Corporate weekly highlights—2 December 2016

Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 2 December 2016, which provide news updates and a comprehensive list of dates for your diary. This week’s edition considers: the Government’s Green Paper on corporate governance reform; proposed changes to the DTRs; the second consultation paper from the PRA on the implementation of MiFID II; the Commission Regulation adopting IFRS 9; the FRC’s thematic review of alternative performance measures; the FRC’s investigation into Sports Direct’s financial statements; the European Commission’s communication on the EU regulatory framework for financial services; and the FCA’s list of companies that are at risk of losing their passporting rights following Brexit.

Corporate governance

Views sought on UK corporate governance framework update

A Green Paper on corporate governance reform has been published, which seeks views on three areas where the government is considering updating the UK’s corporate governance framework. These are executive pay; strengthening the voice of key stakeholders, such as employees, customers and suppliers; and extending some of the features of the corporate governance regime to large private companies.

The three areas where the government is considering updating the framework are

The Financial Reporting Council (FRC) has indicated that it will consult to update the UK Corporate Governance Code and associated guidance in 2017 to address some of the themes discussed in the Green Paper.

The government is inviting responses to the Green Paper by 17 February 2017.

Equity capital markets

FCA consults on DTR 2.5 changes to comply with ESMA guidelines

Proposed amendments to the Disclosure Guidance and Transparency Rules (DTRs) in the Financial Conduct Authority (FCA) Handbook have been set out for consultation in CP 16/38. The FCA believes that the changes are required to ensure compliance with the guidelines issued by the European Securities and Markets Authority (ESMA) on delay in the disclosure of inside information under the Market Abuse Regulation, Regulation (EU) No 596/2014 (MAR). This is due to overlaps between the guidelines and the provisions of DTR 2.5.

The specific amendments proposed to be made to DTR 2.5 are described in Chapter 2 to CP 16/38 and set out in its Appendix 1. The FCA intends to delete any material in DTR 2.5 that conflicts with or duplicates the guidelines and, where a provision is deleted, cross-refer to the guidelines as appropriate. It is thought that this will avoid confusion and any conflict between the guidelines and the provisions of DTR 2.5.

The amendments that the FCA is proposing to DTR 2.5 are not intended to extend the scope for issuer non-disclosure. It does not anticipate that they will have a negative impact on the type of transparency the FCA expects to see, or the quality or amount of disclosures made, compared with the position in recent years.

The consultation is open until 6 January 2017.

PRA launches second consultation on MiFID II implementation

The Prudential Regulation Authority (PRA) has published its second consultation paper (CP43/16) on the implementation of Markets in Financial Instruments Directive 2014/65/EU (MiFID II). The consultation paper proposes changes to the PRA Rulebook and supervisory statements relating to new management body and organisational requirements. There are also proposed changes to granting authorisations in respect of operating an organised trading facility (OTF), emission allowances and structured deposits. It is proposing that firms would be able to apply for permissions before 3 January 2018, when MiFID II comes into effect.

The deadline for responses to the consultation is 27 February 2017.

Accounts and reports

Commission Regulation on IFRS 9 published in the Official Journal

Commission Regulation (EU) 2016/2067 of 22 November 2016 has been published in the Official Journal. It amends Regulation (EC) No 1126/2008 adopting certain international accounting standards (IAS) in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (known as the IAS Regulation), in order to adopt International Financial Reporting Standard (IFRS) 9, 'Financial Instruments'.

Commission Delegated Regulation (EU) 2016/2071 shall enter into force on 19 December 2016. IFRS 9 will apply to annual periods beginning on or after 1 January 2018 with earlier application being permitted.

APMs must be clearly defines, FRC review finds

The FRC has conducted a thematic review of alternative performance measures (APMs). This was instigated in response to concerns about the reporting of APMs being expressed by a number of stakeholders, as well as the FRC in its recently published Annual Review of Corporate Reporting. In addition, ESMA has issued guidelines on APMs, which came into force on 3 July 2016.

While the reporting of APMs has improved, according to the FRCs review, further improvements are required. There are particular issues relating to commonality in the definition of APMs and about why certain items had been excluded from them.

The FRC will take account of the findings of the thematic review in its review of reports and accounts for years ending 31 December 2016 onwards. The FRC notes that many companies will need to make further enhancements to their reporting in this area.

FRC investigates Sports Direct's financial statements

The FRC has commenced investigations under the Accountancy Scheme and the Audit Enforcement Procedure in relation to the preparation, approval and audit of the financial statements of Sports Direct International plc for the 52-week period ended 24 April 2016.

Financial services

EU financial services regulatory framework ‘working well’, European Commission finds

The European Commission has published a communication on its call for evidence on the EU regulatory framework for financial services, which was made as part of the Commission’s Better Regulation agenda and the Regulatory Fitness and Performance (known as REFIT) programme.

The European Commission has concluded that overall the financial services framework in the EU is working well. However, targeted follow-up action is required in the following areas: reducing unnecessary regulatory constraints on financing the economy; enhancing the proportionality of rules without compromising prudential objectives; reducing undue regulatory burdens; and making rules more consistent and forward-looking.

The communication noted that, where appropriate and possible, the results of the call for evidence have been integrated into existing reviews and legislative initiatives. The feedback submitted by stakeholders has been incorporated into forthcoming legislative proposals and actions.

Brexit-related developments

13,500 UK companies at risk following Brexit

The FCA has released a list of 13,500 companies that are at risk of losing cross-border 'passporting' rights following Brexit. It includes banks of all sizes and insurers, as well as construction-supply companies, car-rental companies and travel agents.

Passporting rights are a feature of EU membership. Passports come under different forms, allowing companies to provide cross-border services in sectors including banking, insurance brokering and e-payments. However, it appears doubtful the UK will be able to retain the rights when it quits the EU and UK ministers have accepted they will seek an alternative form of cross-border trading rights, such as an ‘equivalence’ regime.

Dates for your diary

Date Subject
6 December 2016 Member states are required to transpose the Non-Financial Reporting Directive 2014/95/EU (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.
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 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.
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 IFRS.

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