ICSA Policy Update presentation 15 03-24

Policy update

Peter Swabey, FCIS, Policy & Research Director, ICSA

24th March 2015

Policy update

Agenda

PSC Register

UK implementation of the Audit Directive

Pre-emption group guidelines

Investor stewardship

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Policy Update

The PSC Register

‘The register of persons with significant control’

PSC Register: implementation

Small Business, Enterprise & Employment Bill

Output from the Red-tape challenge

The primary legislation is currently being debated in Parliament.

BIS aim to consult on draft secondary legislation over summer.

Companies will start keeping their own PSC Register from January 2016.

They will need to start filing this information at Companies House from April 2016.

PSC Register: policyThere are five core elements to new Part 21A of the Companies Act 2006 (CA06):

1.The definition of a ‘person with significant control’

2.The legal entities in scope of requirements

3.Obtaining the information

4.The register

5.Disclosure of and access to the information

BIS have replicated or extended existing company law criminal offences to deal with those who fail to provide information or provide false information.

PSC Register: definitionBIS have used the existing definition of ‘beneficial owner’ in the EU anti-money laundering context as the basis.

New Schedule 1A to the CA06 sets out five ‘specified conditions’. An individual meeting one or more of these conditions is a Person with Significant Control (‘PSC’):

1. Ownership of more than 25% shares

2. Ownership of more than 25% voting rights

3. Ownership of right to appoint or remove a majority of the board of directors

4. Right to exercise significant influence or control

5.Right to exercise significant influence or control over a trust or firm which trust or firm would be a PSC, were it an individual)

In certain circumstances a legal entity must be noted in the register (‘relevant legal entities’ or ‘RLEs’).

PSC Register: scope

All UK companies, except companies listed on UK regulated or prescribed markets, will have to keep a PSC register.

BIS will apply reform to Limited Liability Partnerships through secondary legislation.

BIS are considering:•Whether to exempt other types of companies subject to stringent disclosure requirements

•How to implement the wider scope of the EU AML Directive

PSC Register: obtaining informationCompanies must take reasonable steps to find out if they have any PSCs or RLEs and identify them.

In some cases the company will already have this information.

In others the company will need to serve notice on individuals and others. A person in receipt of such a notice is required to reply. Failure to do so is a criminal offence. Shares may also be subject to restrictions by the company.

PSCs and RLEs are also required to disclose their interest in the company to the company in certain circumstances.

PSC Register: the company’s registerCompanies must hold and keep available for public inspection a PSC register. This will contain information on the PSCs’:

•Full name

•Service address

•Country or state of usual residence

•Nationality

•Full date of birth

•Usual residential address (not publicly available)

•Date on which PSC obtained control

•The nature of his or her control over the company

Register must be kept up to date as information changes.

People may access the register on request.

PSC Register: the central registerCompanies must provide all the information in their PSC register to Companies House on incorporation and then at least once every 12 months as part of the new confirmation statement.

All information will be made available on the public register except:

• The full date of birth (only the month and year will be shown on the public register, except where the company elects to keep its PSC information solely on the register at Companies House)

• The usual residential address

PSC Register: the central register

Individuals at serious risk of harm will be able to apply to the registrar of companies to prevent their information being publicly disclosed on the company’s register and the central register.

BIS have recently consulted on this regime.

Specified public authorities will have access to protected data on request.

PSC Register: guidance

Two types of guidance:

•Statutory

•Non-statutory

The legislation requires the Secretary of State to publish guidance on the meaning of ‘significant influence or control’ in the context of the PSC register.

This statutory guidance has legal effect and will be produced by BIS.


Non-statutory guidance will be produced by a working group acting on behalf of BIS and will address issues like:

•What is a PSC or an RLE and what do they need to do

•What information is being collected and why

•Who can access it and how

•Which companies are affected and what they need to do

•What ‘reasonable steps’ means

•What to do if you don’t receive the required information

•How to manage your PSC Register

•What to do if you are a PSC


The plan is to publish the guidance in October, well in advance of when statutory duties kick in in January.

Feedback on what you would like to see included in the guidance welcome.

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Policy Update

UK Implementation of the Audit Directive


EU Regulation and Directive on Audit published 27th May 2014

Principal changes:

•Mandatory rotation of auditors

•Restriction of non-audit services

•Mandatory duties of the audit committee

•More detailed audit reporting

•Banning of restrictions on appointment of auditor


Mandatory rotation of auditors

•Audit tenure restricted to a maximum of 10 years

•Or 20 years if the Member State allows and there is a public tender at 10 years

Restriction of non-audit services

•Non-audit services subject to tighter restrictions, including a fee ratio


Mandatory duties of the audit committee

•Members must meet minimum qualification criteria

•Committee to have statutory responsibilities over auditor selection and for the financial reporting and audit process.

More detailed audit reporting

•To include more detail about how the audit was conducted and key issues identified.

