Download - ICSA Shares Conference July 2016
The ICSA Shares Conference 2016
IntroductionPeter Swabey FCIS Director of Policy and Research, ICSA
The Investment Association’s Productivity Action Plan
Andrew Ninian, Director, Corporate Governance and Engagement
05/01/2023
3
14 July 2016
THE UK’S PRODUCTIVITY PUZZLE
WHAT IS THE SCALE OF THE ISSUE?
Productivity Action Plan 4
1
The UK’s productivity growth remains 16% below its pre-2008 trend rate, and behind the G7 average
THE UK’S PRODUCTIVITY GAP
Productivity Action Plan 5
19911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201460
70
80
90
100
110
120
UK G7 Ave.
GDP
per h
our w
orke
d
Source: OECD: Office for National Statistics
… WHEN COMPARED WITH THE G7 …
The UK is behind all but Japan in GDP per hours worked, and others are increasing the gap
Productivity Action Plan 6
Canada France Germany Italy Japan US60
70
80
90
100
110
120
130
140
2010 2011 2012 2013 2014
GDP
per h
our w
orke
d
UK at 100
Source: OECD: Office for National Statistics
GOVERNMENT RESPONSE
Productivity Action Plan 7
Fixing the foundations: Creating a more prosperous nation (2015)
“Productivity will not be transformed overnight, but reforms will deliver a step change that can realise both the aspirations of working people, and the ambition that our children’s lives will be better than our own.”
- George Osbourne, Chancellor of the Exchequer
ROLE OF LONG-TERM INVESTMENT
RESPONDING TO GOVERNMENT
Productivity Action Plan 8
2
THE RESPONSE OF ASSET MANAGERS
Letter to the Chancellor:
• A group of our members wrote to the Chancellor, supporting the Chancellor’s commitment to address UK competitiveness and productivity.
• Letter acknowledged the important role that Asset Managers play in supporting productivity improvements through long-term investment.
• Committed the Investment Association to develop an Action Plan.
The Investment Association:
• The Investment Association represents the UK investment management industry.
• Our members manage over £5.5 trillion of assets on behalf of UK and overseas clients - about 30% of the UK stock market.
Productivity Action Plan 9
UK investment as a proportion of GDP has declined since 2001, and is behind other G7 members
NEED FOR GREATER LONG-TERM INVESTMENT
Productivity Action Plan 10
Source: Office for National Statistics, 2014
2001 2003 2005 2007 2009 2011 201310
12
14
16
18
20
22
24
Canada France Germany ItalyJapan USA UK Trend (UK)
Capi
tal I
nves
tmen
t as a
pro
porti
on o
f GDP
LONG-TERM INVESTMENT AND PRODUCTIVITY
Increasing productivity requires long-term investment in infrastructure, factories and equipment, research and development and real estate.
However, the UK's post-financial crisis regulatory framework is not well-structured to facilitate long-term investment.
Improving the availability of and access to long-term investment would contribute to confidence, job creation and business investment, from an SME raising money to invest in new machinery to multibillion pound infrastructure projects.
Productivity Action Plan 11
Increased shareholder
value
Improvements in
Productivity
Confidence and Job Creation
Long-term investments
DEVELOPING OUR RESPONSE
REVIEW FRAMEWORK AND PRINCIPLES
Productivity Action Plan 12
3
METHODOLOGY
Investor-led:
• Intellectual stewardship and guidance was provided by an industry Steering Committee made up of CEO’s and senior fund managers of some of the largest investors in the UK
• The Steering Committee was tasked with developing a framework for considering the key components of, and challenges to, long-term investment
• Considered how the industry can play a vital role in helping businesses to drive sustainable long term returns
• No single silver bullet, there needs to be improvements across the investment chain
Productivity Action Plan 13
STEERING GROUP MEMBERSNick AndersonHead of Investment ResearchHenderson Global Investors
Richard BruxtonChief Executive OfficerOld Mutual Global Investors
Elizabeth FernandoHead of Equities USS Investment Management
Simon FraserChairmanThe Investor Forum
Simon GergelChief Investment Officer UK Equities Allianz Global Investors
William GilmoreHead of Private Equity Aberdeen Asset Management
Trevor GreenHead of UK EquitiesAviva Investors
Jessica GroundGlobal Head of StewardshipSchroders
George LuckraftSenior Portfolio ManagerAXA Investment Managers
James MacphersonCo-Head of UK EquitiesBlackrock
Helena MorrisseyChief Executive OfficerNewton Investment Management
Rod ParisChief Investment OfficerStandard Life Investments
Iain RichardsHead of Responsible InvestmentColumbia Threadneedle
Andrew SentenceSenior Economic Adviser PwC
Mark ZinkulaChief Executive OfficerLegal & General Investment Management
IMMEDIATE ISSUES AND CHALLENGES
• How do we define ‘productivity’?
