Tuesday, 31 March 2015

UK: Grant Thornton's housing governance review 2015

Grant Thornton has published a review of the governance of the the sixty largest (by income) not for profit registered providers of social housing in England: see here (pdf). The review is based on the disclosures contained in financial statements as well as best practice guidance including the 2010 edition of the code of governance published by the National Housing Federation.

Note - a revised edition of the NHF code of governance was published earlier this year: see here (pdf).

Monday, 30 March 2015

UK: Election 2015: Labour Party outlines corporate governance reforms

The Labour Party today published a manifesto for business, as part of its general election 2015 campaign: see here (pdf). The manifesto includes several corporate governance proposals:
We will give institutional investors a duty to act in the best interests of ordinary savers and to prioritise the long-term growth of the companies they invest in. We will change takeover rules to strengthen the role of long term investors by restricting voting to those already holding shares when a bid is made, and strengthen the public interest test to protect the UK’s science and research base. Everybody supports reward for outstanding achievement. Labour will improve the link between executive pay and performance by simplifying pay packages, putting employee representation on remuneration committees and requiring investment and pension fund managers to disclose how they vote on pay and other issues".

UK: The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015

The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 were made last week and come into force on 6 April 2015: see here or here (pdf). The purpose of the Regulations is to update and consolidate existing legislation on the content and presentation of company accounts, making amendments to Part 15 (Accounts and reports) of the Companies Act 2006 and other legislation, and in doing so implement Chapters 1-9 of Directive 2013/34/EU.

The Regulations will, for example, permit small companies to prepare an abridged balance sheet and abridged profit and loss account; they also remove the requirement for micro-entity companies (as defined by sections 384A and 384B of the Companies Act 2006) to prepare a Directors’ Report. Further information is available in the accompanying explanatory memorandum (herepdf), impact assessment (here, pdf) and transposition note (here, pdf).

IOSCO publishes new Code of Conduct Fundamentals for Credit Rating Agencies

The International Organization of Securities Commissions has published a new edition of its Code of Conduct Fundamentals for Credit Rating Agencies. A copy of the new code is contained in Appendix A of the report published last week by the IOSCO, in which it explained the changes made in the new edition: see here (pdf).

UK: HM Treasury consultation - Markets in Financial Instruments Directive II transposition

HM Treasury has begun a consultation regarding transposition of the Markets in Financial Instruments Directive II: see here (pdf). The consultation paper is accompanied by four draft statutory instruments (see here) and an impact assessment (see herepdf).

UK: England and Wales: RTM companies can only manage one self-contained building or part of a building

The Court of Appeal gave judgment last Friday in Triplerose Ltd v Ninety Broomfield Road [2015] EWCA Civ 282 and unanimously held that Upper Tribunal (Lands Chamber) had been wrong to conclude that a right to manage company (as defined in section 73 of the Commonhold and Leasehold Reform Act 2002) was able to acquire the right to manage more than one self-contained building or part of a building. Such companies, the court held, could only manage one self-contained building or part of a building.

Friday, 27 March 2015

UK: The Deregulation Act 2015

The Deregulation Bill received Royal Assent yesterday: see here. A copy of the new Act - the Deregulation Act 2015 - is available here (pdf). An explanatory memorandum has not yet been published but background information is available here. Some of the Act's provisions relate to company and insolvency law, in particular section 17 (Authorisation of insolvency practitioners), section 18 (Auditors ceasing to hold office) and section 19 (Insolvency and company law: miscellaneous).

Update (30 March 2015) - The Deregulation Act 2015 (Commencement No. 1 and Transitional and Saving Provisions) Order 2015 was made on 27 March: see here.

UK: On microscopes and telescopes - a speech by Andy Haldane

The Chief Economist of the Bank of England, Andy Haldane, delivered a speech today titled On microscopes and telescopes: see here (pdf). In his speech, Mr Haldane argues that complexity theory may be a useful lens through which to begin exploring the public policy questions that arise from the new architecture of macro-financial policy.

