Corporate weekly highlights—22 November 2018

This week’s edition of Corporate highlights includes news of the sanctions imposed by NEX Exchange on a corporate advisor for inaccuracies in the issuer’s admission documents, the publishing of updates of EMEA Proxy Voting Guidelines by ISS, the update by Glass Lewis of its corporate governance policy guidelines and the Financial Reporting Council issuing a call for evidence as part of its review of 2016 Ethical and Auditing Standards. It also includes Market Tracker’s latest mini trend report on diversity in the mining sector.

In this issue:


European Venture Capital Funds (EuVECA) post-Brexit—draft regulations published

Corporate analysis: The government has published a draft of the Venture Capital Funds (Amendment) (EU Exit) Regulations 2018 (VCF Amendment Regulations) to amend the European Venture Capital Funds Regulation, Regulation (EU) 345/2013 (EuVECA Regulation) and modify the Alternative Investment Fund Managers Regulations 2013, SI 2013/1773 (the AIFM Regulations) in relation to European Venture Capital Funds (EuVECA), to address failures of retained EU law to operate effectively, and other deficiencies arising from the withdrawal of the UK from the EU. The amendments are being made to ensure that the both pieces of legislation continues to operate effectively in a no deal scenario after exit day and so that their provisions only apply to qualifying venture capital funds established in the UK.

The government notes in its Explanatory memorandum to the Venture Capital Funds (Amendment) (EU Exit) Regulations 2018 that the impact will primarily be on fund managers and funds that currently operate under the EuVECA Regulation, noting that impacted firms will need to understand the changing regulatory environment. As the EuVECA regime is already in place in the UK, the government further notes that firms will already be complying with the regime and estimates that the familiarisation costs relating to the VCF Amendment Regulations should be a limited one-off cost to firms. The government also notes a cost to firms due to the change in the naming convention of funds from ‘EuVECA’ to ‘RVECA’.

For further information, see News Analysis: European Venture Capital Funds (EuVECA) post-Brexit—draft regulations published and LNB News 14/11/2018 56.

Brexit Bulletin—examining the key announcements, documents and next steps for the draft Withdrawal Agreement

Public Law analysis: On 14 November 2018, the UK government and the European Commission announced a deal in principle on the legal terms of the UK’s withdrawal from the EU. A copy of the draft Withdrawal Agreement agreed at negotiator level (to be ratified) was published, along with an outline of the political declaration on the framework for the future EU-UK relationship (to be finalised). The UK Prime Minister confirmed the cabinet’s decision to back the deal and the European Commission recommended to the EU27 that decisive progress has been made and steps should be taken to initiate the process of formalising the deal. A special summit of the EU27 is expected to take place on 25 November 2018. The Brexit bulletin outlines the key announcements, documents and next steps for the UK and the EU. Among other things, it considers how the draft Withdrawal Agreement compares to previous drafts and includes comment and observations from the market.

For further information, see News Analysis: Brexit Bulletin—examining the key announcements, documents and next steps for the draft Withdrawal Agreement and LNB News 15/11/2018 6.

Brexit SI Bulletin—latest drafts and sifting committee recommendations, 16 November 2018

Under the European Union (Withdrawal) Act 2018 (EU(W)A 2018), before certain statutory instruments (SIs) are formally laid in Parliament, they have to go through a preliminary sifting process to determine the appropriate parliamentary procedure. The SIs are those that the government proposes to introduce using the negative procedure (whereby instruments are laid in Parliament after being made and become law without debate unless there is an objection from either House). The Commons European Statutory Instruments Committee (ESIC) and the Lords Secondary Legislation Scrutiny Committee (SLSC) are responsible for the sifting process, which is outlined in EU(W)A 2018, Sch 7, para 3. The committees have ten sitting days (from the day after each SI is laid for sifting) to scrutinise the provisions and make recommendations on whether the negative procedure is the appropriate parliamentary procedure.

