FCA Signals Direction of Travel for Listing Reforms

On 16 October 2023, Nikhil Rathi, Chief Executive of the FCA, delivered a speech at the City Dinner at Mansion House which describes the FCA’s work in supporting international competitiveness and growth. Amongst other things, he indicated the likely outcome for the ongoing listing reforms following the FCA’s prior consultation. In substance, the FCA plans to reform its rules to move to a more disclosure-based and less “black letter”, FCA rules-based regime:

• Merging the premium and standard listing segments into a new, single segment, with no cliff edge and generous transition arrangements.
• Reshaping the significant transaction regime to no longer require FCA-approved circulars and prior shareholder approval of Class 1 transactions unless there is a reverse takeover.
• Rationalising the related party transaction regime as originally proposed (i.e., potentially removing compulsory shareholder votes and FCA-approved circulars for related party transactions, and a comply-or-explain approach in which the absence of a relationship agreement would require specific disclosures), while retaining independent checks and balances.
• Alleviating sunset clauses on dual class shares with the market to decide what is acceptable.
• Moving to a more disclosure-based system will require adjustments to the sponsor regime.

The FCA is expected to publish a final consultation paper detailing the proposed rule changes by the end of this year, with final rules coming into force in the first half of 2024.

Proposed Additional UK Corporate Reporting Obligations Withdrawn

On 16 October 2023, the UK government withdrew the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations.

The regulations, which formed part of the wider proposals to reform the UK audit and corporate governance regulatory landscape, were laid in Parliament on 19 July 2023. They would have introduced the following additional reporting requirements for UK companies with at least 750 employees and an annual turnover of £750 million or more:

• an annual resilience statement, setting out how a company is managing risk and building or maintaining resilience over the short, medium, and long term;
• a triennial Audit and Assurance Policy Statement, explaining how the company proposes to assure non-financial reporting over the following three years as well as providing an annual update on the implementation of the policy;
• an annual statement about distributable profits and the company’s policy on distributions; and
• an annual statement on steps taken to prevent and detect material fraud.

The UK government announced in its press release that the regulations would be withdrawn after consultation with companies raised serious concerns about the negative impact of additional reporting requirements on both existing and potential users of the UK capital markets. Instead, the Business Secretary will provide options to reform the wider framework to reduce the burden of red tape on businesses.

New Framework to Help Companies Make Climate Transition Plan Disclosures

On 9 October 2023, the Transition Plan Taskforce published its disclosure framework (TPT Framework) to provide a set of good practice recommendations to help companies across the economy make high quality, consistent, and comparable transition plan disclosures.

The TPT Framework recommends disclosure of a company’s strategic climate ambition, and how this is reflected in its implementation and engagement approaches, its governance and accountability arrangements, and its financial plans. The TPT Framework has been designed to align with the transition planning guidance developed by the Glasgow Financial Alliance for Net Zero, and to be consistent with, and build on, the reporting standards developed by the International Sustainability Standards Board (ISSB).

Listed companies should familiarise themselves with, and consider early adoption of, the TPT Framework. In its 2023 Green Finance Strategy, the UK government committed to consult on introducing requirements for the UK’s largest companies to disclose their transition plans if they have them. In addition, the FCA has committed to consult in 2024 on strengthening requirements for transition plan disclosures in line with this framework, alongside its consultation on implementing a disclosure framework based on the ISSB Standards.

Changes to Takeover Code Restrictions on Frustrating Action Provide More Flexibility and Clarity for Target Companies

On 27 October 2023, the Takeover Panel published Response Statement RS 2023/1 and Instrument 2023/3, which amends Rule 21 (Restrictions on frustrating action) of the Takeover Code. Key changes include:

• More flexibility for target companies to carry on activities that either are not material or are in the ordinary course of its business, so that such activities would not, broadly, constitute a restricted frustrating action.
• The restrictions on action which may be considered frustrating to a potential bid will now apply from an “approach” (when any indication of a potential offer is received by or on behalf of the company) until the conclusion of either (i) the public offer period of a potential or actual offer or (ii) if no public offer period has begun, 17:00 UK time on the seventh day following the unequivocal rejection to a potential bidder of the latest approach (note, this is an increase from two days under the old rules).
• A requesting bidder or bona fide potential bidder would be able to make a single weekly request for information from the target given to another bidder or potential bidder, which could be phrased in general terms (thereby eliminating the need for a “laundry list” of specific requests).

These amendments will take effect on 11 December 2023. A new Practice Statement No 34 (the final draft of which is in the Response Statement), providing additional guidance on the application of Rule 21, together with certain consequential amendments to other Practice Statements will be published on the Panel’s website simultaneously.

Updated Panel Guidance Provides Welcome Clarity on the Invocation of Conditions to an Offer

On 27 October 2023, the Takeover Panel published an amended version of Practice Statement No 5 which sets out the Panel’s guidance on invoking conditions and pre-conditions to an offer. Key changes include:

• The amended Practice Statement contains a breakdown of the different categories of conditions (including specific or general conditions relating to regulatory clearances), together with an explanation of the application of Rule 13.5(a) (i.e., the requirement to obtain Panel consent to invoke a condition to lapse an offer) to these different categories.
• Additional guidance on the factors that the Panel will take into account in considering whether the material significance requirement (a prerequisite to the offeror being permitted to invoke a condition under Rule 13.5(a)) has been satisfied in relation to each category of condition to which it applies, including in relation to antitrust “phase 2” reference conditions (such as the impact on the business of the offeror and/or target, and probability of obtaining the clearance).