July’s news

Corporate Sustainability Due Diligence Directive published

On 5 July 2024, the Corporate Sustainability Due Diligence Directive (CS3D) was published in the Official Journal of the EU following its approval by the EU Council in May 2024. The CS3D entered into force on 25 July 2024. Application of the CS3D will be phased in over a three-year period from 2027. Under the CS3D, in-scope companies (which include non-EU companies that exceed a turnover threshold of £450 million per year) will be required to integrate due diligence measures into their policies and risk management systems to identify and address adverse human rights and environmental impacts of their own operations, as well as those of their subsidiaries and business partners. Failure to comply with the obligations set out in the CS3D could result in a fine of up to 5% of a company’s net worldwide turnover.

New UK Listing Rules come into effect

On 11 July 2024, the Financial Conduct Authority (FCA) published a policy statement setting out the new UK Listing Rules significantly reforming the UK listing regime. A key proposal of the reforms is the introduction of a single listing category for commercial companies (replacing the premium and standard listing categories) subject to a more disclosure-based regulatory regime. Among other things, the rules for the commercial companies category remove the need for votes on significant or related party transactions and offer variability around dual class share structures with enhanced voting rights. More emphasis on disclosure aims to bolster investor protections to hold the management of companies in which they hold shares to account. The new listing rules apply from 29 July 2024 when the current rules cease to have effect.

Admission and Disclosure Standards

On 11 July 2024, the London Stock Exchange published Market Notice N06/24 confirming proposed changes to its Admission and Disclosure Standards. The changes align the standards to the new UK Listing Rules and reflect the closure of the High Growth Segment, the purpose of which is now redundant. The amended standards took effect on 29 July 2024.

FCA publishes Primary Market Bulletin No 50

On 11 July 2024, the FCA published Primary Market Bulletin 50 which focuses on the sponsor regime. It sets out how the FCA has responded to feedback received during its consultations on the Primary Markets Effectiveness Review in the following areas: specialist due diligence; record keeping; understanding the sponsor’s role; and FCA supervisory reviews of sponsor services.

ISS publishes report on the relevance of Social in ESG

On 12 July 2024, the Institutional Shareholder Services (ISS) published a report entitled The Quiet Relevance of Social Concerns, the S in ESG exploring recent examples of social concerns causing serious reputational and financial damage to companies.

Implications of the new listing regime for FTSE UK Index Series

On 12 July 2024, FTSE Russell published an article explaining the implications of the changes to the UK listing regime that took effect on 29 July 2024 for the FTSE UK Index Series. Considering the changes to the listing regime, and subject to ratification by the FTSE Russell Index Governance Board, Equity Shares (Commercial Companies) will become the eligible index universe for the FTSE UK Index Series, replacing the premium segment. Due to the automatic mapping of premium-listed companies to the Equity Shares (Commercial Companies) category on day one of the new regime, there will be no immediate impact on the FTSE UK Index Series’ composition.

FTSE Russel confirms changes to UK Index Series

On 15 July 2024, FTSE Russell published a notice confirming the changes to its UK Index Series ground rules, specifically the eligibility criteria, following the changes to the UK Listing Regime. As of 29 July 2024, the new Main Market listing categories Equity Shares (Commercial Companies) and Closed Ended Investment Funds became eligible categories for inclusion in the FTSE UK Index Series, replacing the Premium Segment, which simultaneously ceased to exist.

FRC welcomes Audit Reform and Corporate Governance Bill

On 17 July 2024, the Financial Reporting Council (FRC) issued a press release in which it welcomed the new Government’s announcement of draft legislation to strengthen the UK’s audit, corporate reporting and corporate governance systems. The legislation will replace the FRC with a new statutory regulator, the Audit, Reporting and Governance Authority and equip it with effective powers to oversee the audit market, scrutinise companies’ accounts and enforce directors’ financial reporting duties.

Government publishes wording to enable participation in dormant assets scheme

On 17 July 2024, HM Treasury published a dormant assets scheme participant pack, for traded public companies, containing template explanatory notes for inclusion in a circular to shareholders and articles of association to facilitate participation in the scheme in relation to ‘gone-away’ shareholders.

FRC announces significant updates to the UK Stewardship Code

On 22 July 2024, the FRC announced significant revisions to the UK Stewardship Code application process and committed to five priority areas of review as it continues its revision the Code. The review will focus on five themes: purpose, principles, proxy advisors, process and positioning.

