FCA UNVEILS FINAL MEASURES TO MAKE UK LISTING REGIME MATCH FIT AGAIN

On 20 December 2023, the FCA published consultation paper CP23/31 setting out detailed proposals for the new UK listing regime.

Key points:

• Single segment — The existing premium and standard listing segments will be merged into a new single segment for equity shares in commercial companies.

Existing premium listed companies would be automatically “mapped” to the new single segment on implementation date. Standard listed commercial companies would be mapped to a new transition segment (a closed segment that would retain the existing standard listing requirements) or, in the case of certain qualifying overseas listed companies, a new secondary listings category.

• Transactions — Significant and related party transactions would no longer require compulsory shareholder votes or FCA-approved shareholder circulars. Instead, such transactions reaching the relevant thresholds would require a transaction announcement containing prescribed disclosures and (in the case of related party transactions) a fair and reasonable opinion from a sponsor.

When the new regime comes into force in H2 2024, formerly premium-listed companies that would be partly through a not-yet-completed transaction would no longer need to comply with the premium listing obligations that have not been carried over to the new regime. For example, a premium-listed company that has announced, but not yet closed, a class 1 transaction by the implementation date would no longer need to publish a circular or proceed with a shareholder vote.

• Controlling shareholders — The existing requirement for companies with a controlling shareholder to implement a written relationship agreement to ensure independence from a controlling shareholder will be retained.

• Sponsor regime — The sponsor regime will apply to companies listed on the single segment. However, compared with the existing premium segment, there will be fewer instances post-IPO in which a company would need to consult a sponsor.

The consultation will run until 22 March 2024 and the FCA is expected to publish the finalised listing rules at the start of H2 2024.

Please see the Latham UK Primary Markets Reform Tracker for an overview of the proposed changes and a comparison against the current listing regime; and this podcast in which London partners Rob Moulton and Mark Austin discuss these changes.

REVISED CORPORATE GOVERNANCE CODE TARGETS BOARD ACCOUNTABILITY ON THE EFFECTIVENESS OF INTERNAL CONTROLS

On 22 January 2024, the FRC published an updated version of the UK Corporate Governance Code. The revisions, focusing on internal controls and certain limited changes, follow the FRC’s announcement in November 2023 of its policy update which withdrew most of the proposals in its initial consultation paper.

Key points:

• New Code provision which states that the board should monitor and review its risk management and internal control framework. The board should provide in the annual report a declaration of effectiveness of the material controls as at the balance sheet date. The FRC has emphasised that this is a comply-or-explain measure to improve accountability and transparency, rather than seeking to introduce a Sox-lite equivalent in the UK.

• Updates to specify that executive directors’ remuneration should be subject to malus and clawback and the annual report should include a description of such malus and clawback provisions.

• Other minor changes to streamline or clarify existing provisions.

To give companies sufficient time to implement the appropriate processes, the reporting on the new Code provision on internal controls will only be required for accounting periods from 1 January 2026. The other changes will apply to accounting periods from 1 January 2025.

The updated version of the Code was followed by new associated guidance published on 29 January 2024. The new guidance consolidates content from previous publications and contains additional guidance on, amongst other things, internal controls and good practice for board committees.

FCA NEWSLETTER HIGHLIGHTS REGULATORY FOCUS ON ESG

On 19 December 2023, the FCA published Primary Market Bulletin 46 which considered market abuse issues arising in the context of ESG stewardship, and the FCA’s expectations around sponsor procedures for assessing compliance with the Task Force on Climate-related Financial Disclosures.

• Market abuse and ESG stewardship — The FCA addressed questions that market participants raised regarding market abuse issues (including the prohibition against unlawful disclosure of inside information) arising in the context of ESG stewardship. Such questions include whether major shareholders could discuss their ESG stewardship plans for particular companies with other shareholders, and whether the shareholders may or should publicly disclose their voting intentions.

The FCA confirmed that the UK Market Abuse Regulation (MAR) should not inhibit high-quality engagement between companies and their shareholders. The FCA referenced Primary Market Bulletin 42 which distinguishes discussions of a general nature between a company and its shareholders from the disclosure of inside information outside the normal exercise of employment, profession, or duties — with the latter constituting an offence.

The FCA also provided further guidance to shareholders on how discussions between them about ESG strategy and voting intentions could lead to market abuse. The FCA encouraged market transparency in ESG matters, noting that institutional shareholders may publicise their ESG stewardship programmes which would reduce the scope for market abuse.

• Sponsor procedures for assessing TCFD compliance — The FCA outlined its observations following an initial assessment of sponsors’ procedures to assess whether IPO candidates have procedures to enable compliance with the TCFD-aligned disclosure requirements.

The FCA was pleased to see that sponsors were increasingly focused on climate-related matters. The bulletin also provided recommendations to sponsors on good practice, such as improvements to procedures and policies.

Given the increasing levels of regulatory focus, listed companies should continue to review and optimise their procedures and controls for ensuring TCFD compliance, which could also help prepare for the imminent adoption of International Sustainability Standards Board (ISSB) standards in the UK.

NEW REGULATION MARKS FURTHER STEP IN REFORMING THE REGULATION OF UK FUNDRAISINGS

On 29 January 2024, the UK Parliament passed the Public Offers and Admissions to Trading Regulations 2024 (POATRs). This regulation will replace the EU-derived Prospectus Regulation and create a new framework for regulating public offers and admissions of securities to trading in the UK. The new framework would come into force when the Prospectus Regulation is revoked, which is expected to take place once the FCA has updated its prospectus rules.

The FCA has been given powers under POATRs to make rules affecting, amongst other things, prospectus requirements and admissions to trading. It aims to consult on proposals in summer 2024. Following prior reviews and consultations, the expectation is that the new FCA rules would make it easier for listed companies to conduct UK fundraisings, and facilitate the participation of retail investors in such transactions.

TAKEOVER PANEL BULLETIN FLAGS RISK OF SHARING INFORMATION WITH REPRESENTATIVE DIRECTORS IN A BID SITUATION

On 15 January 2024, the Takeover Panel published Panel Bulletin 6 which may potentially apply when providing information, in the context of an offer, to a target company director appointed to represent a shareholder of the target.

In this situation, the Takeover Panel flags that Rule 20.1 should be considered at the earliest opportunity and in particular before the representative director provides any information relating to the offer to an appointing shareholder. This includes where information is shared in the ordinary course as a matter of established practice.

Although this bulletin largely serves as a reminder for advisers, listed companies should also ensure that their information-sharing protocols take into account these considerations in a takeover context, and consider whether consultation with the Takeover Panel is advisable when refreshing protocols (as the Panel recommends defence advisors consulting with it in the context of information sharing following a takeover approach).