Friday, 18 April 2014

New Zealand: FMA calls for improvements in disclosure of fees paid to auditors by listed issuers

The Financial Markets Authority has published the results of its review of the disclosure of fees paid to auditors by listed issuers: see here (pdf). The review noted that some companies' disclosures made it difficult to determine the fees relating to the audit of the financial statements and those paid for other services. It was also noted, in a large number of the financial statements reviewed, that the amount paid to the auditor for the audit of financial statements and the descriptions of the nature of other services provided by the external auditor could be more clearly identified.

Thursday, 17 April 2014

Jersey: States approve the Financial Services Ombudsman (Jersey) Law

Earlier this month the States of Jersey adopted the Financial Services Ombudsman (Jersey) Law, which now awaits the approval of the Queen in CouncilHansard, the record of debate, is available here (pdf). The law creates a new ombudsman scheme to consider complaints from customers of Jersey financial services providers and will operate in conjunction with Guernsey.

Wednesday, 16 April 2014

Europe: EMIR - ESAs consult on draft regulatory standards

The European Supervisory Authorities have begun a consultation on draft Regulatory Technical Standards in respect of the European Market Infrastructure Regulation (EMIR).  The draft Standards cover the risk management procedures for counterparties in non-centrally cleared OTC derivatives, the criteria concerning intragroup exemptions and the definitions of practical and legal impediments. The consultation paper is available here (pdf).

Tuesday, 15 April 2014

Ireland: Supreme Court considers legal status of club

Earlier this month the Supreme Court gave judgment in Dunne v Mahon [2014] IESC 24. The decision is noteworthy because of the discussion it contains regarding the legal status and rules of an unincorporated association (a club). Mr Justice Clarke observed: "While a club is ... in one sense, no more than a set of interlocking mutual contractual relations between its members, it does have a form of existence which goes beyond that and which is subject to the jurisdiction of the courts".

Monday, 14 April 2014

UK: England and Wales: Court of Appeal considers section 235 definition of 'collective investment scheme'

The Court of Appeal gave judgment last week in Asset Land Investment Plc v The Financial Conduct Authority (FCA) [2014] EWCA Civ 435. This is an important decision on the definition of a collective investment scheme under section 235 of the Financial Services and Markets Act 2000. In particular, the court considered the meaning of 'arrangement' as used in section 235. Lady Justice Gloster (with whom Lady Justice Sharp and Lord Justice Rimer agreed) stated (paras. [50] and [52]):
The authorities demonstrate that, when interpreted together, sections 235(1), (2) and (3) are drafted in such a way as to justify the giving of a very wide meaning to term "arrangements" in section 235(1), which includes understandings and agreements that are not legally binding ... I cannot accept [the] submission that in order for an 'arrangement' to exist, there has to be "a mutual expectation of adherence" to be represented arrangements. The existence of "arrangements" for the purposes of section 235 cannot depend upon what might be an involved investigation into the subjective intentions and expectations of a representor, whose representations have caused investors to reach certain understandings. Such an approach would unduly and illogically restrict the ambit and effect of section 235".

Friday, 11 April 2014

OECD begins review of its Guidelines on Corporate Governance of State Owned Enterprises

The OECD has begun a review of its Guidelines on Corporate Governance of State-Owned Enterprises: see here. A revised draft of the Guidelines will be published next month. Final discussion is expected in the autumn, with the revised Guidelines being summited to the OECD Corporate Governance Committee for approval in November.

Australia: Corporations Legislation Amendment (Deregulatory and other measures) Bill published for consultation

The Australian Treasury has published for consultation a draft of the Corporations Legislation Amendment (Deregulatory and other measures) Bill 2014: see here (pdf). Explanatory notes are available here (pdf). Amongst other things, the Bill will remove from section 249D of the Corporations Act 2001 the requirement for an annual general meeting to be held at the request of at least 100 shareholders. Another amendment concerns section 300A of the 2001 Act and will require listed entities to include in their remuneration report a general description of their remuneration framework (to the extent that it is not included elsewhere in the annual report).