UK: The Small Business, Enterprise and Employment Act 2015

The Small Business, Enterprise and Employment Bill received Royal Assent yesterday: see here. A copy of the new Act - the Small Business, Enterprise and Employment Act 2015 - is available here (pdf). An explanatory memorandum for the Act is not yet available but fact sheets were published yesterday by the Department for Business, Innovation and Skills in order to provide more information about the changes being introduced: see here.

The fact sheet on company transparency, available here (pdf), contains information on the new register of significant control, the abolition of bearer shares and the provisions concerning corporate and shadow directors. The fact sheet on company filing requirements is available here (pdf) and the fact sheet on directors' disqualification and creditor compensation is available here (pdf).

UK: The Mutuals’ Deferred Shares Act 2015

The Mutuals’ Deferred Shares Bill received Royal Assent yesterday: see here. A copy of the new Act is available here or here (pdf). The Act gives the Treasury the power, through secondary legislation, to permit or facilitate the issue of deferred shares by a friendly society or mutual insurer. For further background information, see the briefing paper provided by the Commons Library and available here.

Thursday, 26 March 2015

UK: Women on boards 2015 - fourth annual report from Lord Davies and a new edition of Cranfield's Female FTSE Board report

Lord Davies of Abersoch has published the fourth annual review of women on boards, reporting on progress towards the 25% target set in his report published in 2011: see here (pdf). The headline figures for FTSE100 boards this month are: 23.5% women; 76.5% men. More specifically, within the FTSE100, 8.6% of executive directors and 28.5% of non-executive directors are women. There are no all-male boards in the FTSE100.

Lord Davies' report appeared on the same day as Cranfield University published its annual Female FTSE Board report: see here (pdf).

Wednesday, 25 March 2015

UK: The Companies (Disclosure of Address) (Amendment) Regulations 2015

The Companies (Disclosure of Address) (Amendment) Regulations 2015 were laid before Parliament yesterday and come into force on 30 June 2015: see here or here (pdf). An explanatory memorandum is available here (pdf). The purpose of the Regulations is to enable the Minister for the Cabinet Office to obtain the residential address of a director for the purposes of data matching under Schedule 9 of the Local Audit and Accountability Act 2014.

UK: FRC publishes 2015/16 budget and plan

The Financial Reporting Council has published its budget and plan for 2015/16, following an earlier consultation: see here (pdf). The priorities for the FRC include work on the following: supporting better engagement between boards and shareholders; helping smaller listed and AIM companies to improve the quality of their reporting; and reviewing how effective boards establish company culture and practices and embed good corporate behaviour.

Tuesday, 24 March 2015

UK: PRA policy statement - strengthening individual accountability in banking and insurance

The Prudential Regulation Authority has published a policy statement titled Strengthening individual accountability in banking and insurance: see here (pdf). The statement contains the first set of final PRA rules to implement the Senior Managers Regime and Certification Regime for relevant authorised persons (UK deposit-takers and PRA-designationed investment firms) and the Senior Insurance Managers Regime for Solvency II insurers.


[a] The policy statement does not contain all of the final rules necessary to implement the new regimes. For further information, and to track implementation, see the strengthening accountability section of the PRA's website.

[b] Policy and supervisory statements were published several days ago by the PRA in respect of its implementation of the Solvency II Directive: see here.

UK: JCPC considers duties of a nominee director

The Judicial Committee of the Privy Council gave its opinion today in Central Bank of Ecuador v Conticorp SA [2015] UKPC 11: see here or here (pdf). A summary is available here (pdf).

The Board considered, amongst other things, the duties of a nominee director and held that such a director was "not entitled to forego, or surrender to another, any exercise of his discretion, however paltry the amount he may be paid" (para. [45]). The Board held that a director was in breach of duty when he gave effect, "blindly and ignorantly", to the instructions of others. It did not matter that those instructions were of benefit to the company: it was his duty to apply his own mind to the company's interests.  Moreover, whether a loss caused was not relevant in determining if there was a breach of duty.

