Corporate weekly highlights—26 October 2017

This week’s edition of Corporate highlights includes ESMA’s updated Q&A on prospectus issues, the FRC’s annual review of corporate reporting, newly collected data on EU derivatives markets and four new and updated precedents in our Private M&A (share purchase) topic area.

Equity Capital Markets

ESMA updated its Q&A on prospectus issues

The European Securities and Markets Authority (ESMA) has updated its Q&As on prospectus related issues. The changes do not relate to the substance of the Q&As and come as a result of the Prospectus Regulation (EU) 2017/1129 becoming applicable on 20 July 2017.

The update includes the deletion of one Q&A (Q&A 27) and updates to four others (Q&As 29,31,32 and 44).

See further news, LNB News 20/10/2017 90.

Corporate Governance

FRC issues feedback statement on the role of auditors and preliminary announcements

Auditors who are engaged to agree to the publication of preliminary results under the UK Listing Authority (UKLA) rules should, where so engaged, refer to the FRC guidance contained in Bulletin 2008/2.

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 (See LNB News 27/04/2017 96).

The FRC’s feedback statement sets out the responses to the consultation as against ten options laid out in the discussion paper.

The majority of respondents stated their belief that the current regime for preliminary announcements is fit for purpose and does not require significant change. Consistent with feedback that the FRC has also received from its separate investor outreach exercise, many respondents commented that the role of auditors should be considered in the context of the primary role of directors in producing accurate and reliable financial information. Respondents did, however, agree that minor amendments to Bulletin 2008/2 (to update references and reflect Listing Rules and financial reporting standards) should be made.

The FRC is only proposing to make minor amendments to the current guidance and will consult with the UKLA on specific matters as appropriate. It will not follow through with its proposals to convert the guidance into an engagement standard or require auditors to have completed the statutory financial statement audit and sign the auditor’s report before agreeing to the publication of the preliminary announcement. The FRC will however include a draft report in the revised bulletin setting out the status of the financial statement audit and the procedures performed by the auditor on the preliminary announcement, and co-ordinate with FRC’s Corporate Reporting Team as they conclude their work on the format and structure of preliminary announcements in combination with the UKLA.

See further news, LNB News 25/10/2017 114.

FRC: reporting clarity ‘could be better’

The FRC has released its annual review of corporate reporting for 2016/17, giving its assessment of UK corporate reporting based on ‘broad outreach and evidence’. The report shows that while corporate reporting mainly listed companies as ‘generally good, detailed explanations and clarity could still be better.’ The FRC observed that the quality of narrative reporting has improved following the introduction of the strategic report in 2013, and there have been further improvements in the 2017 strategic report. However, it remains an area frequently challenged by the FRC’s corporate reporting review team, often when there is insufficient balance, disclosures are not sufficiently specific or descriptions too vague.

The FRC reviewed 203 annual and interim report and accounts. It notes there are increasing calls for more information about how a company has thought about its long-term success and how directors discharged section 172 of the Companies Act 2006 to stakeholders. In addition, a better explanation of how a company creates value and the extent to which that value is dependent on relationships with stakeholders has also increased.

The review noted that current and future developments highly significant to companies range from the implications of Brexit for the UK’s accounting framework to preliminary earnings announcements and digital reporting. The review also included the FRC’s summary on the nine key characteristics of good corporate reporting, which include clarity around how money is made, consistency, uncluttered reports, explaining risks and change and transparency.

See further news, LNB News 23/10/2017 94.

Additional Corporate updates this week

Data on EU derivatives markets collected for the first time

ESMA has released data on the size and structure of EU derivatives markets, estimating the value of the EU’s derivatives markets across all asset classes as €453trn, with approximately 33 million transactions. The data, which has been collected for the first time, comes under the reporting requirements of the European Markets Infrastructure Regulation (EU) 648/2012 and will help ESMA comprehensively consider the different EU markets.

The data collected has been sourced from all six trade repositories and is based on the weekly data it receives from trade repositories. It includes data from the interest rates, credit, equity, commodity and foreign exchange EU derivatives markets. The data comes as a part of the latest ESMA trends, risks and vulnerabilities report and includes, among other things, information on the size of the different derivatives markets both in terms of the number of transactions and gross notional amount outstanding and measures of market concentration.

ESMA intends to continue to collect this data, making it a key priority for the coming years. It aims to work on enhancing the data quality and improve its statistical analysis.

See further news, LNB News 01/01/0001 2115.

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New and updated content

New precedents

We have published the following new and updated precedents in our Private M&A (share purchase) topic area:

  1. Share purchase agreement—long form—conditional (seller’s version)(multiple individual sellers)
  2. Share purchase agreement—long form—unconditional (seller’s version) (multiple individual sellers)
  3. Share purchase agreement—short form (buyer’s version)
  4. Share purchase agreement—short form (seller’s version)

Dates for your diary

Date Subjects covered
31 October 2017 The Takeover Panel has issued a public consultation paper, PCP 2017/2, setting out proposed amendments to the Takeover Code with regard to statements of intention by bidders and related matters. The key proposals include expanding the content requirements for offeror statements of intention with regard to the offeree’s business, employees and pension schemes and bringing forward the requirement for an offeror to make statements of intention at the time of its firm intention announcement. Comments on the consultation should reach the Panel by 31 October 2017.
See further news, LNB News 19/09/2017 128.
Late October 2017 The Institute of Chartered Accountants in England and Wales (ICAEW) has published a consultation paper on prospective financial information. The consultation paper aims to seek a mandate for the proposed scope of new PFI guidance. It seeks responses and comments from stakeholders and market participants as well as input from all interested parties. The consultation closes in October 2017 and a response statement will be published in Q2 2018.
See further news, LNB News 20/07/2017 120.
1 November 2017 The FCA has issued CP17/32, its quarterly consultation on miscellaneous proposed amendments to the Handbook. Feedback is sought by 1 November 2017 for the proposals in chapters 2, 3, 7, 8 and 9.
See further news, LNB News 01/09/2017 65.
4 November 2017 The Reports on Payment Practices Regulations 2017 require certain large companies and LLPs to prepare and publish information about their payment practices and performance in relation to 'qualifying contracts' twice per financial year on web-based service provided by or on behalf of the government within 30 days of the end of each reporting period.
See further news, Payment practices reporting guidance.
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.

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