Thursday, 10 April 2014

BCBS update on Basel III implementation and capital requirements for bank exposures to central counterparties

The Basel Committee on Banking Supervision has published an update regarding implementation of the Basel III regulatory reforms: see here (pdf). The Committee has also published its final standard Capital requirements for bank exposures to central counterparties: see here (pdf).

Wednesday, 9 April 2014

Europe: Commission publishes governance proposals - remuneration, shareholder rights, disclosure, Societas Unius Personae

The European Commission has today published a proposal for revising the Shareholder Rights Directive, a Recommendation on corporate governance reporting and a proposal for a Directive on single member private limited liability companies: see here.

The proposed revisions to the Shareholder Rights Directive include changes to the disclosure obligations in respect of a remuneration and the introduction of a binding vote on remuneration policy for certain companies. It also imposes new disclosure obligations on proxy advisors and the requirement for shareholder approval of certain related party transactions. For further information see: FAQs | Proposed Directive (pdf) | Impact assessment: summary (doc) and full text (doc).

The purpose of the Recommendation is to provide guidance on improving the quality of corporate governance reporting for those companies required to publish a corporate governance statement under Article 20 of Directive 2013/34/EU. A copy of the Recommendation is available here (doc).

The proposed Directive on single member private limited liability companies will require Member States to make available, through their individual legal systems, a single member private limited liability company, with several harmonised features and a common name (Societas Unius Personae, or SUP). The SUP would have a minimum capital requirement of one euro. For further information see: FAQs | Proposed Directive (doc) | Impact assessment: summary (doc) and full text (doc).

Tuesday, 8 April 2014

New Zealand: Financial Markets Conduct Act 2013 - phase one comes into force

The first phase of the Financial Markets Conduct Act 2013 came into force earlier this month. An overview of the changes which have come into force is available here.

Monday, 7 April 2014

OECD report: corporate governance and risk management

The OECD has published a report in which it reviews the corporate governance framework and risk management practices in 27 jurisdictions: see here (pdf). The report focuses, in particular, on Norway, Singapore and Switzerland.

Friday, 4 April 2014

UK: "The age of asset management?" - a speech by Andrew Haldane

Andrew Haldane, currently the Executive Director for Financial Stability at the Bank of England but soon to become the Bank's chief economist, delivered a speech today titled "The age of asset management?" in which he identified the risks posed by the asset management industry to financial stability, and the associated policy implications. A copy of the speech is available here (pdf). A summary is available here.

UK: The Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014

The Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 were laid before Parliament yesterday. An explanatory memorandum is available here (pdf). The Regulations implement in part the provisions relating to capital buffers in Directive 2013/36/EU; they also make amendments to the Bank of England Act 1998 to specify the procedure for notifying proposed macro-prudential measures under Article 458 of Regulation (EU) No 575/2013.

Thursday, 3 April 2014

Europe: Parliament adopts statutory audit reform proposals

The European Parliament, in plenary session, has adopted legislative proposals to reform the EU statutory audit market. The proposals - in the form of a Directive and Regulation - now require formal adoption by the Council, expected later this month. Publication of the legislation is expected in the Official Journal within the next three months. For further information about the proposals, which include the introduction of mandatory audit firm rotation, see here.

UK: England and Wales: what is a collective investment scheme?

A copy of the judgment Financial Conduct Authority v Capital Alternatives Ltd [2014] EWHC 144 (Ch) was added to the BAILII database yesterday. The trial judge, Mr N Strauss QC (sitting as a deputy judge), held that several investment schemes were collective investment schemes under section 235 of the Financial Services and Markets Act 2000. In doing so he considered several important elements of the section 235 definition including the pooling of profits and "managed as a whole". The latter, he observed, did not require the complete absence of any element of individual management.

Wednesday, 2 April 2014

BCBS guidelines on the external audits of banks

The Basel Committee on Banking Supervision has published guidelines concerning the external audits of banks: see here (pdf). The guidelines cover two core areas: the audit committee's responsibilities in overseeing the external audit function; and the prudential supervisor's relationship with the external auditors and audit oversight body.