Monday, 23 March 2015

UK: Joint Committee report calls for insolvency law changes

A report titled Impact of the closure of City Link on Employment was published today by the Scottish Affairs Committee and Business, Innovation and Skills Committee: see here or here (pdf). The report makes various recommendations and calls on the Government to change the order of distribution in insolvency, in particular to give a stronger priority to workers, sub-contractors and suppliers.

Friday, 20 March 2015

UK: a new corporate offence - the failure to prevent tax evasion

HM Treasury yesterday provided further information about the Government's proposals to introduce new criminal offences relating to tax evasion: see here. These include, in respect of companies, an offence of facilitating tax evasion and another of failing to prevent tax evasion. Little further information is available but it seems likely that the offence of failing to prevent tax evasion will be modelled on the new offence introduced by section 7 of the Bribery Act 2010: the failure of a commercial organisation to prevent bribery.

UK: England and Wales: Law Commission consultation - technical issues in charity law

The Law Commission for England and Wales has published a consultation paper seeking views on proposed reforms to various aspects of charity law, including the process by which governing documents are amended, transactions involving land, payments to trustees, charity mergers and insolvency. A copy of the paper is available here (pdf) and a summary is available here (pdf). Further information about the Commission's work in the field of charity law is available here.

UK: FRC publishes revised edition of FRS104 - Interim Financial Reporting

The Financial Reporting Council has published a revised edition of FRS104, Interim Financial Reporting: see here (pdf). Further background information, including an impact assessment, is available here.

UK: England and Wales: cross border merger approval - jurisdiction to make a conditional order

Judgment was given yesterday in Re International Game Technology Plc [2015] EWHC 717 (Ch). The trial judge, Mr Justice Birss, considered the operation of Regulation 16 ("Court approval of cross-border merger") of the Companies (Cross-Border Mergers) Regulations 2007 and held that the court had jurisdiction to make a conditional order.

Thursday, 19 March 2015

UK: competition and choice in banking

One of the documents published yesterday, as part of the Government's budget, was one titled "Banking for the 21st Century: driving competition and choice": see here (pdf). The document sets out what the Government has done to promote competition and also contains some further proposals, including, for example applying anti-money laundering regulation to digital currency exchanges in the UK.

UK: Financial Policy Committee - recommendations from the Chancellor

One of the amendments made to the Bank of England Act 1998 by the Financial Services Act 2012 was to require the Chancellor, on an annual basis, to provide recommendations to the Financial Policy Committee in respect of the financial stability objective given to the Bank of England. The Chancellor did this earlier this week: see here (pdf).

Wednesday, 18 March 2015

UK: The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2015

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2015 was made earlier this week and comes into force on 6 April 2015: see here or here (pdf). The Order will amend the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 in order to create a new regulated activity: the giving of advice on the conversion or transfer of a class of pension benefits known as safeguarded benefits (the latter being defined in the Pension Schemes Act 2015). An explanatory memorandum is available here (pdf).

Tuesday, 17 March 2015

UK: Senior Managers Regime - near final rules published

The Financial Conduct Authority and Prudential Regulation Authority yesterday published a near-final set of rules for the new Senior Managers Regime and further information about the new Certification Regime and Conduct Rules: see here (pdf). A joint consultation paper has also been published on the accountability regime for foreign firms with UK branches: see here (pdf).

Monday, 16 March 2015

UK: Grant Thornton's charity governance review

Grant Thornton has published its third annual review of charity governance, based on the disclosures made in trustees' reports of the top 100 charities in England, Wales and Scotland: see here (pdf). The report notes that charity boards vary significantly in size: the smallest has four members, the largest 33. Average board size - 13 members - is higher than the average for FTSE350 companies (9.5 members).