• ROCE? Efficiency? Profitability?
• Defining capital base – consistently?
• Cost of capital? Hurdle rates?
• Access to capital – debt and equity.
• Investors’ time horizon.
• Regulators and unintended consequences.
Productivity Action Plan 14
INVESTOR PRODUCTIVITY PRINCIPLES
Productivity Action Plan 15
Enhance company reporting for efficient capital allocation
Through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy.
Enhance investor stewardship and engagement
The investment industry will engage with companies to help them achieve sustainable value creation over the long-term and support investments in improved productivity.Simplify behavioural incentives and the investment chain
The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives.
Develop efficient and diverse capital markets As key capital market participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets.
Overcome tax and regulatory impediments to support the provision of long-term finance
The investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to ensure the right long-term outcomes for clients.
“A set of fundamental principles that seek to define an ideal framework for
how investors can contribute to productivity improvements”
REVIEWING THE CAPITAL CYCLE
Barriers and impediments:
• Unequal treatment of DB and DC schemes.
• Solvency rules leading to excessive de-risking.
• Mandates not always aligned with long-term approach and stewardship.
• Quarterly reporting encouraging short-termism and lacking focus on productivity.
• Executive remuneration creating perverse incentives and not linked to the long-term interests of the business.
• Tax-debt bias in funding structures leading to financial stability risks.
Productivity Action Plan 16
THE PLANTURNING PRINCIPLES INTO ACTION
Productivity Action Plan 17
4
PRINCIPLE ONE: ENHANCE COMPANY REPORTING FOR EFFICIENT CAPITAL ALLOCATION
Productivity Action Plan 18
SUPPORTING PRINCIPLE
Through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy.
REC
1IMPROVE REPORTING AND RESEARCH ON PRODUCTIVITY AND REFOCUS ON LONGER-TERM STRATEGIC DRIVERS
Seek clearer articulation and measurement of the long-term drivers of productivity and work with companies to develop appropriate Key Performance Indicators
Call for the provision of increased Longer-Term and Thematic Investment Research.
Issue a Public Position Statement calling for listed companies to cease quarterly reporting and refocus on a broader range of strategic issues.
PRINCIPLE ONE: ENHANCE COMPANY REPORTING FOR EFFICIENT CAPITAL ALLOCATION
Productivity Action Plan 19
SUPPORTING PRINCIPLE
Through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy.
REC
2IMPROVE REPORTING ON CAPITAL MANAGEMENT AND CLARIFY INVESTOR EXPECTATIONS OF CAPITAL MANAGEMENT
Work with companies to improve how they articulate their capital management strategy and reporting of outcomes.
Develop an investment industry Public Position Statement on how investor engagement can support and challenge company capital management decisions.
Encourage the FRC’s Financial Reporting Lab to undertake a project to develop best practice guidance on the consistent disclosure of a company’s cost of capital.
PRINCIPLE ONE: ENHANCE COMPANY REPORTING FOR EFFICIENT CAPITAL ALLOCATION
Productivity Action Plan 20
SUPPORTING PRINCIPLE
Through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy.