The guidelines replace two existing publications: The relationship between banking supervisors and banks' external auditors and External audit quality and banking supervision.

Tuesday, 1 April 2014

Australia: ASX publishes third edition of its Corporate Governance Principles and Recommendations

The ASX Corporate Governance Council has published the third edition of its Corporate Governance Principles and Recommendations: see here (pdf).  An overview of the changes introduced in the third edition is available here (pdf). There are nine new recommendations, some of which were previously included in commentary. It is now recommended, for example, that the external auditor attend the annual general meeting.

India: Companies Act 2013 provisions coming into force today

Many of the provisions within the new Companies Act 2013 come into force today: see here (pdf). The rules, circulars, notifications and orders made under the Act are available here.

Monday, 31 March 2014

UK: Financial Conduct Authority publishes its 2014/15 business plan

The Financial Conduct Authority has published its business plan for 2014/15: see here (pdf). Amongst the key activities highlighted, the FCA states that it will "continue to enhance the effectiveness of the listing regime, including ensuring that there is appropriate protection for minority shareholders to be able to exercise their rights" (p. 7). The FCA also states, in referring to the new Senior Managers and Certified Persons regimes, that the "... accountability of individuals in positions of responsibility needs to be improved and overall standards of governance raised" (p. 7). The framework for these new regimes is set out in Part 4 of the Financial Services (Banking Reform) Act 2013.

Malaysia: Commission seeks views on implementation of its Corporate Governance Blueprint

In 2011 the Securities Commission published its Corporate Governance Blueprint and set out proposals to improve the governance framework over a five year period. Many of the Commission's recommendations were incorporated in a revised corporate governance code published in 2012: see here. The Commission is now seeking views on the implementation of the Blueprint: see here.

UK: Scotland: Law Commission consultation on third party rights in contract

The Scottish Law Commission has published a discussion paper on third party rights in contract: see here. The Commission seeks views on whether a short legislative statement should be introduced, in place of the current common law, setting out how third parties can have rights and remedies conferred upon them under a contract between other parties. Several issues relating to corporate groups are considered in the discussion paper (see paragraphs 3.4 to 3.19).

Friday, 28 March 2014

Europe: Commission Communication on long-term financing of the European economy

The European Commission published a Communication yesterday on the long-term financing of the European economy: see here (pdf). This contains a section on corporate governance in which the Commission said that it would consider the following proposals:
  • A revision of the Shareholder Rights Directive in order to "to better align long-term interests of institutional investors, asset managers and companies".
  • The introduction of a Recommendation to improve the quality of corporate governance reporting.

UK: ACCA consultation paper 'Creating value through governance - towards a new accountability'

The Association of Chartered Certified Accountants has published a consultation paper titled Creating value through governance – towards a new accountability: see here (pdf). The paper seeks, amongst other things, to generate debate about the purpose of corporate governance and the extent to which the current framework requires reform.

Thursday, 27 March 2014

UK: Women on Boards - publication of Davies Review annual report and Cranfield Female FTSE Board report

The third Women on Boards: Davies Review annual report was published yesterday: see here (pdf). The report notes that 20.7% of FTSE100 board positions are held by women (in 2011 it was 12.5%) and that only two FTSE100 companies have all male boards. In 2011 Lord Davies recommended that FTSE100 boards should, by 2015, have a minimum of 25% female representation: see here (pdf). Also published yesterday was the annual Female FTSE Board Report from Cranfield University: see here (pdf).

Wednesday, 26 March 2014

USA: Economic Policy Review special issue - large and complex banks

The latest edition of the Economic Policy Review - published under the auspices of the Federal Reserve Bank of New York - has been published. It is a special issue focusing on large and complex banks and contains the following eleven articles:

Bank Size
Bank Complexity
Bank Resolution

Tuesday, 25 March 2014

Europe: ESMA consults on draft standards regarding notification of major shareholdings

The European Securities and Markets Authority has launched a consultation on draft Regulatory Technical Standards under the revised Transparency Directive relating to the notification of major shareholdings and the indicative list of financial instruments subject to notification requirements: see here (pdf).

