Corporate weekly highlights—7 October 2016

Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 7 October 2016, which provide news updates and a comprehensive list of dates for your diary.

Processed with VSCO with a9 presetThis week’s edition features: the FRC consultation on revised operating procedures for reviewing corporate reporting; the Growth and Emerging Markets Committee of the IOSCO report on corporate governance practices in emerging markets; the FCA's newly published third consultation paper on the implementation of MiFID II; ESMA's newly published set of Q&As on transparency topics under MiFID II; two ESMA consultations concerning MiFID II guidelines for product governance requirements and the management bodies of market operators and data reporting services providers; the government’s announcement that it plans to repeal the European Communities Act; and the FCA’s consultation paper on remuneration in CRD firms.

Accounts and reports

FRC consults on revised operating procedures for reviewing corporate reporting

The Financial Reporting Council (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.

Comments and feedback are due by 4 January 2017.

Corporate governance

IOSCO report on emerging markets corporate governance

The Growth and Emerging Markets Committee of the International Organization of Securities Commissions (IOSCO) has published a report on corporate governance practices in emerging markets countries, benchmarking them against the G20/Organisation for Economic Cooperation and Development (OECD) Principles of Corporate Governance (the OECD Principles).

The report finds a general alignment between emerging markets regulatory frameworks and the OECD Principles and broad agreement the steps that regulators need to take to improve board composition, remuneration and incentive structures, and risk management and internal controls in their jurisdictions.

The OECD Principles provide guidance for stock exchanges, investors, corporations and others that have a role in the process of developing good corporate governance. They have also been adopted as one of the Financial Stability Board's Key Standards for Sound Financial Systems.

MiFID II related developments

FCA publishes third MiFID II consultation paper

The Financial Conduct Authority (FCA) has published consultation paper CP16/29 ‘Markets in Financial Instruments Directive II implementation—Consultation Paper III’ on the implementation of the revised Markets in Financial Instruments Directive (MiFID II) (Directive 2014/65/EU).

MiFID II comes into effect on 3 January 2018. The consultation paper forms part of the FCA’s process to make the necessary changes to the FCA Handbook to implement it.

The consultation paper examines a wide range of conduct of business issues as part of its aim of strengthening the investor protection regime for retail investors. 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. These include strengthening inducement and research rules to ensure research is only produced and consumed where it adds value to investment decisions, implementing requirements of full disclosure of costs and charges, guidance on the responsibilities of providers for the fair treatment of customers, and extending the requirement to telephone taping to financial advisers with the aim of providing benefits to both firms and their clients in resolving disputes in a quick and cost effective manner.

The consultation closes on 4 January 2017.

ESMA publishes Q&As on MiFID II and MiFIR transparency topics

The European Securities and Markets Authority (ESMA) has published a new set of Q&As on transparency topics under MiFID II and the Markets in Financial Instruments Regulation (MiFIR) (Regulation (EU) 600/2014)(ESMA/2016/1424). The purpose of the document is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR in relation to transparency topics such as the topic currently covered—the double volume cap mechanism.

ESMA proposes guidelines for MiFID II product governance requirements

ESMA has published a consultation paper with draft guidelines on the product governance requirements under MiFID II. The guidelines are intended to provide greater clarity on the obligations for manufacturers and distributors of financial instruments across EU member states.

ESMA proposes MiFID II guidelines on management bodies of market operators and data reporting services providers

ESMA has published a consultation paper (ESMA/2016/1437) with draft guidelines on certain requirements related to the management bodies of market operators and data reporting services providers under MiFID II.

Brexit

Government plans to repeal European Communities Act

Plans to repeal the European Communities Act 1972 (ECA 1972) have been announced by the Secretary of State for Exiting the European Union. Under ECA 1972, if there is a clash between an act of the British Parliament and EU law, EU law prevails. Furthermore, binding judgments have previously been delivered on the UK and other member states by the European Court of Justice (ECJ). A new Bill will give direct effect to all EU law and will mean ECA 1972 ceases to apply from the day the UK exits the EU. This will consequently end ECJ jurisdiction in the UK. The new Bill will also convert existing EU law into domestic law, while giving Parliament the power to amend, repeal or improve any law after appropriate scrutiny and debate.

Relevant updates from other practice areas

Financial Services

FCA publishes new rules and proposals on firms' culture

The FCA has published a number of documents which set out new rules concerning the Senior Managers’ and Certification Regime, provide feedback on its implementation so far and propose measures to further strengthen the regime. The proposed rules will reinforce the importance of individual accountability at the most senior levels of organisations. The new measures are part of the FCA's continued focus on culture, and build on initiatives which further help the FCA identify and assess key senior individuals.

One of the new consultation papers was CP16/28, 'Remuneration in CRD IV Firms', which sets out proposals to help firms understand the rules that apply to their remuneration policies and practices, as the FCA brings some of its provisions in line with the European Banking Authority Guidelines on sound remuneration policies (EBA Guidelines) and publishes new non-Handbook guidance. The EBA Guidelines published in December 2015 set out the requirements on remuneration policies that apply to firms subject to the Capital Requirements Directive (CRD IV).

Dates for your diary

DateSubject
17 October 2016The deadline for responses to the IOSCO's consultation report (CR04/2016) of good practices for termination of investment funds. In August 2016, IOSCO published a consultation report proposing a set of good practices for the voluntary termination of investment funds.
26 October 2016The deadline for submissions to the inquiry launched by the Business, Innovation and Skills (BIS) Committee in the House of Commons. The inquiry is on corporate governance and focuses on executive pay, directors’ duties and boardroom composition. It follows the BIS Committee's recent inquiries into BHS and Sports Direct, which highlighted certain corporate governance failings, and the commitments to overhaul corporate governance that have been made by the Prime Minister. The BIS Committee will examine executive pay, directors' duties and board composition.
28 October 2016The deadline for responses to the FCA's consultation paper (CP16/19) seeking feedback on the implementation of MiFID II. The consultation follows on from CP15/43, published in December 2015, and covers the following issues: commodity derivatives; supervision; prudential standards; senior management arrangements, systems and controls; remuneration requirements for sales staff; whistleblowing; client assets sourcebook; complaint handling; and fees manual.

Relevant Articles
Area of Interest