This bulletin outlines the latest updates and recommendations, collated on 16 November 2018. Among other things, the ESIC considered the following proposed negative Brexit SIs:

  1. The Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2018—ESIC recommended that this proposed Brexit SI be upgraded (see Instruments recommended for the affirmative procedure)
  2. The European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2018—ESIC did not recommend this proposed Brexit SI for upgrade

The sifting recommendations are not binding. If either committee recommends that a proposed Brexit SI should be upgraded from the negative to the affirmative procedure, the government may accept the recommendation or reject it. In the latter case, the minister responsible must provide an explanation.

A number of Brexit SIs of interest were noted in the SLSC reports, including the Draft Takeovers (Amendment) (EU Exit) Regulations 2019 (see Instruments of interest).

The following Brexit SIs were drawn to the special attention of Parliament by the SLSC:

  1. Draft Competition (Amendment etc) (EU Exit) Regulations 2019 (see Instruments drawn to the special attention of the House)
  2. Draft Accounts and Reports (Amendment) (EU Exit) Regulations 2018 (see Instruments drawn to the special attention of the House)

For further information, see News Analysis: Brexit SI Bulletin—latest drafts and sifting committee recommendations, 16 November 2018.

Insolvency (Amendment) (EU Exit) Regulations 2018

The government has published a draft of the Insolvency (Amendment) (EU Exit) Regulations 2018, which was laid in exercise of legislative powers under EU(W)A 2018 and the European Communities Act 1972 in preparation for Brexit. The draft enactment amends UK legislation and retained EU legislation in relation to insolvency and the protection of employees in the event of the insolvency of their employers. It comes into force partly on exit day.

UK law that will be amended by the draft Regulations include the Insolvency Act 1986, Insolvency (England and Wales) Rules 2016, SI 2016/1024 and Cross-Border Insolvency Regulations 2006, SI 2006/1030.

For further information, see: LNB News 20/11/2018 40.

Equity capital markets

NEX Exchange sanctions corporate adviser for inaccuracies in issuer’s admission document

NEX Exchange has sanctioned an unnamed corporate adviser for failing to advise and guide its client on its obligations under the NEX Exchange Issuer Rules (Issuer Rules).

Appendix 1, paragraph 14 of the Issuer Rules require the admission document for an investment company to include a detailed description of its investment strategy, including the sectors, countries and regions in which the company will consider making investments. The investment strategy must be sufficiently precise in terms of sector and geographical focus to allow a reasonable investor to make an informed assessment of the company’s focus, prospects and the expertise that its directors have in the relevant sphere of activity. The directors will be expected to limit their focus to a particular sector and region.

NEX Exchange’s Membership, Admissions and Enforcement Committee found that the description of the geographical focus of the company’s investment policy as set out in the admission document was not a full and accurate description of the intended policy. Further, the corporate adviser failed to ensure representations made to NEX Exchange in respect of that policy were accurate and complete. In failing to advise and guide the client on its responsibilities under the Issuer Rules, the corporate adviser’s performance fell below the standard expected.

In determining the sanction, NEX Exchange took into account a number of factors including the corporate adviser’s co-operation with the subsequent investigation and disciplinary action.

For further information, see: LNB News 19/11/2018 70.

Corporate Governance

Glass Lewis updates corporate governance policy guidelines

Shareholder proxy adviser, Glass Lewis, has updated its UK corporate governance policy guidelines, which are primarily based on the FRC’s UK Corporate Governance Code.