UK: FCA publishes hedge fund survey

The Financial Conduct Authority yesterday published a survey of UK hedge funds: see here (pdf). The survey notes that approximately USD 470bn of hedge fund assets are managed in the UK, with 450 hedge fund management firms registered with the FCA. The survey itself is based on data from 49 management firms, which together manage USD 481bn of hedge fund assets globally, of which USD 206bn is managed in the UK. The survey finds that equity strategies are the most popular among the funds in the survey and that institutional investors have become the dominant type of investors in hedge fund vehicles.

Monday, 24 March 2014

UK: Is a member of a limited liability partnership a 'worker'?

Today the Supreme Court will hear argument in Clyde & Co LLP v Winkelhof. The issue before the court, to quote directly from its summary of the case, is "[w]hether a member of a limited liability partnership is a worker within the meaning of section 230(3) of the Employment Rights Act 1996 and is therefore within the category of persons protected by the Public Interest Disclosure Act 1998 and permitted to bring a whistleblowing claim".

The hearing will be broadcast live by Sky News as part of its Supreme Court Live service. When the Court of Appeal heard the case in 2012, it held that a partner of a limited liability partnership, who if it had not been registered as a LLP would have been a partner in a partnership under the Partnership Act 1890, was not a 'worker' under section 230(3): see [2012] EWCA Civ 1207.

UK: Scotland: Limited liability partnership is a 'company' for the purposes of equal pay claim

The opinion of the Court of Session (Inner House) in Glasgow City Council v Unison Claimants [2014] CSIH 27 was delivered last Friday. The case concerned an equal pay claim brought under the Equal Pay Act 1970 (the claim was brought before the coming into force of the Equality Act 2010). The court was required to consider whether a limited liability partnership could be regarded as a company for the purposes of section 1(6)(c) of the 1970 Act, which provides that two employers are "to be treated as associated if one is a company of which the other (directly or indirectly) has control or if both are companies of which a third person (directly or indirectly) has control".

The court (Lords Brodie, Drummond-Young and Phillip) unanimously held that for the purposes of section 1(6)(c), a limited liability partnership could be regarded as a company. Lord Brodie delivered the court's opinion and adopted the definition of company provided by Lord Hoffmann in O'Neill v Phillips [19991] 1 WLR 1092: "an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality". He observed (at para. [46]):
"An LLP is an association of persons (natural or juristic). It has an economic purpose (see in particular, section 2(1)(a) of the 2000 Act). There are formal requirements for its constitution (including registration with the Registrar of Companies). It is a corporate body with a legal personality separate from its members and having limited liability. We should point out that all of the foregoing features exist in an ordinary (unlimited) Scottish partnership. Historically, partnerships were frequently referred to in Scotland as "companies". It may be, therefore, that a Scottish partnership is also a "company" for the purposes of the equal pay legislation. A decision on that point is not necessary for the purposes of the present case, however, and we express no concluded view on the matter."

Friday, 21 March 2014

UK: England and Wales: Court of Appeal considers the meaning of 'debenture'

In a judgment delivered yesterday - Fons Hf v Corporal Ltd [2014] EWCA Civ 304 - the Court of Appeal considered the meaning of the term 'debenture'. The question of meaning arose in a dispute between the parties as to whether rights under unsecured loan agreements had been charged. The legal charge provided, amongst other things, that 'shares' were subject to the charge and a definition of 'shares' was given that included the word 'debentures'.

The Court of Appeal unanimously held that the rights under the agreements were subject to the charge, thereby reversing the decision at first instance (see [2013] EWHC 1801 (Ch)). Lord Justice Patten, delivering the leading judgment, observed that as a matter of language, "the term [debenture] can apply to any document which creates or acknowledges a debt; does not have to include some form of charge; and can be a single instrument rather than one in a series" (para. [36]).

Lady Justice Gloster considered whether loan agreements, either when originally entered or when novated, constituted debentures. In doing so she referred to the view that they could not be so regarded because no debt was created until drawdown and that, accordingly, there was no debt capable of acknowledgment at the time of the agreement. Her Ladyship rejected this view as "wrong, and unnecessarily technical. The obligation to repay clearly arises on execution of the loan instrument itself, albeit that such obligation may be contingent on drawdown actually taking place" (para. [50]).