AFME outlines vision for UK capital markets

On 23 July 2024, the Association for Financial Markets in Europe (AFME) published a paper entitled Priorities for UK Financial Markets, setting out its vision for the UK’s capital markets which focuses on the overarching principles for better financial regulation; tackling current issues; and revising the relationship between the UK and the EU. AFME also outlines key principles that will help create markets that serve the needs of companies and investors and considers the implications of recent regulatory developments.

FRC publishes its annual enforcement review

On 25 July 2024, the FRC published its sixth Annual Enforcement Review, which summarises FRC enforcement activity during the year ended 31 March 2024. This year’s review identifies key themes and lessons emerging from enforcement cases that concluded during the year, including the audit investigations launched following the high-profile corporate failures of Carillion plc in 2018 and London Capital & Finance plc in 2019.

FCA sets out proposals for new public offers and admissions to trading regime

On 26 July 2024, the FCA set out a package of measures and proposed rules to establish the new Public Offers and Admissions to Trading Regime which will replace the existing UK Prospectus Regulation. Under the proposals, companies will still be required to publish a prospectus when first admitting securities to public markets. However, a prospectus would not be required when a company raises further capital except in limited circumstances.

FCA publishes new rules on paying for investment research

On 26 July 2024, the FCA published Policy Statement 24/9 setting out its final policy position and rules to create a new option allowing asset managers to purchase third-party investment research using a combined or ‘bundled’ payment for research and trade execution services.

GC100 seeks feedback on the use of AI

On 29 July 2024, the GC100 (the association of general counsel and company secretaries working in FTSE 100 companies) published a poll seeking feedback on how listed and large private companies approach minute-taking, including format, approval process, the extent to which AI assists with these processes, and the issues associated with the use of AI and third-party suppliers of legal technology. The deadline for poll responses is 6 September 2024.

FCA publishes updated checklists and forms

On 29 July 2024, the FCA updated its website and published updated forms and checklists following the new UK listing regime coming into force. The forms and checklists now include reference to the UK Listing Rules and references to the Listing Rules (which have now been revoked) have been deleted.

European Commission publishes FAQ on due diligence directive

On 29 July 2024, the European Commission published an FAQ document on the EU Corporate Sustainability Due Diligence Directive which entered into force on 25 July 2024. The Directive sets out a corporate due diligence duty for large companies to identify and address adverse human rights impacts, environmental impacts in their own operations, their subsidiaries and in their activity chains, and an obligation for large companies to adopt a transition plan for climate change mitigation.

Takeover Appeal Board orders former directors to pay compensation to shareholders

On 30 July 2024, the Takeover Appeal Board published Statement 2024/1, dismissing an appeal by Richard Balfour-Lynn against a ruling directing that he and two other former directors of MWB Group Holdings plc pay compensation to the company’s former shareholders. In addition to the order to pay compensation to shareholders, the Hearings Committee determined that Mr Balfour-Lynn and others should be cold-shouldered under Section 11(b)(v) Introduction to the Takeover Code.

Government consults on turnover and control regulations

On 30 July 2024, the Department for Business and Trade launched a consultation seeking views on draft regulations that set out how turnover should be estimated or calculated for the purposes of assessing whether a digital business should be designated as having strategic market status under the new regulatory regime created by the Digital Markets, Competition and Consumers Act 2024. The consultation also seeks views on determining the maximum penalties that may be imposed under the legislation for non-compliance with the new digital markets regime as well as breaches of wider competition and consumer protection law.

Judgment addresses disclosure of directors’ interests in the explanatory statement for a scheme

Finally, the High Court has sanctioned a scheme of arrangement under Part 26 Companies Act 2006 to effect a takeover of The Lakes Distillery Company plc, notwithstanding that the court determined that there were deficiencies in the explanatory statement relating to the scheme. The inadequacies related to the disclosure of directors’ interests in convertible loan notes, under which the change of control resulting from a takeover would trigger repayment in full with a 100% premium. The court emphasised the fundamental importance of disclosure and cautioned that material deficiencies will usually result in sanction being refused.

Looking ahead to August 2024

1 August – new FCA rules on paying for investment research take effect.

16 August – closing date for responses to the Institute of Directors consultation on a code of conduct for directors.