REC
3IMPROVE REPORTING ON CULTURE, HUMAN CAPITAL AND ACCOUNTING FOR INTANGIBLES
Raise the profile of Human Capital Management as a material investment consideration and promote better company reporting to facilitate enhanced investor analysis.
Engage with the IASB to expedite its research on accounting for intangible assets.
Support the work of the FRC’s Culture Project.
PRINCIPLE TWO: ENHANCE INVESTOR STEWARDSHIP AND ENGAGEMENT
Productivity Action Plan 21
SUPPORTING PRINCIPLE
The investment industry will engage with companies to help them achieve sustainable value creation over the long term and support investments in improved productivity.
REC
4MORE FORMALLY INCORPORATE A FOCUS ON LONG TERM VALUE CREATION AND PRODUCTIVITY INTO ENGAGEMENT PRACTICES
Seek wider support and financing for the work of the Investor Forum by launching an independent membership fee.
Support asset managers in the public reporting of stewardship activities.
PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES AND THE INVESTMENT CHAIN
Productivity Action Plan 22
SUPPORTING PRINCIPLE
The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives.
REC
5ENSURE THAT THE RELATIONSHIP BETWEEN ASSET OWNERS AND INVESTMENT MANAGERS IS GOVERNED IN WAY THAT DOES NOT INADVERTENTLY EMBED A SHORT TERM FOCUS
Work with the pensions regulator, the PLSA, and investment consultants to develop best practice guidance on how stewardship and long term incentives can be better incorporated into the Statement of Investor Principles and Mandate design.
Investment consultants are encouraged to issue public position statements describing how their activities support the provision of long-term investment approaches and stewardship in mandate design and performance evaluation.
PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES AND THE INVESTMENT CHAIN
Productivity Action Plan 23
SUPPORTING PRINCIPLE
The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives.
REC
6CONSIDERATION OF HOW GREATER OPPORTUNITIES FOR LONG TERM INVESTMENT CAN BE MADE AVAILABLE TO INVESTORS IN DEFINED CONTRIBUTION SCHEMES
Establish a working group of key stakeholders to consider the key regulatory and market barriers to creating a Direct Contribution investment environment more suited to long term investment.
PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES AND THE INVESTMENT CHAIN
Productivity Action Plan 24
SUPPORTING PRINCIPLE
The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives.
REC
7FOSTER IMPROVED UNDERSTANDING OF THE INVESTMENT HORIZONS OF INVESTMENT MANAGERS
Examine methodologies for calculating average holding periods with a view to developing a standard approach across the industry.
PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES AND THE INVESTMENT CHAIN
Productivity Action Plan 25
SUPPORTING PRINCIPLE
The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives.
REC
8ENSURE THAT EXECUTIVE REMUNERATION STRUCTURES ARE ALIGNED TO LONG-TERM DECISION MAKING
Consider the findings of the Executive Remuneration Working Group’s review of executive remuneration structures and launch an extensive programme of engagement with listed companies.
PRINCIPLE FOUR: DEVELOP EFFICIENT ANDDIVERSE CAPITAL MARKETS
Productivity Action Plan 26
SUPPORTING PRINCIPLE
As key participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets
REC
9ENCOURAGE EQUITY INVESTMENT AND IMPROVE THE EQUITY OFFERING PROCESS
Develop earlier engagement between institutional investors and small and mid-size early stage pre-IPO companies.
Engage with the European Commissions on the proposed Prospectus Regulation.
Lower the cost of issuing capital and removing the information asymmetry that exists at the expense of investors.
Engage with key stakeholders to improve and support the efficiency of the secondary market capital raising process whilst maintaining investor protections.
PRINCIPLE FOUR: DEVELOP EFFICIENT ANDDIVERSE CAPITAL MARKETS
Productivity Action Plan 27
SUPPORTING PRINCIPLE
As key participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets
REC
10ENSURE THE EFFICIENT OPERATION OF MARKETS FOR OTHER ASSET CLASSES TO ENSURE THE PROVISION OF DIVERSE CAPITAL MARKETS
Continue to engage with the European Commission non the proposed Prospectus Regulation to promote the key priorities of asset managers for non-equity securitiesPromote a more efficient new issuance process in fixed income markets and aide secondary market liquidity through the use of clear terminology and definitions.
