Corporate weekly highlights—16 November 2017

This week’s edition of Corporate highlights includes three thematic reports published by the FRC to help companies improve their corporate reporting in known areas of difficulty, the latest FCA Handbook Notice and MiFID 2 guide and Sir Philip Hampton’s challenge for FTSE 350 companies to increase board diversity.

Accounts and reports

Thematic reports aim to help companies improve reporting

The Financial Reporting Council (FRC) has published three thematic reports to help companies improve the quality of their corporate reporting in acknowledged areas of difficulty: judgments and estimates, pension disclosures and alternative performance measures (APMs). The reports set out findings from the FRC’s 2016/17 thematic reviews to which companies can refer when preparing their next report and accounts.

The FRC informed sixty companies before their year-end that one of the three themes would be reviewed in their next reports and accounts. The thematic reviews contain the most significant improvements, including extracts from the better disclosures which most closely matched the FRC’s expectations.  The FRC expects other companies to use the better examples observed to assess the quality of their own reporting and raise the bar on their disclosures.

Paul George, FRC’s executive director for corporate governance and reporting, said: ‘The great majority of companies approached clearly reviewed and revised the relevant disclosures prior to releasing their next set of report and accounts, which provided better quality information to the market in a timely manner. Many sharpened, and some shortened, the relevant information with a view to providing more granular detail about the issues that really matter to those reading their reports and accounts and wanting a better understanding of the key issues and of how management is dealing with them.  We expect others to similarly review their own reports and accounts and look to the characteristics of the better disclosures we identified to inform the continuing development of their reporting’.

For further information, see LNB News 09/11/2017 134.

Corporate governance

FTSE 350 companies challenged to make senior positions 33% female by 2020

Sir Philip Hampton has urged businesses to renew their commitment to diversity and has challenged all FTSE 350 businesses to fill one third of their senior leadership positions below board level with women. His government-backed review finds FTSE 100 companies are on track to meet the 33% target for women on boards by 2020.

The Hampton-Alexander Review 2017, a follow on from the initial Hampton-Alexander Review published in November 2016, found positive improvements in gender diversity. The number of women on FTSE 100 company boards has ‘more than doubled’ over the last six years—from 12.5% in 2011 to 27.7% in 2017. However in a bid to quicken the pace of change Sir Philip has extended the 33% target to senior leadership positions of all FTSE 350 companies, which was previously only applied to FTSE 100 companies. Sir Philip believes ‘at least 40% of appointments to senior positions will have to be filled by women over the next three years if FTSE 350 firms are to hit the ambitious targets’.

For further information, see LNB News 09/11/2017 100.

Financial services regulation

FCA publishes latest Handbook Notice and new MiFID 2 guide

The Financial Conduct Authority (FCA) has published Handbook Notice No 49, which includes changes to the FCA Handbook and other materials made by the FCA Board on 9 November 2017, together with feedback on the corresponding consultations. Changes include a new guide to MiFID 2 (which is made up of the recast Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation).

The new MiFID 2 Guide (M2G) will sit on the FCA Handbook website but will not form part of the Handbook. In summary, it aims to help users of the FCA Handbook navigate the complexities of MiFID 2. The guide sets out an overview of the FCA’s approach to transposition of MiFID 2 in the MAR and REC sourcebooks. It focuses on the regulatory regime in MiFID 2 for trading venues and data reporting services providers.

See news, LNB News 10/11/2017 97.

Commission consults on institutional investors and asset managers' duties regarding sustainability

The European Commission has opened a consultation on institutional investors and asset managers’ duties regarding sustainability. The EU wants its financial system to be aligned with its sustainability objectives and so is looking to incorporate sustainability elements into EU financial services policies. The consultation follows the July 2017 recommendation by the High Level Expert Group on sustainable finance that the Commission clarify that the fiduciary duties (loyalty and prudence) of institutional investors and asset managers explicitly include material environmental, social and governance (ESG) factors and long-term sustainability. Feedback is sought by 22 January 2018.

The Commission argues that consideration of ESG factors would help asset managers and institutional investors allocate capital more efficiently by taking into account sustainability risks, rather than merely seeking to maximise short-term financial returns.

The consultation forms part of the Commission's efforts to mobilise private capital towards green and sustainable investments to enable the transition to a low-carbon economy and shows the EU's strong commitment to mitigate risks posed by climate change and environmental challenges.

See news story, LNB News 13/11/2017 42.

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New and updated content

Coming up

We have licensed the following guidance notes from ICSA:

  1. ICSA: The Governance Institute and The Investment Association—guidance note on Stakeholder Voice in Decision Making. The aim of this guidance is to help directors to understand and weigh-up the interests of their key stakeholders when taking strategic decisions. The guidance emphasises that stakeholder engagement, if taken seriously, will strengthen the business and promote its long-term success to the benefit of stakeholders and shareholders alike.
  2. ICSA: The Governance Institute guidance note on the EU General Data Protection Regulation This note provides an overview of the new legal landscape, and the strategic and practical considerations raised by the GDPR

ICSA guidance notes are widely regarded as beacons of best market practice for large listed companies. The notes are otherwise only available to ICSA members.

Dates for your diary

Date Subjects covered
30 November 2017 All AIM companies are required to register for an LEI code by 30 November 2017.
The LEI is a 20-digit, alpha-numeric code that enables identification of legal entities participating in financial transactions.  In order to comply with the Markets in Financial Instrument Directive (MiFID II) which requires market operators, such as the London Stock Exchange, to collate LEI codes for each issuer with securities admitted to trading, all AIM companies will be required to register for an LEI code by 30 November 2017. The AIM application form for admission of new securities to AIM has been amended to require an LEI.
See further news, AIM Notice 47
End of November 2017 The FRC have announced that they will publish amendments to the current guidance for auditors when agreeing to the publication of preliminary announcements of annual results by the end of November 2017.
In April 2017, the FRC issued a discussion paper which looked at options for bringing Bulletin 2008/2 up to date. Options included: converting the guidance to an engagement standard; consulting with the UKLA to require auditors to follow FRC guidance; and mandating that statutory financial statement audits should be complete before auditors agree to the release of preliminary announcements.
Stakeholders are broadly content with current arrangements and the Financial Reporting Council (FRC) will therefore only make minor amendments to the current guidance for auditors when agreeing to the publication of preliminary announcements of annual results.
For further information, see LNB News 27/04/2017 96 and LNB News 25/10/2017 114.

Latest Q&As

New Q&As added this week:

  1. Does a stock transfer form need to be executed as a deed?
  2. Which provisions of the Companies Act 2006 apply to limited liability partnerships?
  3. A shareholder in a 50:50 joint-owned limited company has discovered that the company has been struck-off and dissolved by the Registrar pursuant to CA 2006, s 1000. What will have happened to the assets of the company and the liabilities owed to the shareholder?

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