Key areas in which the guidelines have been updated include:

  1. board skills and diversity—FTSE 100 companies should provide a meaningful assessment of the board’s profile in terms of diversity and skills in order to align with developing best practice standards. Glass Lewis will consider disclosed gender pay gap data and executive pipeline composition when assessing diversity concerns at the board level of larger companies
  2. pay ratios—Glass Lewis has indicated that the disclosure of CEO pay ratios will not, of themselves, have a material impact on their voting recommendations at this time
  3. board and committee responsiveness—the guidelines clarify that Glass Lewis may, in certain circumstances, hold committee chairs and members accountable for a failure to adequately address shareholder dissent
  4. environmental and social risk oversight—for companies listed in a blue-chip index and in instances where they identify material oversight issues, Glass Lewis will expect there to be clarity on which directors or board-level committees have been charged with oversight of environmental and/or social issues. Where a company has not properly managed or mitigated environmental or social risks to the detriment of shareholder value or when such mismanagement has threatened shareholder value, Glass Lewis may recommend that shareholders vote against board members who are responsible for oversight of environmental and social risks
  5. executive remuneration—Glass Lewis will assess the realised pay received by a company’s top executives over at least three years when evaluating the link between pay and company performance

For further information, see: LNB News 15/11/2018 80.

Diversity in mining—Market Tracker mini trend report

Lexis®PSL Corporate and Market Tracker have conducted research to examine gender diversity in the mining sector following recent comments made by non-profit organisation Women in Mining calling for greater diversity in the sector.

The latest Market Tracker mini trend report examines gender diversity in the mining sector following recent comments made by non-profit organisation Women in Mining calling for greater diversity in the sector. Its report, Top 100 Global Inspirational Women in Mining in 2018, which acknowledges key female figures in the mining and metals industry, notes that:

While the business case for diversity and inclusion is widely recognised and many mining companies have begun to change the way in which they approach this issue, change across the sector as a whole has been slow. Complacency appears to be the biggest challenge and without a deliberate goal of prioritising diversity and inclusion as making good business sense, the pace of change is unlikely to improve.

The comments reflect the findings in the recently-published third Hampton-Alexander report, which cited mining companies Fresnillo, Randgold Resources and Glencore among the top 10 worst performing FTSE 100 companies in terms of female representation in combined executive committee and direct reports. Fresnillo was identified as one of 5 FTSE 100 companies with an all-male executive committee. In the FTSE 250, Hochschild Mining was featured in the list of the top 10 companies in need of improvement in relation to female representation on the combined executive committee and direct reports, and was cited by the report as having ‘made no progress in the year’.

For further information, see News Analysis: Diversity in mining—Market Tracker mini trend report.

Corporate governance; General meetings

ISS publishes updates to its EMEA Proxy Voting Guidelines

Institutional Shareholder Services (ISS) has published updates to its EMEA Proxy Voting Guidelines, which apply to shareholder meetings on or after 1 February 2019. The guidelines form the basis of ISS’s benchmark vote recommendations for companies listed in the UK and Ireland.

Key changes in relation to their UK and Ireland guidelines include:

  1. appointment of external auditors—ISS will generally recommend voting against proposals to ratify the appointment of the external auditor where the lead audit partner(s) has been linked with a significant auditing controversy
  2. director elections (governance failures)—ISS will consider voting against individual directors for ‘egregious actions related to the director(s)’ service on other boards that raise substantial doubt about that individual's ability to effectively oversee management and to serve the best interests of shareholders at any company’. This expands upon the existing reference to ‘material failures of governance, stewardship, risk oversight’ to include instances where these material failures occurred at issuers other than the subject company, and
  3. director elections (attendance)—ISS may recommend against the re-election of a director if there have been repeated absences (less than 75% attendance) at board and committee meetings that have not been suitably explained. This applies to all directors, not just those with multiple outside directorships. The requirement that this level of attendance must have taken place for two or more consecutive years before ISS would recommend voting against the resolution has been removed

Other key changes include disclosures by smaller companies of compliance with a recognised corporate governance code, social and environmental issues, and issues concerning remuneration policy (annual bonus and long-term incentives plans (LTIPs)) and remuneration report (LTIPs and the pay of NEDs).

For further information, see: LNB News 20/11/2018 21.

Directors and company secretaries

Privacy and Electronic Communications (Amendment) Regulations 2018

The Privacy and Electronic Communications (Amendment) Regulations 2018, SI 2018/1189 have been made and will come into force on 17 December 2018. SI 2018/1189 amends the Privacy and Electronic Communications (EC Directive) Regulations 2003, SI 2003/2426 to enable the information commissioner to impose a monetary penalty on an officer of a corporate body in addition to the body itself, where a breach occurs of regulations 19–24 of the 2003 Regulations as a result of action, or inaction, by that officer in the UK.

