Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 9 December 2016, which provide news updates and a comprehensive list of dates for your diary. This week’s edition features: The Financial Conduct Authority (FCA)’s latest quarterly Consultation Paper on proposed amendments to its Handbook; the FCA’s update on Legal Entity Identifiers; a European Securities and Markets Authority (ESMA) executive director’s speech regarding what ESMA is doing to strengthen Europe’s capital markets; the House of Lords’ corporate responsibility briefing; the Financial Reporting Council’s (FRC) recommendations to the Department for Business, Energy & Industrial Strategy’s (BEIS) Select Committee inquiry into corporate governance; UHY Hacker Young’s and the Quoted Companies Alliance’s (QCA) newly published ‘Corporate Governance Behaviour Review 2016’; BEIS’s new payment practice transparency measures; the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017; and the Law Society’s practice note on compliance with the Modern Slavery Act 2015 (MSA 2015). Headlines (News updates & analysis) Equity capital markets FCA launches quarterly Handbook consultation The FCA has released its latest quarterly Consultation Paper (CP16/39) on proposed miscellaneous amendments to its Handbook. The FCA is proposing, among other things, to make changes to: the pension projection rules to remove conflicts with the Conduct of Business sourcebook (COBS) 13 Annex 2 when providing risk warnings to scheme members with safeguarded-flexible benefits; the Decision Procedure and Penalties manual (DEPP), to set out the FCA’s decision-making process under the Money Laundering Regulations 2007; the Enforcement Guide and DEPP, to set out the FCA’s decision making process under the Co-operative and Community Benefit Societies Act 2014; COBS on adviser charging for vertically integrated firms, arising out of the Financial Advice Market Review; the Disclosure Guidance and Transparency Rules sourcebook, reflecting the Transparency Directive Regulatory Technical Standards on the European Electronic Access Point; the Training and Competence sourcebook table of appropriate qualifications and appropriate qualification time limits, and the Glossary definition of 'accredited body'; and the regulatory reporting requirements in the Supervision manual and Consumer Credit sourcebook. MiFIR: FCA publishes update on legal entity identifiers The FCA has added an update on Legal Entity Identifiers (LEI) to the MiFID II pages of its website. An LEI is a unique identifier for people who are legal entities or structures including companies, charities and trusts. It allows a party to a relevant financial transaction to be identified in any jurisdiction. From 3 January 2018, firms subject to the transaction reporting obligations of the Markets in Financial Instruments Regulation (Regulation (EU) 600/2014)(MiFIR) will not be able to execute a trade on behalf of a client who is eligible for a LEI and does not have one. ESMA executive director speaks to buy-side on capital markets On 1 December 2016, the executive director of the ESMA, Verena Ross, spoke at ICI Global’s 2016 Global Capital Markets Conference in London, providing an overview of what ESMA is doing to strengthen Europe’s capital markets. In her speech, Ms Ross focuses on three key areas: revised rules for best execution and bond transparency under MiFID II; supervisory convergence and Capital Markets Union; and key asset management issues. Corporate governance House of Lords issues corporate responsibility briefing The House of Lords has issued a briefing on corporate responsibility and proposals for reform to corporate governance rules. The briefing covers UK corporate sectors, corporate responsibility and corporate governance, corporate governance rules, voluntary corporate governance, public opinion, and government policy. The briefing was published ahead of a debate on rights and responsibilities in the corporate sector, due to take place on 8 December 2016. FRC recommendations to BEIS Select Committee Following his recent evidence submitted to the BEIS Select Committee inquiry into corporate governance, the FRC Chief Executive Stephen Haddrill has written to the Committee further outlining the FRC’s position and providing recommendations. Most of the recommendations involve changes to the corporate governance code that the FRC can put into effect without additional powers. However, there are some regulatory reforms that the FRC would like and need the government to implement. These include: improving section 172 of the Companies Act 2006 through amendments to the UK Corporate Governance Code providing for disclosure in companies’ annual reports and related changes to the FRC’s Strategic Report Guidance; review of the UK Corporate Governance Code and associated guidance to develop best practice on delivering Board responsibilities to a range of stakeholders; developing a code and/or guidance directly applicable to the governance arrangements of large private companies; review of the UK Corporate Governance Code