Friday, 13 March 2015

Hong Kong: SFC consults on Principles of Responsible Ownership

The Securities and Futures Commission has published a consultation paper setting out seven principles of responsible ownership: see here (pdf). The principles are very similar to those found in the UK Stewardship Code and, like the UK Code, operate on a 'comply or explain' basis. According to the SFC, the principles are designed to provide guidance on how shareholders should fulfil their ownership responsibilities in relation to their investment in a listed company. It is the SFC's view that all owners of shares should "assume responsibility and a sense of ownership for their investments".

UK: England and Wales: credit broker liable for commission received without clients' informed consent

The Court of Appeal gave judgment earlier this week in McWilliam v Norton Finance (UK) Ltd (t/a Norton Finance in Liquidation) [2015] EWCA Civ 186 and held that the relationship between a credit broker and its consumer clients was fiduciary in character and that, as such, the broker was liable to account for commission received without the clients' informed consent.

Thursday, 12 March 2015

UK: Pre-Emption Group publishes revised principles on the disapplication of pre-emption rights

The Pre-Emption Group has published a revised edition of its statement of principles concerning the disapplication of pre-emption rights: see here (pdf).

Europe: insider dealing - the meaning of the 'precise nature' of information

The Court of Justice of the European Union gave its opinion yesterday in Jean-Bernard Lafonta v Autorité des marchés financiers (Case C-628/13). The court considered the meaning of information of a 'precise nature' in the context of Directives 2003/6/EC and 2003/124/EC on insider dealing and market abuse. It rejected the argument advanced by Mr Lafonta that information could not be regarded as precise unless it enabled the holder of the information to anticipate the direction of change in the price. The court noted:
A particular item of information can be used by a reasonable investor as one of the grounds for his investment decision and, accordingly, satisfy the condition laid down in Article 1(2) of that directive [Directive 2003/124/EC], even though it does not make it possible to determine the movement in a given direction of the prices of the financial instruments concerned.

... The increased complexity of the financial markets makes it particularly difficult to evaluate accurately the direction of a change in the prices of those instruments, as was stated in recital 1 to Directive 2003/124, which refers to several factors likely to affect those prices in a given situation. In those circumstances — which can lead to widely differing assessments, depending on the investor — if it were accepted that information is to be regarded as precise only if it makes it possible to anticipate the direction of a change in the prices of the instruments concerned, it would follow that the holder of that information could use an uncertainty in that regard as a pretext for refraining from making certain information public and thus profit from that information to the detriment of the other actors on the market.". 

A summary of the court's opinion is available here (pdf).

South Africa: King IV corporate governance code - an update

A review of South Africa's corporate governance code - known as King III, and named after Mervyn King the chairman of the committee that produced it - has begun. Further information about the work and process that is underway to create what will be known as 'King IV' is available here.

Wednesday, 11 March 2015

Europe: ESRB report on the regulatory treatment of sovereign exposures

The European System Risk Board has published a report on the regulatory treatment of sovereign exposures: see here (pdf). One of the arguments made in the report is that the current regulatory framework may have led to excessive investment by financial institutions in government debt.

UK: England and Wales: FCA decision to discontinue investigation - judicial review claim dismissed

Judgment was given several days ago in Grout, R (On the Application Of) v Financial Conduct Authority [2015] EWHC 596 (Admin). Mr Grout sought a judicial review of a decision by the Financial Conduct Authority (previously the Financial Services Authority) to stop an investigation it has begun into his conduct. The FCA argued that it had a broad discretion not to continue an investigation and that its decision was not susceptible to challenge on public law grounds. The trial judge held that the FCA's decision was susceptible to judicial review but found lawful its decision to discontinue the investigation.

Tuesday, 10 March 2015

UK: The Solvency 2 Regulations 2015

The Solvency 2 Regulations 2015 were laid before Parliament yesterday: see here or here (pdf). The Regulations implement, in part, Directive 2009/138/EC (“the Solvency 2 Directive”).  For further information see: explanatory memorandum (pdf) | impact assessment (pdf) | transposition note (pdf) |.