Under Privacy and Electronic Communications (EC Directive) Regulations 2003, SI 2003/2426, the information commissioner may impose a monetary penalty, under the Data Protection Act 1998 as applied to, and modified by SI 2003/2426, for a serious breach of Privacy and Electronic Communications (EC Directive) Regulations 2003, SI 2003/2426, regs 1924.

Privacy and Electronic Communications (Amendment) Regulations 2018, SI 2018/1189 has made provisions to:

  1. amend Privacy and Electronic Communications (EC Directive) Regulations 2003, SI 2003/2426, which implemented the provisions of Directive 2002/58/EC concerning the processing of personal data, and the protection of privacy in the electronic communications sector
  2. modify the application of the Data Protection (Monetary Penalties) (Maximum Penalty and Notices) Regulations 2010, SI 2010/31 and the Data Protection (Monetary Penalties) Order 2010, SI 2010/910
  3. enable the information commissioner to impose a monetary penalty on an officer of a body corporate or Scottish partnership in addition to the body itself, where a breach occurs as a result of action, or inaction, by that officer
  4. ensure that the penalty regime for breaches is ‘effective, proportionate and dissuasive’ as required by Article 15a of Directive 2002/58/EC

For further information, see: LNB News 19/11/2018 5.


FRC announces thematic reviews focusing on audit practice

The Financial Reporting Council (FRC) has announced that it will undertake two thematic reviews in 2019/20 which are aimed at improving audit quality. Thematic reviews supplement the FRC’s annual programme of reviews of individual audit firms. They look at firms’ policies and procedures in respect of specific areas of the audit to make comparisons between firms and identify good practice and areas for improvement.

The topics for the two thematic reviews are:

  1. audit quality indicators (AQI)—an assessment of the development and use of AQIs by UK audit firms
  2. the use of technology in audits—looking at how the use of technology has increased beyond data analytics and the potential impact upon audit quality

The FRC has also stated that it will publish its 2018/19 thematic review of ‘The Auditors Work on Other Information in the Annual Report’ later in 2018 and a report on ‘Audit Firm Transparency Reporting’ in the first quarter of 2019.

For further information, see: LNB News 15/11/2018 60.

Financial Reporting Council reviews 2016 Ethical and Auditing Standards

The FRC has published a call for evidence as part of its post implementation review of the changes to ethical and auditing standards introduced in 2016. In particular, the review will look at what the impact of the changes has been on auditor independence, prevention of conflicts and on audit quality.

A revised FRC Ethical Standard and a suite of revised International Standards on Auditing were introduced in 2016 to (among other things) support the implementation of the Audit Regulation and Directive which were the European Commission’s answer to the financial crisis (see: LNB News 29/09/2015 135).

The FRC states that since these changes were introduced, it has seen deteriorating quality results from its inspection work and a number of high quality audit failures which indicate that it is appropriate to consider what further measures are necessary to address weaknesses.

Responses to the feedback questions set out in the call for evidence should be submitted to the FRC by 15 February 2019.

For further information, see: LNB News 20/11/2018 76.

Additional Corporate updates this week

EU agrees framework for screening foreign direct investment

The European Parliament, the Council and the Commission have announced political agreement on an EU framework for screening foreign direct investment. The Commission said that while openness to foreign direct investment is enshrined in the EU Treaties, and such investment fuels growth, innovation and employment, there are some cases where foreign investors might seek to acquire strategic assets that allow them to control or influence European enterprises the activities of which are critical for the security and public order in the EU and in its Member States.

The European Parliament and Council now have to confirm the agreement and agree the legislative basis of the framework, which will include a Regulation establishing a framework for screening of foreign direct investments into the EU.

