PLC QTRLY - Q3 2023

This is our regular quarterly update to help our listed company clients and other market participants keep up to date with key developments relevant to issuers on the Main Market and AIM market of the London Stock Exchange.

Evolving Corporate practice at RPC welcomes James Channo as partner

James Channo has joined RPC's London office as a Corporate partner. James brings with him a senior associate and two junior associates, allowing the firm to expand its equity capital markets (ECM) and public companies work. James advises on a wide range of corporate matters, including AIM and main market listings (IPOs), secondary fundraisings, cross-border M&A, joint ventures, and other international transactional work in multiple sectors.

Karen Hendy, Partner and Head of Corporate at RPC says: "We have advised on a number of significant public market transactions this year. Having James on board allows us to further expand our existing ECM and public company offering. James' experience, relationships and reputation, including his international capability, will also allow us to continue to support clients across the firm as their business' evolve and grow."

Draft regulations to introduce new corporate reporting requirements published

On 19 July 2023, the draft Companies (Strategic Report and Directors' Report) (Amendment) Regulations 2023 were laid in Parliament, reflecting the government's proposals on corporate reporting that were set out in its May 2022 response to the March 2021 BEIS consultation paper on restoring trust in audit and corporate governance.

The regulations will, if approved by Parliament, create the following new corporate reporting requirements for very large UK companies, both public and private (defined in the regulations as companies with 750 employees or more and an annual turnover of £750 million or more):

• An annual resilience statement, to be included in the strategic report, in which companies in scope must explain the steps they are taking to build or maintain their business resilience over the short, medium and long term.
• An annual distributable profits figure, to be included as a note to the accounts, and an annual distribution policy statement (including information on dividends and share buy-backs), to be included in the directors’ report.
• An annual material fraud statement, to be included in the directors’ report.
• A triennial audit and assurance policy statement, to be included in the directors’ report, and an annual update covering how the audit and assurance policy has been implemented (and potentially updated).

Removal of 1.5% charge on issues and transfers integral to capital raising from UK legislation

On 14 September 2023, HMRC published a policy paper and draft legislation for inclusion in the Finance Bill 2024 to remove the 1.5% stamp duty and SDRT charge in domestic legislation on the issue of UK securities into depositary receipt systems and clearance services and on transfers integral to capital raising, as well as the 1.5% (or 0.2%) charge in relation to the issue of bearer instruments.

Following EU and UK court decisions in 2009 and 2012, HMRC recognised that these charges were incompatible with the Capital Duties Directive, but UK legislation was previously not amended as taxpayers were able to rely on the direct effect of EU law and HMRC did not seek to collect the relevant charges. 

However, the effect of the Retained EU Law (Revocation and Reform) Act 2023 means that it is now necessary for the government to legislate in order to maintain the 0% charge.

Developments in sustainability reporting 

FRC thematic review of TCFD reporting

The FRC has published a thematic review of Task Force on Climate-Related Financial Disclosures (TCFD) reporting in the 2022 annual reports of 20 UK premium and standard listed companies operating across four sectors.

The main areas identified by the FRC for further improvement were: 

• The definition and reporting of company-specific metrics and targets, beyond headline ‘net zero’ statements. 
• Better linkage between companies’ climate-related metrics and targets and the risks and opportunities to which they relate. 
• The explanation of year-on-year movements in metrics and performance against targets.
• Transparency about internal carbon prices, where used by companies to incentivise emission reduction.
• Better linkage between climate-related targets reported in TCFD disclosures and ESG targets disclosed in the Directors’ Remuneration Report.
  UK Sustainability Disclosure Standards

We commented in our previous PLC QTRLY on the issue of the International Sustainability Standards Board (ISSB) sustainability disclosure standards, which are designed to provide a global baseline for sustainability-related disclosures in capital markets worldwide. 

The UK government has now announced formal mechanisms for UK endorsement and adoption of the ISSB standards and intends to develop UK Sustainability Disclosure Standards (UK SDS) by July 2024, which the UK government intends will only divert from the ISSB standards if absolutely necessary for UK specific matters. The UK SDS will form the basis of any future requirements in UK legislation or regulation for companies to report on risks and opportunities relating to sustainability matters, including risks and opportunities arising from climate change. As part of the proposed endorsement process, the FRC has launched a call for evidence on the ISSB standards, which will close on 11 October 2023.

Following endorsement of the ISSB standards and creation of the UK SDS, the next step will be to introduce legal requirements for UK entities. The UK government will decide how to apply these to UK registered companies and limited liability partnerships and the FCA will decide on the approach for UK listed companies, in each case building on existing TCFD-based mandatory disclosure requirements.