UK: audit reforms consultation - BIS publishes supplementary information

Last year the Department for Business, Innovation and Skills published a discussion document seeking views on a range of reforms the purpose of which is to enhance confidence and strengthen the audit regime, in the context of new European law (Directive 2014/56/EU and Regulation (EU) No 537/2014): see here (pdf). The Financial Reporting Council published a related consultation paper at the same time: see here (pdf). A few days ago, BIS published supplementary information in the form of answers to questions that it has been asked since the launch of the discussion document: see here (pdf).

Ireland: Irish Collective Asset-management Vehicles Act 2015

A copy of the Irish Collective Asset-management Vehicles Act 2015, which became law earlier this month, has been published on the Irish Statute Book website: see here (pdf).

Germany: proposed amendments to the corporate governance code - information in English now available

Information in English is now available in respect of the amendments being proposed to the German corporate governance code by the Corporate Governance Code Commission: see here.

Monday, 9 March 2015

Japan: new corporate governance code published

The Council of Experts formed to develop Japan's new corporate governance code has published a final version of its code in English: see here (pdf).

UK: The Companies Act 2006 (Amendment of Part 18) Regulations 2015

The Companies Act 2006 (Amendment of Part 18) Regulations 2015 were made in early March and come into force on 6 April 2015: see here or here (pdf). The Regulations contain amendments the purpose of which is to clarify the operation of Part 18 ("Acquisition by limited company of its own shares") of the 2006 Act following changes made to it by the Companies Act 2006 (Amendment of Part 18) Regulations 2013. Further information is available in the accompanying explanatory memorandum: see here (pdf).

South Africa: Supreme Court of Appeal considers role and duties of auditors

The Supreme Court of Appeal gave judgment last week in PriceWaterhouseCoopers Inc v National Potato Co-operative Ltd (451/12) [2015] ZASCA 2, an important decision concerning the role and duties of auditors: see here or here (pdf). A summary of the decision is available here (pdf). With regard to the role of the auditor, the court endorsed the following view of Bingham LJ (as expressed in Caparo Industries plc v Dickman [1989] 1 All ER 798 (CA) at 804a-e):

At the heart of this case lies the role of the statutory auditor. That role is, I think, without close analogy. Its peculiar characteristics derive from the nature of the public limited liability company. The members, or shareholders, of the company are its owners. But they are too numerous, and in most cases too unskilled, to undertake the day-to-day management of that which they own. So responsibility for day-to-day management of the company is delegated to directors. The shareholders, despite their overall powers of control, are in most companies for most of the time investors and little more. But it would, of course, be unsatisfactory and open to abuse if the shareholders received no report on the financial stewardship of their investment save from those to whom the stewardship had been entrusted. So provision is made for the company in general meeting to appoint an auditor … whose duty is to investigate and form an opinion on the adequacy of the company's accounting records and returns, and the correspondence between the company's accounting records and returns and its accounts … The auditor has then to report to the company's members (among other things) whether in his opinion the company's accounts give a true and fair view of the company's financial position … In carrying out his investigation and in forming his opinion the auditor necessarily works very closely with the directors and officers of the company. He receives his remuneration from the company. He naturally, and rightly, regards the company as his client. But he is employed by the company to exercise his professional skill and judgment for the purpose of giving the shareholders an independent report on the reliability of the company’s accounts and thus on their investment".

Friday, 6 March 2015

UK: The Companies Act 2006 (Amendment of Part 17) Regulations 2015

The Companies Act 2006 (Amendment of Part 17) Regulations 2015 were made on 3rd March and came into force on 4 March: see here or here (pdf). In general terms, the Regulations amend section 641 ("Circumstances in which a company may reduce its share capital") of the Companies Act 2006 in order to restrict the ability of companies to effect a takeover through so-called cancellation schemes of arrangement. Further information is available in the accompanying explanatory memorandum: see here (pdf).