to consider a wider role for remuneration committees, including the pay and conditions of the company workforce and reporting on the link between remuneration structure and strategy; review of the UK Corporate Governance Code to explore whether and how, when there are sufficient shareholder votes against a remuneration report, companies should respond through additional shareholder consultation and reporting; and review of the UK Corporate Governance Code and associated guidance against the recommendations proposed by the Hampton/Alexander and Sir John Parker reviews in order to improve board diversity. Simple language and clear reporting essential for companies UHY Hacker Young and the QCA have published their ‘Corporate Governance Behaviour Review 2016’, which advises small and mid-sized quoted companies to use plain language and clear reporting in their annual growth reports and accounts in order to build trust among investors, and potentially lower cost of capital. The review has highlighted five governance reporting recommendations, which asks companies to: demonstrate clear links between strategy, performance and remuneration; keep reporting concise and transparent; demonstrate the company understands its shareholders’ and other shareholders’ interests; publish the results of shareholder votes on the company’s website; and describe and explain how board performance is evaluated. Company administration New measures to increase payment practice transparency Measures to increase transparency of payment practices to support small companies have been published by BEIS. Under new draft regulations, large companies will be required to publish details on how quickly they pay their suppliers. This change, coming into force in April 2017, will require large companies and limited liability partnerships to publicly report twice yearly on their payment practices and promises, including the average time taken to pay supplier invoices. Guidance on how to comply with the new duty to report is expected to be published early in 2017 to aid large businesses in preparing for the new reporting requirements. Draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 Following two public consultations and extensive engagement with a broad cross-section of stakeholders, the Draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 have been published. Under these draft Regulations, employers with at least 250 employees are now required to publish four measures of information, based on a ‘snapshot’ of pay information taken on 5 April each year: the difference between average hourly rates of pay for male and female employees; the difference between average bonuses for male and female employees over the period of 12 months ending with the ‘snapshot’ date of 5 April; the proportion of male employees, and of female employees who were paid bonuses during the period of 12 months ending with the snapshot date; and the proportions of male and female employees in each quartile of the pay distribution. The specified employers must make and sign a written statement to confirm the information published is accurate. The information must be published on the employer’s own website for at least three years from the date of publication, and must also be published on a website designated by the Secretary of State. Failure to comply with these obligations constitutes an ‘unlawful act’ within the meaning of the Equality Act 2006, s 34, which empowers the Equality and Human Rights Commission to take enforcement action. These changes come into force on 6 April 2017. Solicitors—complying with the Modern Slavery Act 2016, s 54 The Law Society has published a practice note designed to help solicitors comply with the MSA 2015, s 54 by providing practical advice and highlighting examples of good practice. The practice note provides guidance on, among other things: which companies are covered by the MSA 2015; what the MSA 2015 requires; the consequences of failing to comply with the MSA 2015; practical steps for satisfying the MSA 2015 requirements; and other reporting requirements. Dates for your diary Date Subjects covered 8 December 2016 A debate on rights and responsibilities in the corporate sector is due to take place on 8 December 2016. 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 The FRC's consultation on procedures for de-registration of third-country auditors closes. The FRC is looking to introduce a more consistent and transparent procedure for investigating TCAs who may be at risk of removal from the register. TCAs are non-EU auditors of companies incorporated outside the European Economic Area that have issued securities on UK-regulated markets (usually on the main market of the London Stock Exchange). TCAs are required to register with the FRC and renew their registration on an annual basis. 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. 19 December 2016 The Commission Delegated Regulation (EU) 2016/2071 shall enter 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 APMs has improved, further improvements are required.