In parallel to this proposal, the Commission is completing a detailed analysis of the foreign direct investment flows into the EU and has set up a co-ordination group with Member States to help identify joint strategic concerns and solutions in the area of foreign direct investment.

For further information, see: LNB News 20/11/2018 105.

Dates for your diary

Date Development
23 November 2018 Closing date for Law Commission consultation on the electronic execution of documents.
Following publication of its 13th programme of law reform, the Law Commission provisionally concluded (among other things) that an electronic signature is capable in general of meeting a statutory requirement for a signature and that no legislative reform is necessary. The Law Commission believes this approach will remove current uncertainties in the law, allowing businesses to ‘speed up transactions by going fully digital’ and is seeking views on this conclusion.
See: LNB News 21/08/2018 4.
23 November 2018 Third Parties (Rights Against Insurers) Act 2010 (Consequential Amendment of Companies Act 2006) Regulations 2018, SI 2018/1162, come into force.
The Regulations, which amend the Companies Act 2006, will give an insurer of a company that has been dissolved the right to restore it to the companies register at any time in order to take legal proceedings in the company's name to recover contributions from third parties who are liable (alongside the company) for a personal injury claim, where the insurer has paid out damages in relation to the claim in the UK.
See: LNB News 29/06/2018 62.
29 November 2018 Closing date of call for evidence on proposals for new measures to tackle late payments to small businesses.
A consultation has been launched on proposed new measures to address the issue of large companies abusing their position in the market by delaying payments to small businesses.
See: LNB News 04/10/2018 64.
7 December 2018 Closing date for responses to PCP 2018/1 on proposed amendments to Rule 29 of the Takeover Code, which relates to asset valuations.
The Takeover Panel proposes to amend Rule 29 to more accurately reflect current practice and provide a more logical framework for the asset valuation regime.
See News Analysis: Takeover Panel seeks to provide clarity on treatment of asset valuations and LNB News 17/10/2018 81.
12 December 2018 The FRC launch of the Wates Principles for large private companies (Wates Principles).
On 13 June 2018, the FRC, on behalf of James Wates CBE, published a consultation on corporate governance for large private companies. The Wates Principles are the result of significant debate and exploration—including a review of similar codes in other countries and consultation with experts and representative bodies.
See: LNB News 01/01/0001 2443.
17 December 2018 Proposed amendments to the Takeover Code arising from Brexit.
Deadline for comments on the Code Committee of the Takeover Panel (Code Committee) consultation on proposed amendments to the Takeover Code (Code) in relation to the withdrawal of the UK from the EU (PCP 2018/2).
See: LNB News 06/11/2018 30.
17 December 2018 Privacy and Electronic Communications (Amendment) Regulations 2018, SI 2018/1189 come into force.
The Regulations, which amend the Privacy and Electronic Communications (EC Directive) Regulations 2003, SI 2003/2426 (2003 Regulations), will enable the information commissioner to impose a monetary penalty on an officer of a corporate body in addition to the body itself, where a breach occurs of regulations 19–24 of the 2003 Regulations as a result of action, or inaction, by that officer in the UK.
See: LNB News 19/11/2018 5.


To track key legislative and regulatory developments, see our Trackers:

  1. Brexit legislation tracker
  2. Brexit timeline
  3. MiFID II—timeline
  4. Market Abuse—timeline
  5. Prospectus Regulation tracker
  6. Transparency Directive tracker
  7. Listing Rules tracker
  8. Disclosure Guidance and Transparency Rules Sourcebook tracker
  9. Prospectus Rules tracker

Latest Q&As

One new Q&A has been added this week: Can shares that are bought back by a company be paid for otherwise than in cash?

Useful information

To view analysis of the latest deals in the market and the underlying transaction documents, use our Market Tracker deal analysis tool.

To read about the latest corporate announcements, see our Market Tracker weekly round-up—16 November 2018.

To read about the latest issues and developments which we are following in Market Tracker, see our latest blog post Market Tracker Weekly Bulletin—22 November 2018.

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