financial statements; 20% of all portfolio companies had not published their audited report and accounts on their website at the time of the PERG report; and all members of the British Private Equity and Venture Capital Association (BVCA) complied with the Guidelines in relation to complying with applicable disclosure obligations relating to their own activities. Brexit related developments European Parliament briefs on Brexit and EU financial services The European Parliament has published a briefing setting out the prominent role of the UK in the single market for financial services, and highlights which activities currently rely on passporting for the UK’s daily business with the other 27 EU member states. The briefing relies on publicly available information, including secondary sources such as analytical papers by research institutes and private sector companies such as Global Financial Centres Index, the Centre for European Reform and the Boston Consulting Group. The paper considers the interconnections between UK and EU financial services in the sectors of banking, asset management, insurance and reinsurance, and infrastructures/others. It comments on how each sector accounts towards banking revenues in the UK. The asset management section of the paper considers the net assets and market share of assets under management across the EU and worldwide, and considers the number of cross-border funds and registrations by the domicile of the fund. The insurance and reinsurance section looks at 2015 key facts and statistics from the Association of British Insurers (ABI) that found that the UK insurance market is the largest in Europe and the third largest in the world. The paper also considers market infrastructure and other services, and highlights the central role of the UK in European financial services in relation to strong market infrastructures such as the clearing and settlement of securities and derivatives. The European Parliament indicates that the briefing may be updated pending new information. Dates for your diary Date Subjects covered 16 December 2016 Deadline for responses to the discussion paper issued by the Department for Business, Energy and Industrial Strategy outlining possible approaches to the transposition of Article 30 of the Fourth Money Laundering Directive 2015/849/EU. Article 30 relates to the requirement for EU member states to maintain a central register of beneficial ownership information of corporate and other legal entities in their territory. 16 December 2016 The FRC's consultation on procedures for de-registration of third-country auditors closes. The FRC is looking to introduce a more consistent and transparent procedure for investigating 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. 16 December 2016 Deadline for responses to the FRC's consultation paper on a proposal to revise Practice Note 20 on the audit of insurers in the United Kingdom and withdraw Practice Note 24, on the audit of friendly societies in the United Kingdom. The proposed changes to Practice Note 20 reflect changes to the regulatory regime, including the replacement of the Financial Services Authority by the PRA and the FCA and the implementation in 2016 of Directive 2009/138/EC (known as Solvency II), as well as related changes to the PRA Rulebook. Material from Practice Note 24 has been integrated into the proposed new Practice Note 20. 16 December 2016 Deadline for responses to the FCA's consultation paper (CP16/31) on investment and corporate banking: prohibition of restrictive contractual clauses. The FCA is proposing to ban the use of restrictive contractual clauses in investment and corporate banking engagement letters and contracts, where these clauses cover future corporate finance services carried out from an establishment in the UK. This prohibition would apply to all agreements entered into after the commencement date on the ban, but not to existing agreements. 19 December 2016 The Commission Delegated Regulation (EU) 2016/2071 in relation to the adoption of International Financial Reporting Standard (IFRS) 9 shall enter into force. 30 December 2016 SI 2016/1194 Companies Act 2006 (Distributions of Insurance Companies) Regulations 2016, amending CA 2006, Part 23, which restricts the amount of assets which a company may distribute to its shareholders, comes into force. 31 December 2016 Deadline for comments on changes to FRS 102. As part of the triennial review of UK and Ireland accounting standards, the FRC has invited comments from stakeholders on its proposed approach to updating FRS 102. The suggested changes are to reflect changes in International Financial Reporting Standards (known as IFRS). 31 December 2016 The FRC will take into account the findings of its thematic review into alternative performance measures in its review of reports and accounts for years ending 31 December 2016 onwards. The review found that while the reporting of alternative performance measures (APMs) has improved, further improvements are required. 31 December 2016 Under SI 2016/1192 Venture Capital Trust (Amendment) Regulations 2016 VCTs will be required to provide HMRC with additional information concerning the VCT and its investments when making their annual return to HMRC for accounting periods ending on or after 31 December 2016. 1 January 2017 Disclosure requirements under the Non-Financial Reporting Directive 2014/95/EU (Reporting Directive) will apply in the UK to financial years starting on or after 1 January 2017. 1 January 2017 The implementation date for final European Banking Authority (EBA) guidelines on remuneration policies. Firms will not need to change their existing pay practices for the 2016 performance year. 1 January 2017 FCA Handbook Notice 38 introduced a new rule in DTR 7.2 to implement the new Non-Financial Reporting Directive (2014/95/EU) requirement for issuers to disclose their diversity policy in the corporate governance statement. The changes to DTR 7.2 apply to issuers with financial years beginning on or after 1 January 2017. 1 January 2017 FRC amendments to FRS 101 (Reduced Disclosure Framework) and FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland) apply to accounting periods beginning on or after 1 January 2016. 1 January 2017 SI 2016/1194 Companies Act 2006 (Distributions of Insurance Companies) Regulations 2016 have effect for distributions made on or after that date by reference to relevant accounts prepared for any period ending on or after 1 January 2016. 1 January 2017 Application date of Commission Delegated Regulation (EU) 2016/1437 of 19 May 2016 (Regulation) supplementing Directive 2004/109/EC (Transparency Directive), Articles 7 (Unique identifiers/Legal Entity Identifiers (LEIs) used by official appointed mechanisms) and 9 (common list and classification of regulated information). For further information, see EU: Electronic Access Point for EU regulated information due to become operational. 2 January 2017 The consultation on the DTR reflecting the Transparency Directive Regulatory Technical Standards on the European Electronic Access Point closes. 3 January 2017 From 3 January 2018, firms subject to the MiFIR transaction reporting obligations, and UK branches of third country firms, will need to ensure that any clients eligible for an LEI have one before executing a transaction in a financial instrument subject to the MiFID II transaction reporting obligations on their behalf. These financial instruments include shares, bonds, collective investment schemes, derivatives and emission allowances meeting the conditions in Article 26 of MiFIR. 4 January 2017 The deadline for comments and feedback on the FCA's consultation paper CP16/29 ‘Markets in Financial Instruments Directive II implementation—Consultation Paper III’ on MiFID II. It seeks views on the proposed changes to the FCA Handbook and makes key proposals concerning conduct of business issues, product governance, telephone taping for financial advisers and knowledge and competence requirements. 4 January 2017 The deadline for comments and feedback on the FRC's consultation on revised operating procedures for reviewing corporate reporting. The FRC is consulting on changes made to its Conduct Committee's operating procedures for reviewing company reports and accounts (Operating Procedures). On 1 April 2016, changes were made to the FRC's governance and executive structures which resulted in minor amendments to the Operating Procedures. This consultation concerns subsequent, more extensive changes. 6 January 2017 The deadline for responses to consultation (CP16/38) on proposed amendments to DTR 2.5 in the FCA Handbook.