Europe: The Banking Union and the Single Resolution Mechanism - provisional agreement reached

Yesterday, in trilogue, provisional agreement was reached on the proposed Single Resolution Mechanism, part of the Banking Union: see here. The agreed text must now be adopted jointly by the European Parliament and the Council. A vote in Parliament is expected in April.

Thursday, 20 March 2014

UK: Supreme Court to hear Jetivia appeal

The Supreme Court has published an updated list of permission to appeal decisions: see here (pdf). This notes that on 11 February permission was given to appeal the Court of Appeal's decision in Jetivia SA v Bilta (UK) Ltd [2013] EWCA Civ 968. The Court of Appeal had held, amongst other things, that section 213 ("fraudulent trading") of the Insolvency Act 1986 was of extraterritorial effect. It also held that a company could recover losses that it had suffered as a result of the fraud of its sole director and shareholder. In such a case the director could not rely on the maxim ex turpi causa non oritur actio to defeat the company's claim. A summary of the Court of Appeal's decision is available here.

Wednesday, 19 March 2014

UK: Bank of England Governor launches strategic plan

Dr Mark Carney, the Governor of the Bank of England, launched the Bank's strategic plan yesterday: see here. The plan contains fifteen core initiatives, including enhancing transparency: see here (pdf). A new organisational structure will be introduced on 1 June: see here (pdf). Dr Carney took the opportunity to speak about the new plan when he delivered the 30th annual Mais lecture yesterday: see here (pdf).

Tuesday, 18 March 2014

UK: Bank of England - senior appointments and the new deputy governor for banking and markets

The Chancellor today announced three new senior appointments at the Bank of England, the UK's central bank: see here. This includes the new position of deputy governor for banking and markets, about which the Governor spoke last week. This new deputy governor position does not currently exist within the statutory framework provided by the Banking Act 1998, recently amended by Part I the Financial Services Act 2012. The Chancellor has, however, announced today that it will be placed on a statutory basis "as soon as a suitable legislative opportunity arises".

Monday, 17 March 2014

UK: England and Wales: unlimited companies and the liability of their members

Judgment was given last Friday in Re Lehman Brothers International (Europe) & Ors [2014] EWHC 704 (Ch). This is an important and interesting judgment concerning, amongst other things, the liability of unlimited company members. The trial judge held, for example, that the obligation of members to contribute under section 74(1) of the Insolvency Act 1986 extended not only to proved debts but also to the statutory interest on those debts and un-provable liabilities. It was also held that the so-called contributory rule - the rule that a company contributory in liquidation cannot recover anything in respect of any claims he may have as a creditor until his obligations as a contributory are fully discharged - did not apply in an administration. The judgment also contains some discussion of the history of unlimited companies in the United Kingdom, the trial judge observing (at para. [132]):
As the limited liability of members, together with a simple process of registration and incorporation, were the principal advantages of the mid-nineteenth century reforms, it is not surprising that there has been only a sparse use of unlimited companies. It appears that their introduction by the Companies Act 1862 was to compensate for the prohibition of partnerships or joint stock companies with more than twenty members or, in the case of banks, ten members. If members wished to have an association which most closely resembled the old joint stock company, the unlimited company was introduced for that purpose. There remained in some circles some stigma attached to limited liability and there were a number of businesses, including banks and building societies, which were incorporated as unlimited companies. A number of cases, though far fewer than those concerned with limited companies, dealt with issues arising out of the liability of members of unlimited companies. The use of unlimited companies, never great, declined during the nineteenth century. In the twentieth century, their principal advantage was an exemption from ad valorem stamp duty, and later capital duty, payable on the issue of new capital by a company. For this reason, their principal use for many years was as estate or investment companies, where estates or other property were transferred to companies in exchange for shares issued to or owned for the benefit of the families owning them. For the same reason, they were sometimes used in complex corporate restructurings and transactions. As appears from the facts of the present case, unlimited companies have found a place in corporate planning for US tax purposes."