Banning of restrictions on appointment of auditor

•E.g. contractual restrictions from bank


Both Directive and Regulation include ‘Member State Options’

Two discussion papers published in December 2014:

BIS document – responses by 19th March

FRC document – responses by 20th March


BIS discussion paper seeks views on reforms to enhance confidence and strengthen the audit regime, including legislative and non-legislative actions necessary to:

• Strengthen standards for the audit of Public Interest Entities (PIEs);

• Improve confidence in the independence of auditors;

• Avoid excessive concentration in the audit market; and

• Make audit reporting more informative.


•Mandatory rotation – should tendering earlier than ten years be encouraged?

•Definition of ‘public interest entity’ – should this be extended beyond that in the Directive?

•Regulation and oversight of audit – should the FRC have primary responsibility?

•Composition of audit committees – should this be mandated by FCA and PRA rules?


FRC discussion paper seeks views on the member state options in the Directive and Regulation, including:

•whether the more stringent requirements on PIEs should be extended to other entities;

•whether to work on a ‘black list’ or ‘white list’ model

•whether the cap on permitted non-audit services should be extended to network firms

•whether the existing 5 year on / 5 year off rule for audit partners should be retained or replaced by the 7/3 model in the regulation

UK Implementation of the Audit DirectiveICSA responses to BIS and FRC:

•New measures should cover the requirements of the new Directive and Regulation, and no more.

•We do not support new measures that introduce additional requirements (‘gold plating’) unless the benefits can be shown to outweigh the costs.

•However, where the UK already has more stringent, effective requirements in place we think these should remain.

•De-regulatory options should be taken up by the UK.

UK Implementation of the Audit DirectiveICSA responses:

•The definition of a PIE should be as defined in the Audit Directive and not extended to include AIM companies.

•The FRC should be the single competent authority with ultimate responsibility for the audit regulatory tasks

•A 70% cap on the provision of permitted non-audit services is sufficient and it should not be any lower.

•The FRC should be able to grant exemptions from the cap on an exceptional basis.

UK Implementation of the Audit DirectiveICSA responses:

•A blacklist of prohibited non-audit services is workable and provides for the discretion of audit committees and/or auditors to exclude other services as they consider necessary.

•The alternative of a ‘whitelist’ of permitted services could tend to be confusing.

•Full details of our responses will be on the ICSA website shortly.

Policy Update



The FRC last week published an update to the 2008 pre-emption group guidelines – ‘Disapplying Pre-emption Rights: A Statement of Principles’

•No changes have been made to the key thresholds for general disapplication of pre-emption rights

•A number of revisions have been made to the Statement, to clarify the scope of the Principles to take account of market changes and developments in best practice and provide greater transparency

Pre-emption group guidelines•Clarification of the scope of the Statement

• it applies to both UK and non-UK incorporated companies whose shares are admitted to the premium segment of the Official List of the UK Listing Authority. Companies whose shares are admitted to the standard segment of the Official List, to trading on AIM, or to the High Growth Segment of the London Stock Exchange’s Main Market are encouraged to adopt the Statement.

• It applies to all issues of equity securities that are undertaken to raise cash for the issuer or its subsidiaries, irrespective of the legal form of the transaction, including, e.g. “cashbox” transactions

.

Flexibility to undertake non-pre-emptive issuance of equity securities in connection with acquisitions and specified capital investments, consistent with existing market practice.

Greater transparency on the discount at which equity securities are issued non-pre-emptively.

The Pre-Emption Group encourages companies and investors to begin to use the revised Statement from now on, but acknowledges that as the 2015 AGM season is imminent some flexibility may be required.


•Flexibility to undertake non-pre-emptive issuance of equity securities in connection with acquisitions and specified capital investments, consistent with existing market practice.

•Greater transparency on the discount at which equity securities are issued non-pre-emptively.

•The Pre-Emption Group encourages companies and investors to begin to use the revised Statement immediately, but acknowledges that as the 2015 AGM season is imminent some flexibility may be required.

Policy Update



•ICSA is working with a number of partners - the 2020 Stewardship Working Party, which comprises 5 institutional investors (Aviva Investors, BlackRock, GO Investment Partners, RPMI Railpen and USS) and Tomorrow’s Company; the NAPF; the Investment Association; the Investor Relations Society; and the Quoted Companies Alliance to help the FRC review the extent to which the Stewardship Code has begun to have an impact on company and investor engagement.


•A survey has been sent to 1,000 company representatives, to find out to what extent the Stewardship Code has improved engagement for companies and what was their overall experience from their engagement with asset owners and asset managers.

•The survey findings, which will be supplemented by further qualitative discussion based on the survey, are expected to be completed by June 2015.

Thought leadership from ICSA

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ICSA Policy Update presentation 15 03-24

Business

Transcript of ICSA Policy Update presentation 15 03-24