The FCA has published Primary Market Bulletin 45, stating that it plans to consult on the implementation of disclosure rules based on the UK SDS in the first half of 2024. Assuming that the UK endorsement of the first two ISSB Standards is completed by July 2024, the FCA aims to finalise its approach by the end of 2024. The new requirements are expected to apply to financial years beginning on or after 1 January 2025, with the first reporting being required in 2026. Whilst consulting on the ISSB standards, the FCA will also seek feedback on guidance that will set out its expectations for transition plan disclosures for listed companies, which it will develop with reference to the final outputs of the Transition Plan Taskforce expected to be published this October.

Taskforce on Nature-related Financial Disclosures final recommendations

On 19 September 2023, the Taskforce on Nature-related Financial Disclosures (TNFD) published its final recommendations for reporting on nature-related financial risks and opportunities. 

These recommendations are not yet incorporated into mandatory reporting frameworks, but corporates and financial institutions are encouraged to begin reporting in accordance with these recommendations on a voluntary basis.

Changes to the prospectus regime

The UK government has published a near final version of the Public Offers and Admissions to Trading Regulations 2023, which will replace the retained EU law relating to prospectuses and create a new regulatory framework designed to give companies the flexibility to raise larger sums from investors more quickly. 

Changes to the previous draft statutory instrument published in December 2022 include the following: 

• The definition of "relevant securities" has been amended to clarify that over-the-counter derivatives and securities in building societies, credit unions, and cooperative and mutual benefits societies are outside of scope.
• The FCA will only have powers to require an MTF admission prospectus where the securities are being admitted to trading on markets open to retail investors.
• A new regulated activity of operating a public offer platform has been created.
• The threshold above which unlisted issuers will be required to make their offer via a public offer platform has now been set at £5 million, so that offers above this level will either need to be made via a public offer platform or within the scope of one of the other exceptions in Part 1 of Schedule 1 to the statutory instrument.

In addition, the FCA has published two additional engagement papers on:

• The public offer platform
• Primary multilateral trading facilities

These papers follow the publication of four previous engagement papers as outlined in our previous edition of PLC QTRLY.

Investment Research Review recommendations

On 10 July 2023, HM Treasury published the results of the UK Investment Research Review. In his Mansion House speech the same day, the Chancellor of the Exchequer announced that the government accepted all of the recommendations of the Review and welcomed the FCA's commitment to consult on the removal of the MiFID II requirement to unbundle research costs with a view to making new rules in H1 2024.

The Review made seven recommendations designed to protect and develop the UK as a centre of excellence for investment research:

• Introduce a Research Platform to help generate research and provide a central facility for the promotion, sourcing and dissemination of research, in particular in relation to smaller companies.
• Allow additional optionality for paying for investment research to remove current frictions over investment research charges and keep the UK aligned with other key jurisdictions. 
• Allow greater access to investment research for retail investors.
• Involve academic institutions in supporting investment research initiatives. 
• Support issuer-sponsored research by implementing a code of conduct. 
• Clarify aspects of the UK regulatory regime for investment research and consider introducing a bespoke regime.
• Review the rules relating to investment research in the context of IPOs.

Digitisation Taskforce Interim Report calls for end to issuance of new paper share certificates

On 10 July 2023, the Digitisation Taskforce published its interim report regarding reforms to the UK's shareholding framework to drive full digitalisation of the UK shareholding framework by eliminating the use of paper share certificates and improving the UK's intermediated system of share ownership.

The interim report sets out the following potential recommendations:

• Legislation should be brought forward, and company articles of association changed, as soon as practicable to stop the issuance of new paper share certificates.
• The government should bring forward legislation to require dematerialisation of all share certificates at a future date, to be determined as soon as possible.
• The government should consult with issuer and investor representatives on the preferred approach to 'residual' paper share interests and whether a time limit should be imposed for the identification of untraced ultimate beneficial owners (UBOs).
• Intermediaries should have an obligation, as a condition of participation in the clearing and settlement system, to put in place common technology that enables them to respond to UBO requests from issuers within a very short timeframe.
• Intermediaries offering shareholder services should be fully transparent about whether and the extent to which clients can access their rights as shareholders, as well as any charges imposed for that service.
• Where intermediaries offer access to shareholder rights, the baseline service should facilitate the ability to vote, with confirmation that the vote has been recorded, and provide an efficient and reliable two-way communication and messaging channel, through intermediaries, between the issuer and the UBOs.
• Following digitisation of certificated shareholdings, the industry should move, with legislative support, to discontinue cheque payments and mandate direct payment to the UBO's nominated bank account.

The interim report also seeks feedback across a number of key questions, ahead of the publication of a final report to be delivered within six months.