Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 22 December 2016, which provide news updates and a comprehensive list of dates for your diary. This week’s edition features: the Financial Reporting Council (FRC) thematic reviews in 2017 on certain aspect of companies’ reports and audit; the FRC’s consultation on its draft plan and budget for 2017/2018; the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations, SI 2016/1245; the Financial Reporting Lab’s report on better disclosure of dividends; the private censure and fine of an AIM company by the AIM Disciplinary Committee for breach of AIM Rule 31; the European Securities and Markets Authority’s updated Q&As on the Prospectus Directive, on the MAR, and on MiFID II investor protection topics and its new Q&As on MiFIR regarding data reporting; the Financial Conduct Authority’s final consultation paper on the implementation of MiFID II and MiFIR; the House of Lord’s finding that the financial services market is a key priority for the government in Brexit negotiations; a yearly round up of decisions and developments of interest to corporate crime lawyers; and an analysis on the core issues arising out of the Article 50 litigation. Headlines (News updates & analysis) Corporate governance FRC wants thematic reviews to prompt improvements In 2017, the Financial Reporting Council (FRC) is planning to an undertake thematic reviews of certain aspects of companies’ corporate reports and audits. The aim of this monitoring is to drive continuous improvement in quality and to identify good examples of disclosures. The FRC will share these good practices to help others raise the quality of corporate reports and audit. FRC publishes consultation on draft plan and budget for 2017/18 The FRC has today issued for consultation its plan and budget for 2017/18. A key focus of the FRC’s work will be its monitoring and enforcement activities to ensure the UK’s reputation for high standards of corporate governance and reporting, and its standing as a global centre of excellence for accountancy, audit and actuarial work. Comments are sought by 17 February 2017. Accounts and reports Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations, SI 2016/1245 (Regulations) implement aspects of Directive 2014/95/EU amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups and come into effect on 26 December 2016. The Regulations are intended to apply to companies and qualifying partnerships with financial years beginning on or after 1 January 2017 and 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. Better disclosure of dividends—a report The Financial Reporting Lab (LAB) has published a report which examines how companies have responded to investor calls for better disclosure of dividends, as highlighted in its November 2015 report: ‘Disclosure of dividends—policy and practice’. The report finds, among other things, investors would welcome more detailed disclosure of how dividend policies operate in practice. In Summer 2016, the Lab undertook a review of FTSE 350 dividend disclosures to assesses how practice changed following its November 2015 report. 177 companies published their annual reports in the scope period. The LAB reviewed 120 annual report and noted enhancements in reporting from 28 companies. The report notes that improvements identified often focused on additional disclosure around distributable profits. However, enhancements in the following areas would also be welcomed by investors: more detailed disclosure of how dividend policies operate in practice, with more clarity on factors considered in both the setting of the policy and in dividend declaration; and disclosure of risks and constraints where they impact dividend policy and declaration decisions (especially pertinent to concerns around pension deficits, the potential impact of Brexit and other factors that may have a bearing on capital management decisions). Equity capital markets Company fined £75,000 for AIM Rule 31 breach The AIM Disciplinary Committee (ADC) has determined that an AIM company be privately censured and fined £75,000 for a breach of AIM Rule 31. The London Stock Exchange (LSE) has published details of the disciplinary action, on an anonymous basis, for the purpose of emphasising to AIM companies the importance of the obligation to liaise with nominated advisers (nomads) pursuant to AIM Rule 31. The ADC determined that the AIM company (the Company) breached AIM Rule 31 by failing to provide its nomad with information reasonably required to carry out the nomad’s responsibilities and by failing to seek its nomad’s advice regarding compliance with the AIM Rules when it was appropriate to do so. The ADC held that the Company ought to have informed its nomad and sought advice regarding a series of business developments. It further held it was not appropriate for the Company to decide whether or not the business developments were disclosable based solely on its own assessment of its obligations under the AIM Rules, without reference to its nomad. The ADC considered this was precisely the type of issue that falls within AIM Rule 31 and where an AIM company should be seeking advice from its nomad. ESMA issues updated Q&A on Prospectus Directive The European Securities and Markets Authority (ESMA) has published an updated Q&A document (ESMA/2016/1674) on the application of the Prospectus Directive. The document includes