Promote appropriate behaviours and investor expectations in fixed income markets and support the work of the FMSB and FCA Debt Markets Forum.Develop and promote guidelines for Housing Associations raising capital in public markets.
Work with the UK Municipal Agency to promote the development of a UK municipal bond market and highlight the interest of investors in this sector.Support on-going work to develop European Private Placements and the revival of the securitisation market in the UK and Europe.
PRINCIPLE FIVE: OVERCOME TAX AND REGULATORY IMPEDIMENTS TO THE PROVISION OF LONG-TERM FINANCE
Productivity Action Plan 28
SUPPORTING PRINCIPLE
The investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to ensure the right long-term outcomes for clients.
REC
11ENSURE THAT SOLVENCY AND PRUDENTIAL REGULATION DOES NOT INADVERTENTLY IMPEDE INVESTMENT MANAGERS FROM INVESTING IN A MANNER CONSISTENT WITH THEIR CLIENTS’ LONG-TERM INTERESTS
Encourage the FCA to undertake a thematic review of whether the approach to market risk in prudential and conduct regulation is resulting in investment decisions that are consistent with the long-term investment objectives of clients.
Convene a multi-stakeholder Working Group to review the extent to which current accounting standards and solvency and prudential regulatory requirements may be resulting in excessive de-risking by insurers and pension funds and impeding the provision of longer-term forms of finance.
PRINCIPLE FIVE: OVERCOME TAX AND REGULATORY IMPEDIMENTS TO THE PROVISION OF LONG-TERM FINANCE
Productivity Action Plan 29
SUPPORTING PRINCIPLE
The investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to ensure the right long-term outcomes for clients.
REC
12REVIEW THE CAUSES OF “DEBT-BIAS” AND ITS EFFECT ON FINANCIAL STABILITY AND PRO-CYCLICAL DECISION-MAKING
Undertake a comprehensive review of why companies favour funding through debt rather than equity.
EXAMPLE OF IMPLEMENTATION: LONG-TERM REPORTING GUIDANCE
Companies
Working Group to develop
guidelines
B
Investors
Institutional Voting Information Service(IVIS)
Review Annual Reports for adherence to published Long-Term reporting guidelines and to measure progress.
Evaluate
Conduct periodic reviews to assess impact and whether adjustments are needed
Consultation Education
Implementation
Review
Productivity Action Plan 30
Guidelines issued
Briefings/Blogs
Investors raise
issues
Sent to Compani
es
Direct engage
m.
Regulate
IVIS Reports Continue
Adjust
CONTACT:
Andrew Ninian, Director, Corporate Governance and Engagement - [email protected] David McCarthy, Productivity Action Plan Analyst - [email protected] 31
Market Abuse Regulation (“MAR”)ICSA Shares Conference 2016
James Poole, Manager, Capita Company Secretarial Services
33
Agenda
• Welcome & Introduction• Post MAR world• Brief overview of the impact of MAR• Focus on:
- Share dealing and closed periods- PDMR/ PCA transactions- Impact on share plan transactions
• Panel discussion & questions
34
The post MAR world…
3 July 2016:MAR
Brexit Political fall out
Iceland beat England
35
Brief overview: The good news
Definition of inside information remains largely the same
Potentially increased flexibility to delay disclosure
FCA confirmation that approach to ‘closed periods’ ahead of prelims can continue
36
Brief overview: The bad news
Changes to regime on dealing by PDMRs
Administrative burden increased significantly
37
Brief overview: Uncertainties
Delay in finalising implementation measures and guidance has resulted in rushed implementation
Uncertainty on guidance from regulators raises questions on the acceptability of established market practice
Relevant rules and guidance have become more dispersed and harder to locate
38
Key elements of the definition of Inside Information have not changed:
Brief overview: Inside Information and delaying disclosure
Of a precise nature
Not made public
Relating to an issuer
Significant effect on
price
Inside Information
39
Issuers can still delay disclosure subject to certain conditions:
Brief overview: Inside Information and delaying disclosure
Delayed
disclosure
permitted
Likely to prejudice legitimate interests
Not likely to mislead the public
Confidentiality
assured
40
• Standard format insider lists required; containing much more information
• Single insider list with different sections per project, possibly including a ‘permanent insiders’ section
• Uncertainty over whether advisers/ third parties continue to keep their own insider list
• Employees to acknowledge in writing that they are aware that they are on the insider list and of the connected duties and sanctions.
