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March 27, 2023

FCA Primary Market Bulletin 44

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FCA Primary Market Bulletin 44

Last week, the FCA issued its Primary Market Bulletin 44 ("PMB44") giving some guidance for listed companies preparing for their first season's reporting under the Listing Rules' new board diversity and inclusion rules, a warning about regulatory news announcements which include multimedia content and dropping its proposed guidance about prospectus requirements for share issuances in connection with schemes of arrangement. 

Diversity and inclusion reporting

The new boardroom diversity reporting requirements apply to annual reports issued in respect of accounting periods starting on or after 1 April 2022 and so many companies will want to have regard to this guidance as they prepare their reports for publication later this year. 

Mandatory diversity reporting requirements

These will comprise four elements; the first three as continuing listing rule ("LR") requirements (LR 9.8.6 (9)-(11) and LR 14.3.33-39) and the fourth as a corporate governance statement requirement under the DTRs (DTR 7.2.8A):

  • Diversity targets - whether the company has met these targets (and if not, why not):
    • 40% of directors are women
    • at least one of the Chair, CEO, CFO or Senior Independent Director is a women
    • at least one director is from an ethnic minority background 
  • Numerical data, presented in a prescribed tabular format, on the ethnic background and gender identity or sex of members of the board and senior management (with carve-outs for data relating to overseas members where local data protection laws restrict the collection of this data)
  • Explanation of the data collection approach used for the above disclosures - this must be consistently applied and describe the method of collection and questions asked where this is done on a "self-reporting" basis
  • Diversity policy:
    • a description of this policy and its objectives, covering age, gender, ethnicity, sexual orientation, disability or educational, professional and socio-economic backgrounds, as applied to the company's administrative, management and supervisory bodies (including remuneration, audit and nomination committees) 
    • how it has been implemented and the results during the reporting period
    • if there is no policy, why not.

Which companies are caught by these requirements?

The three above Listing Rule requirements apply to premium and standard listed UK and foreign issuers of equity shares (or DRs representing equity shares), including closed-ended investment funds and sovereign controlled companies but excluding open-ended investment companies and shell companies.

The DTR requirement applies to UK and foreign issuers of shares (either listed or traded on a UK MTF such as AIM), with exclusions for small/medium-sized companies (for accounting purposes).

What the FCA plans to do in monitoring compliance with the new reporting rules

PMB44 notes that these D&I disclosures will be of interest, not only to the FCA in reviewing compliance with the new rules, but also to the FRC when reviewing, as it does on a regular basis, compliance with reporting under the UK Corporate Governance Code, including with regards to the Code's existing board and senior management diversity principles and provisions. 

The FCA intends to conduct periodic reviews of annual reports and may request corrective action (e.g., better reporting in the next report) to be taken where it considers disclosures to fall short of the required standards. It also plans to issue best practice examples of good D&I reporting. If a report does not include the required disclosures (including explanations as to why targets have not been met, etc.), this non-compliance will be treated as a serious failure and may led to the imposition of sanctions, etc., as well as a demand that the missing disclosures are published in a regulatory news announcement as soon as possible.The FCA also warns that it will be alert to any disclosures that are identified as being misleading - because of what they say or do not say - and which may cause investor harm or breach its ESG disclosure guidance (see FCA's TN 801.2). 

Finally, the FCA intends to review the effectiveness of the operation of these new rules in three years' time and will consider whether there is evidence that supports any enhancement of the disclosure requirements.

What should companies be doing in advance of publishing their first D&I listing disclosures?

PMB44 notes that Listing Principle 1 will require companies to ensure that they have systems and processes in place to enable them to comply with the new rules and that they will be expected to retain relevant records to support the D&I disclosures that are made.  

It also lists six steps that companies should consider taking in preparation for their first reporting, many of which are obvious and which include identifying any legal restrictions that may prevent or delay data collection and also preparing explanations where it is expected that disclosures may have to be made that targets have not been met, together with action plans to address the missed targets (which may also include a review of the effectiveness of existing board succession and recruitment plans).

Please do feel free to reach out to your usual Shearman contact (or any of the contacts named in this briefing) if you have any questions you would like to discuss with us about preparing for this first round of reporting or otherwise with regards to the LR and DTR reporting requirements.

Regulatory news announcements combining multimedia content

PMB44 notes the new practice of Regulatory Information Services  ("RISs") used by issuers to relay their regulatory announcements to the market, to offer the facility of including multimedia content (such as audio or video) in such announcements. While recognising that issuers may have good reasons for wanting to make use of such content in their corporate communications, it uses PMB44 to remind them that there are distinct risks if regulatory news announcements do include multimedia content. Those risks are both breaches of UK MAR and DTR rules relating to dissemination of regulatory information, particularly inside information, as well as a reduction in the clarity of disclosures being made to the market. 

UK MAR prohibits an issuer combining the disclosure of its inside information with any marketing of its activities and the DTRs require regulated information to be communicated to the media "in unedited full text". Although the FCA has not yet seen a regulatory announcement being made containing any multimedia content and while it is difficult in practice to see how such content would be thought appropriate for an inside information disclosure announcement, the FCA is taking the opportunity to remind issuers of the real dangers of moving to including such content in their regulatory announcements. It may be difficult to properly diligence the content of the video (say) and the market could easily be misled by the splitting of the announcement between written text and multimedia content. 

Specifically, the FCA states in PMB44 that "multimedia content should not form part of any regulated information submitted for dissemination". It is also advises RISs to take steps to minimise the risks of misuse of any multimedia facility that they offer, including by including appropriate guidance on their websites and checkboxes to be ticked if any multimedia is to be used in an announcement. 

Shares issues, schemes of arrangement and prospectuses

Finally, in 2020 the FCA issued for comment a draft Technical Note in which it stated its view that a prospectus may be required when shareholders are given a choice of consideration options in connection with a scheme of arrangement. This is because, in its view, this involves investors deciding whether to buy or subscribe for the securities being offered under the scheme terms (and so an "offer to the public", one of the UK's and EU's existing prospectus triggers). 

In PMB44 the FCA reports that all respondents to its draft note disagreed with its view and, in line with the views of most City law firms, argued that no prospectus is required since an offer to the public requires there to be an underlying contractual offer of securities capable of acceptance by the investor. Under a scheme, there is no offer; instead shareholders are being invited to approve a transaction and express their preference for the securities to be issued pursuant to the scheme.

Although the FCA says that its analysis on this point has not changed, it confirms that it will not be proceeding with the proposed Technical Note. There are two reasons for this, aside from its view not being supported by the vast majority of UK corporate lawyers. First, the question is ultimately a legal one, to be decided by the courts, rather than by a regulator, Secondly, and perhaps more significantly, the draft "illustrative" secondary legislation that the Government published at the end of last year setting out a new legal framework for the UK's prospectus regime, includes an express provision stating that the allotment of securities under a scheme of arrangement (or restructuring plan) are to be excluded from the definition of an offer to the public. 

Authors and Contributors

Michael Scargill

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Maegen Morrison

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Nick Withers

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Simon Burrows

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Michael Mountain

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石 泽楷

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Karla Dudek

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