one new Q&A on the application of the ESMA guidelines on alternative performance measures to prospectuses. It clarifies how to apply the guidelines when constituent parts of a prospectus straddle the date on which the alternative performance measures guidelines came into force (3 July 2016). ESMA issues updated MAR Q&A ESMA has issued a Q&A document on the implementation of the Market Abuse Regulation (MAR). The new detailed answers cover the notification of managers’ transactions and how to handle investment recommendations. ESMA publishes MiFIR Q&A regarding data reporting ESMA has issued a Q&A document regarding the implementation of the Market in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). The document is designed to promote common supervisory approaches and practices in the application of MiFID II and MiFIR in relation to regulatory data reporting topics. It provides responses to questions posed by the general public, market participants and competent authorities in relation to the practical application of MiFID II and MiFIR on Legal Entity Identifiers of the issuer and date and time of the request of admission and admission. ESMA updates Q&A on MiFID II investor protection topics ESMA has updated its Q&A document on MiFID II investor protection topics with a number of new items. The updated document (ESMA/2016/1444) includes new Q&As in the following areas: best execution; suitability and appropriateness; underwriting and placing; inducements (research); post-sale reporting; and information on costs and charges. FCA publishes fourth MiFID II consultation paper The Financial Conduct Authority (FCA) has published its fourth and final consultation paper (CP16/43) on the implementation of MiFID II and MiFIR. The deadline for comments is 17 February 2017, except for responses to the proposal on Fees, which should be submitted by 16 January 2017. The consultation proposes some technical changes to the FCA Handbook that were not covered in the FCA’s previous MiFID II consultations. The FCA is also proposing some guidance on transaction reporting, including trading venues’ use of Approved Reporting Mechanisms, and proposing a transitional rule for fees relating to draft applications for authorisation in MiFID II. Brexit related developments Financial services market 'a priority' in Brexit negotiations The House of Lords has identified the financial services market as a key priority for the government’s Brexit negotiations with the EU. In a report examining the impact of Brexit on UK financial services, the House of Lords finds that avoiding a ‘cliff-edge’ after Article 50 is triggered will be vital to ensuring the sector's stability. It wants both the UK and EU to make an early commitment to a transition period, which will enable firms to adapt to any new business conditions. It also believes that the UK is in a strong position when it comes to negotiating an equivalence agreement, as the EU is heavily reliant on London’s financial services capabilities. Relevant updates from other practice areas Corporate crime Key developments in 2016 for corporate crime lawyers In this analysis, the Lexis®PSL Corporate Crime team presents its yearly roundup of developments and decisions from 2016, including: assessments of key procedural updates flowing from the amendments to the Criminal Procedure Rules (CrimPR) in April and October 2016; the introduction of new legislation in relation to investigatory powers and the new offences proposed by the Criminal Finances Bill; and developments in substantive criminal law and practice. It also considers: the deferred prosecution agreement reached in 2016; developments in 2016 in the market abuse arena, health and safety sentencing; cases interpreting the law of confiscation, extradition and legal professional privilege; and the impact of the referendum result (Brexit) from a corporate crime perspective. Public Law Article 50 litigation—examining the government’s appeal In this analysis, Adam Cygan, Professor of Law at the University of Leicester, explains core issues arising from the Article 50 litigation, which may not be able to stymie the Brexit process, but will do much to redefine the UK’s nuanced constitution. The government is appealing the High Court judgment in which it ruled that the government could not use prerogative powers to give notice under Article 50 TEU. In its Supreme Court appeal, the government suggests that it has prerogative power to trigger Article 50 TEU and that the European Union Referendum Act 2015 (EURA 2015) does not require a Parliamentary vote. The author examines: the key constitutional principles central to the appeal and the key arguments of the appellant and respondents (including what is the nature of a constitutional statute and how it is formulated and the nature of sovereignty (parliamentary versus popular)); notable issues raised in relation to the devolved administrations; the issues likely to cause the most difficulty for the Supreme Court (including what was the intention of Parliament when it passed the EURA 2015); what is the possible impact of the outcome of the appeal; whether there are any particular constitutional questions which will remain regardless of the result; and what happens after the outcome is known. Date Subjects covered 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). 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.