Brief overview: Insider lists
41
• Buyback regime stays largely the same;
• Requirements to benefit from MAR safe harbour:- Prescribed disclosures prior to trading- Notify FCA of trading information and make public disclosures;
• Safe harbour can enable trading in closed period if, for example, the programme is independently lead.
Brief overview: Share buybacks
42
Brief overview: Market soundings
• New requirements for conducting market soundings are onerous
• Obtain prior consent of the recipient and inform them when the market sounding ceases to be inside information
• Market soundings to be made on recorded lines if available
• Keep detailed electronic records of the information given and to whom for 5 years and provide to FCA on request.
43
• Model code removed from Listing Rules – most issuers expected to retain their own updated dealing code;
• Closed period: 30 calendar days before announcement of interim or year end report – or preliminary announcement;
• PDMR’s expressly prohibited from dealing during closed periods;
• PCA’s are not covered by this restriction (but caution is advisable due to insider dealing concerns and reputational issues).
Focus: Share dealing & Closed periods
44
PDMR Transactions during closed period (assuming a clearance process will be followed)
Focus: Share dealing & Closed periods
Is it a transaction?
Apply for clearance
No restrictions
Clearance refused
Does the PDMR have PSI?
Is PSI relevant to transaction?
Is it appropriate?
Is it a closed period?
Does an exemption apply?
Yes
Yes
Yes
Yes
Yes
Yes
No
No
NoNo
No
Give clearance
45
Permitted dealingsThe list of circumstances in which dealing is permitted during a closed period has been narrowed to:
• the existence of exceptional circumstances, such as severe financial difficulty; or
• transactions under an employee share scheme; or• transactions where the beneficial interest does not change.
Notifying PDMRs and their PCAs• Issuers must notify their PDMRs of their obligations in writing and
draw up a list of PDMR’s and their PCA’s.• PDMRs must notify their PCA’s in writing of disclosure obligations
and retain a copy of the notification.
Focus: Dealings by PDMRs and PCA’s
46
Notifications
Threshold for notificationsTransactions only need to be reported once a threshold of €5,000 has been reached within the calendar year by that PDMR. It is unlikely that issuers will utilise this exception for dealings by PDMRs.
Time limitDeadline for notification has been reduced from 4 to 3 business days. Issuers may wish to reduce PDMR notification in order to meet this deadline.
FCA formThe FCA has produced a new online form for notification of transactions: https://marketoversight.fca.org.uk/electronicsubmissionsystem/MaPo_PDMR_Introduction.
Focus: Dealings by PDMRs and PCA’s
47
Focus: Dealings by PDMRs and PCAs
48
During closed periods:
• Acceptance of an invitation:- Is permitted as long as it does not give rise to a right to shares
(e.g. SAYE)- Is not permitted if it equates to the acceptance of an offer (e.g.
bonus election if the acceptance would occur during the closed period)
• Grant of option/ award of shares:- It is not clear whether the grant is a transaction by the PDMR- Permitted if set up in advance (conditions, timing, participants and
amounts determined outside of closed period)
Focus: Impact on share plan transactions
49
Other share transactions:
• DRIPs: permitted if entered into during an open period and no changes
• SIP monthly purchases: permitted if entered into during an open period and no changes
• Issue of shares on vesting: no issues – contractual obligation
City of London Law Society Q&Ahttp://www.citysolicitors.org.uk/attachments/category/114/Market%20Abuse%20Regulation%20EU%20MAR%2005%2007%2016.pdf
Focus: Impact on share plan transactions
50
Focus: Impact on share plan transactions• Is the PDMR permitted to trade during closed periods?• Are transactions caught under the disclosure regime?
