Included in this issue: Capital Markets Union: Prospectuses may be vetted by ESMA; Takeover Panel proposes requiring bidders to make fuller disclosure of takeover plans; Corporate offence of failing to prevent tax evasion – in force from 30 September and more...

Equity Capital Markets

Capital Markets Union: Prospectuses may be vetted by ESMA

The European Commission has published proposals to reform the EU's supervisory structure marking the first step towards the creation of a single European capital markets supervisor. In doing so it may extend the European Securities and Markets Authority's (ESMA) role and powers in respect of prospectuses and market abuse so as to create a level playing field for issuers, speed up prospectus approvals and prevent forum-shopping.

Of particular note is the proposal to amend the Prospectus Regulation and replace the need for approval of national competent authorities such as the FCA with that of ESMA in relation to, among others, prospectuses:

• for certain wholesale non-equity securities;
• relating to asset-backed securities; and
• drawn up by property companies, mineral companies, scientific research-based companies or shipping companies.

The EU Commission has charged the European Parliament and the Council to discuss and agree its proposals as a high priority, in order to ensure their entry into force before the end of 2019. Of course, the impact of Brexit on the proposals is unclear.

Changes made to the Listing Rules to reflect "new" version of the UK Corporate Governance Code

The Financial Conduct Authority (FCA) has published further feedback and an amending instrument in relation to its most recent quarterly consultation. In short, this amends the Listing Rules and relevant transitional provisions to reflect the application of the 2016 version of the UK Corporate Governance Code for financial periods beginning on or after 17 June 2016. The changes are already in force.

Financial Conduct Authority publishes Primary Market Bulletin No. 18

The Financial Conduct Authority, in its role as the UK Listing Authority (UKLA), has published its 18th Primary Market Bulletin.

The Bulletin notes the re-organisation of the UKLA into two separate departments:

• the Primary Market Oversight Department is responsible for, among other things, supervision of sponsors and real-time and post-event monitoring of listed issuers; and
• the Listing Transactions Department is responsible for all transaction review functions and management of the Official List.

Existing arrangements for contacting the UKLA are unchanged. A new ESS system with enhanced functionality for the comments process is also now in operation and has replaced faxed comments.

The Bulletin also launches a consultation on three new technical guidance notes for sponsors on their obligations to:

• take "reasonable steps" to ensure directors understand their responsibilities and obligations under the Listing Rules, Disclosure Requirements and Transparency Rules (as required by LR 8.3.4R);
• ensure that directors have established procedures to enable an issuer to comply with its obligations on an ongoing basis (as required by LR 8.4.2R(3)); and
• ensure that these procedures are not adversely impacted when an issuer undertakes certain transactions (as required by LR 8.4.12R(2)).

Consequential amendments are also proposed to the note on a sponsor's obligations on financial position and prospects procedures.

The FCA is also consulting on new technical notes relating to quantified financial benefits statements and FRS 102 cash flow statement exemptions as well as amendments to its technical notes on profit forecasts and estimates and exemptions from the requirement to prepare a prospectus. The consultation closes on 11 October 2017.

The FCA is adopting the changes to its technical notes on shareholder obligations and Sponsors: conflicts of interest as proposed in Bulletin No. 17.

ESMA updates Q&A on interpretation of the Market Abuse Regulation

ESMA has published a further update to its Q&A on the EU Market Abuse Regulation (MAR). New Q&A relate to:

• Market soundings (Art 11) – i.e. communications by issuers or certain others to gauge an investor's or potential investor's interest in a possible transaction. The new Q&A confirms that scope of the financial instruments to which the regime applies, including that the regime applies to possible transactions in instruments whose price or value depends or has an effect on an instrument of a kind admitted to, or to be admitted to, a regulated market, MTF (e.g. AIM) or an OTF. A party making disclosure – a "Disclosing Market Participant" - must assess on a "case by case" basis whether there is a relationship to the price or value of a relevant instrument and keep a written record of this assessment;
• Insider lists (Art 18) – The new Q&A clarify that persons who act on behalf or account of an issuer and who come into possession of inside information have their own duty, distinct from that of an issuer, to keep an insider list. Conversely, where a third party keeps an insider list on behalf of an issuer, the issuer remains primarily responsible for it.

Public M&A

Takeover Panel proposes requiring bidders to make fuller disclosure of takeover plans

The Takeover Panel (Panel) has issued a public consultation paper, PCP 2017/2, setting out proposed amendments to the Takeover Code (Code) with regard to statements of intention by bidders and related matters.

The key proposed changes to the Code include:

• all statements of intention by bidders in relation to the target's business must be made at the time of the Rule 2.7 announcement and not in the offer document as at present. This will mean that the Panel will need to pre-clear Rule 2.7 announcements and has potential timing implications for the announcement of deals;
• expanding the scope of intention statements to cover more politically sensitive issues - R&D, location of headquarters, employees and pensions and the make-up of the workforce among them;
• the bidder must delay posting its offer document for 14 days unless the target company consents to a shorter timetable. This allows time for a target to marshal its defence and also for the impact of the bidder's statements of intention to be fully considered by all interested parties; and
• the bidder must publicly announce whether it has complied with its intention statements 12 months after the deal completes. Thus, there is to be greater transparency and a tightening of the current regime.

