This edition covers the FCA’s priorities for the next 12 months, the ICGN statement on post-pandemic AGM practices, Takeover Code changes affecting competitive bids, and a proposed new corporate “failure to prevent fraud” offence impacting large organisations.
FCA’s Priorities Revealed in Its 2023/2024 Business Plan
On 5 April 2023, the FCA published its Business Plan for 2023/2024 which details its anticipated activities and areas of focus over the next 12 months. Key points of interest for listed companies:
- Updating the regulatory framework — the FCA will conclude its Listing Regime Review (with a significant consultation paper expected imminently) and implement a new regime to promote a more active and liquid London capital markets environment. The FCA will also bring forward important proposals for changes to the UK Prospectus Regulation — including a new public offer regime.
- Delivering assertive action on market abuse — the FCA will continue to focus on timely and accurate market disclosures, augmenting this work with increased focus on prevention and compliance via better education and further work on detecting potentially misleading disclosures, including PDMR dealings and limiting opportunities for insider dealing.
- ESG — the FCA will continue to monitor how effectively listed companies are implementing climate-related financial disclosures. The FCA will also consult on changes to its Listing Rules to reference the final International Sustainability Standards Board (ISSB) standards (relating to sustainability disclosures) once the International Organization of Securities Commissions (IOSCO) has endorsed them and they can be used in the UK.
For further details, see this Latham blog post.
Governance Network Warns Against Virtual-Only AGMs
On 19 April 2023, the International Corporate Governance Network (ICGN), representing investors responsible for assets of around $70 trillion, issued a statement on post-pandemic AGM practices and shareholder rights. Given that virtual-only participation reduces board/shareholder interaction and the exercise of shareholder rights, the ICGN states that virtual-only AGMs are only appropriate in “emergency” situations.
The ICGN calls on regulators to discourage the practice of adopting virtual-only AGMs and require that companies provide for hybrid AGMs to allow global investors to have the option of virtual or live participation.
ICGN’s position on virtual-only meetings reflects the views of key proxy advisors (such as ISS and Glass Lewis). A hybrid format will in most cases be the optimal AGM format, and listed companies should consider the ICGN’s recommendations on conducting AGMs (as set out in the statement) when preparing for their AGMs.
Takeover Code Amendments Taking Effect 22 May 2023
On 4 April 2023, the Takeover Panel published response statements RS 2022/3 and RS 2022/4, and associated instruments which make certain amendments to the Takeover Code proposed in consultation papers published in October 2022:
- RS 2022/3 clarifies how the offer timetable applies in a competitive situation if different offer structures are being used.
- RS 2022/4 introduces miscellaneous amendments to the Takeover Code (largely as consulted upon) including a recognition that in some situations, a target company board may not be able to make a single recommendation (i.e., if more than one of the offers are recommendable but the appropriate action for each shareholder depends on various factors/circumstances, such as their tax position). As such, the final rules permit the board to satisfy the new requirement by giving a more nuanced recommendation reflecting the key factors to be taken into account by shareholders or holders of convertibles/options in making their decision as to what action to take. In addition, the Takeover Panel has included example language in the response statement, which target boards could use to comply with these requirements.
These amendments will take effect on 22 May 2023.
New UK Failure-to-Prevent-Fraud Offence Shines Spotlight on Internal Controls
On 11 April 2023, the UK Home Office proposed (through the Economic Crime and Corporate Transparency Bill) a new offence to make it easier to prosecute a large organization if an employee commits fraud or false accounting for the organization’s benefit, and the organization did not have reasonable prevention procedures in place.
An organization without reasonable fraud-prevention procedures could face unlimited fines, with no requirement to prove that company bosses ordered or knew about a fraud committed by an employee.
The offence would apply only to large bodies corporate and partnerships that meet at least two of the three following size criteria: more than 250 employees, more than £36 million turnover, and more than £18 million in total assets.
Overseas organisations could also be prosecuted if an employee commits fraud under UK law or targets UK victims.
The new offence will come into force only after the UK government publishes guidance on reasonable fraud-prevention procedures. This publication is expected once the Economic Crime and Corporate Transparency Bill has been approved by Parliament (received Royal Assent).
Listed companies should focus on these developments (alongside upcoming corporate governance reforms to strengthen internal controls) and ensure that they foster an environment and culture to prevent fraudulent practices. Compliance programmes and policies will be key, and companies should review D&O coverage and engage with brokers as appropriate, in particular given the potential for derivative claims to be brought against individual officers.