Update (17 March 2014) - a summary of the decision has been published by the ICLR: see here.

Friday, 14 March 2014

UK: Clawback of vested variable remuneration - a proposed change to the Remuneration Code

Yesterday the Prudential Regulation Authority published a short consultation paper in which it set out its intention to amend the Remuneration Code in order to require all PRA-authorised firms to amend employee contracts in order that they are able to clawback vested variable remuneration: see here (pdf).

Six years is the maximum time period proposed by the PRA and, as a minimum, firms should be able to clawback remuneration when: (a) there is reasonable evidence of employee misbehaviour or material error; or (b) the firm or the relevant business unit suffers a material downturn in its financial performance; or (c) the firm or the relevant business unit suffers a material failure of risk management.

Thursday, 13 March 2014

USA: Whistle blowing protection and the Sarbanes-Oxley Act 2002

Earlier this month the Supreme Court gave judgment in Lawson v FMR LLC: see here (pdf). The case concerned the whistle blowing protection provided by section section 1514A of 18 US Code, introduced by section 802 ("Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud") of the Sarbanes-Oxley Act 2002. At the relevant time, Section 1514A provided that “No [public] company . . . , or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].”

The issue before the court was the extent of the section 1514A protection: did it apply only to employees of the public company? The court held, by majority, that it applied not only to employees of the public company but also to the employees of contractors and subcontractors (e.g., investment advisers, law firms and accounting firms).

Wednesday, 12 March 2014

UK: Bank of England governance and a new Deputy Governor

The Governor of the Bank of England, Dr Mark Carney, appeared before the Treasury Select Committee yesterday. A video recording of the meeting is available here. The meeting has been reported widely in the media: see, for example, here (BBC News), here (The Guardian) and here (Financial Times, subscription required).

Amongst other things, Dr Carney said that a review of the Bank's governance and processes would be published next week and in this regard he said that a new Deputy Governor position would be created with responsibility for banking and markets. What is not clear - and may well become clearer next week - is how this will be achieved. The Bank's formal governance structures, including membership of its Court of Directors, are set out in the Banking Act 1998, recently amended by Part I the Financial Services Act 2012. Legislation requires the Bank to have a Governor and Deputy Governors for financial stability, monetary policy and prudential regulation. Will changes be made to the Banking Act 1998 in respect of the proposed new Deputy Governor position? This is not clear but, according to the Financial Times report, the proposed new Deputy Governor is to have "the status of a deputy governor but will not formally join the ranks of the three official deputy governors". This would appear to suggest that amending the legal framework is not envisaged. Is this an appropriate? Is it possible for the new Deputy Governor to enjoy the same status as the other Deputy Governors if the position does not carry the same legal status?

Tuesday, 11 March 2014

Portugal: CMVM's corporate governance code - copy in English available

Last year the Portuguese Securities Market Commission, Comissão do Mercado de Valores Mobiliários, published a new edition of its corporate governance code. A copy of the Code, in English, is now available: see here (pdf).

UK: England and Wales: friendly society officers not validly appointed

Judgment was given yesterday by the Court of Appeal in Speechley v Allott [2014] EWCA Civ 230. One of the issues for the court to consider was whether several officers of a friendly society had been validly appointed. The rules of the society required them to be elected by ballot but they had been elected by acclamation or show of hands. At first instance the trial judge found this to be a failure of form, and not of substance, and held the elections valid. The Court of Appeal disagreed, Lord Justice Lewison stating (at para. [50]):
Although the judge placed reliance on the fact that the election was unanimous, unanimity is easier to achieve in an open election than in a secret ballot. It is of itself a reason why it is important that elections be conducted by ballot rather than by acclamation or show of hands in an open meeting. Moreover, since there had been no opportunity given to the members to nominate alternative candidates, the mere fact that those who had been proposed and seconded were unanimously elected is not of great weight. I cannot therefore agree with the judge either that adequate notice of the business to be transacted at the meeting was given, or that the irregularities were mere matters of form. It follows from this that the President and the Treasurer were not validly elected."