Comments on the consultation should reach the Panel by 31 October 2017.

Corporate Governance

Corporate Governance Reform – Government publishes nine point plan

The Department of Business, Energy and Industrial Strategy has published the Government's response to its November 2016 Green Paper on corporate governance reform. This takes into account the April 2017 Report of the Department's Select Committee.

By way of reminder, the aim of the Green Paper consultation was to consider what changes might be appropriate in the UK's corporate governance regime to help ensure improved business performance and create "an economy that works for everyone". The Government's response sets out nine principal proposals for reform across three specific aspects of corporate governance:

• Executive pay;
• Strengthening the employee, customer and supplier voice; and
• Corporate governance in large privately-held businesses.

For more detail, commentary and next steps, please see our Governance & Compliance update. The government has also published its response to each of the recommendations made by the Business, Energy and Industrial Strategy Select Committee.

Shareholders flex their muscles in 2017 AGM season to reduce FTSE pay

The Investment Association has published an analysis of the 2017 AGM season voting which revealed that:

• FTSE100 companies saw a 35% decrease in 2017 remuneration resolutions that received over 20% dissent compared with 2016;
• FTSE250 companies saw a 100% increase in companies getting 20% or more of votes against their remuneration resolutions compared to 2016;
• FTSE350 companies overall saw a 200% increase in votes against a Director re-election; and
• 6 FTSE350 companies withdrew resolutions on pay ahead of the company AGMs to avoid a shareholder rebellion.

Company Law

Corporate offence of failing to prevent tax evasion – in force from 30 September

The Criminal Finances Act 2017 has created two new tax-related criminal offences for UK companies and partnerships, as well as foreign companies and partnerships with employees or agents in the UK. You can find a more detailed briefing from our Tax team here. The effective date for these offences is 30 September 2017. In summary:

• the offences are intended to create UK corporate criminal liability for a company or partnership where that entity's employee, agent, or service provider is engaged in criminal facilitation of tax evasion (which is already an offence at the level of the facilitator);
• there is a potentially unlimited fine for those convicted of either offence;
• the offences are ones of strict liability so no intention is required on the part of the organisation, nor is it relevant whether the organisation receives any financial benefit from the tax evasion or the facilitation. However, there is a corporate defence if 'reasonable procedures' have been put in place to prevent the criminal facilitation, similar to the existing Bribery Act defence. HMRC has issued guidance on the offences and expects all UK organisations to carry out a risk assessment and, in most circumstances, have board-level sign off on particular policies and procedures designed to prevent such criminal facilitation; and
• the offences can apply where foreign taxes are evaded, or (if UK taxes are being evaded) even where the organisation in question is outside of the UK.

New Competition and Markets Authority (CMA) guidance to improve merger process

The CMA has announced various changes intended to provide additional guidance to merging companies, streamline the CMA's process and reduce the requirements on businesses:

• Additional guidance on CMA's use of initial enforcement orders (IEOs) IEOs are orders that may be put into place during its investigations to prevent merging companies from integrating in a way that could affect the outcome or interfere with the CMA’s ability to introduce any necessary measures. The guidance covers when these orders may typically be imposed; the form they will usually take; the types of derogations that the CMA is likely to grant; and the timing for imposing and revoking IEOs and granting derogations. There is also a revised template IEO derogation request letter.
• Revised Merger Notice Template: this makes a number of changes to the merger notice form making it clearer to understand and reducing the overall amount of information that businesses need to provide. It removes unnecessary questions and provides additional guidance on what information is and isn’t likely to be required by the CMA in any given case. Notwithstanding this additional guidance, the CMA continues to strongly encourage early engagement in pre-notification discussions, in particular where further clarification as to the specific nature or extent of information that should be provided in the case at hand might be useful. Notifying parties who have already submitted a draft merger notice to the CMA, or are in the advanced stages of preparing a draft merger notice for submission in the near future, can continue to use the previous merger notice template for the purposes of that case. The CMA would, however, generally expect any first draft merger notice submitted after 1 October 2017 to use the Revised Merger Notice Template.
• Revised guidance on the CMA’s mergers intelligence function: some minor amendments have been made to the CMA's guidance on its merger intelligence function, including clarification on the point at which merging companies who do not propose to notify their transaction to the CMA should submit a briefing note.

Financial Reporting

FRC consults on changes to its strategic report guidance

The Financial Reporting Council (FRC) has published a consultation paper setting out draft amendments to its 2014 Guidance on the Strategic Report. The proposed amendments are not intended as a fundamental review of the Guidance but aim to update it to reflect changes to the strategic report requirements made by the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016, which apply in relation to the financial years of relevant companies and qualifying partnerships beginning on or after 1 January 2017. For further information, please see our Governance & Compliance update.

Regulation in Practice

AIM Disciplinary proceedings can be held in private

In ZAI Corporate Finance Ltd v AIM Disciplinary Committee of the London Stock Exchange plc, the Court of Appeal unanimously dismissed an appeal by a Nominated Adviser which sought to establish that the Nomad had the right under the AIM Rules to require disciplinary proceedings against it to be heard in public. Thus, the decision reinforced the fact that, under the AIM Disciplinary Procedures and Appeals Handbook, while Nomads may ask for a public hearing if that request is lodged at least five business days before the hearing, they have no ability to compel the Committee to proceed on that basis.