Action Trading permitted Disclosure arisingAdoption of plan ✘Amendment of plan ✘Sending out invitations ✘Accepting an invitation
Grant of option or award ✘Vesting of option or award
Exercise of option ✘
51
Focus: Impact on share plan transactions
Action Trading permitted
Disclosure arising
SAYE Options: Invitations
Applications
Grants ✘ Exercises ✘ Sale of shares
SIPs: Invitations
Applications
(Monthly) allocations of shares
Transfers of shares to PDMR
Sale of shares
• Is the PDMR permitted to trade during closed periods?• Are transactions caught under the disclosure regime?
52
Panel discussion
Peter Swabey FCIS Director of Policy and Research, ICSAGuy Dixon Governance Consultant,
Bridgehouse Company SecretariesNilufer von Bismarck Partner, Slaughter and MayJames Poole Team Manager, Company Secretarial
Services, Capita Asset Services
53
Viviane Joynes, CFind out more
Capita offers a range of services and online resources about MAR:
www.capitaassetservices.com/MAR
54
Viviane Joynes, CContact us
James PooleTeam ManagerT: +44 (0)344 39 11 926 M: +44 (0)7736 492 773E: [email protected]
MAR: panel discussionJames Poole, Team Manager, Company Secretarial Services
Nilufer von Bismarck, Partner, Slaughter and May
Guy Dixon, Governance Consultant, Bridgehouse Company Secretaries
MAR: panel discussionDuring the panel discussion, it was suggested that a link to the ICSA guidance note on MAR addressing dealing codes and the Slaughter and May guidance on other MAR issues would be helpful.
The ICSA guidance https://www.icsa.org.uk/knowledge/resources/mar-dealing-code
Slaughter and May guidance https://www.slaughterandmay.com/media/2535170/the-new-eu-market-abuse-regulation-an-overview-for-uk-issuers.pdf
The ICSA Shares Conference 2016
Davis Polk & Wardwell London LLP is a limited liability partnership formed under the laws of the State of New York, USA, and is authorised and regulated by the Solicitors Regulation Authority with registration number 566321.
Davis Polk & Wardwell London LLP
Continuing obligations: what premium and standard listed companies need to know
Presented byWill PearcePartner, Davis Polk
July 14, 2016
59
The UK listing regime
Securities law has been harmonised across the EU – minimum and maximum harmonisation
Differences in regulatory approach remain Listing in the UK is a dual track process London Stock Exchange (market) – LSE
Admission and Disclosure Standards Official List (regulatory) – Listing Rules
Premium vs. standard segment Supervision by the FCA
Reviews and approves admission and documents
Regulates compliance with continuing obligations
Monitors market disclosures www.the-fca.org.uk/markets/ukla
Prospectus Directive, Market Abuse Regulation and Transparency Directive
Delegated regulations
ESMA guidance
Financial Services and Markets Act 2000Listing Rules, Prospectus Rules, Disclosure Guidance and Transparency Rules
UKLA guidance
60
Communicating with the regulator
• Primary Market Bulletin• Procedural and Technical Notes• Status of guidance
Knowledge Base
61
Listing Principles Premium and standard Basis of FCA enforcement
Eligibility Premium only Eligibility requirements
additional to LR 2 Controlling shareholder
regime
Transfer, suspension and cancellation Premium and standard Reverse takeovers
Sponsor regime Premium only Obligation to consult or appoint
a sponsor Responsibilities of a sponsor
Continuing obligations Premium only Continuing compliance with
eligibility requirements Share issues Mandatory RIS
announcements Contents of Annual Report
Circulars Premium only Documents requiring FCA
approval Content requirements
Continuing obligations – listing
LR 7 LR 8
LR 9LR 6
LR 5 LR 13
62
Related party transactions Premium only Definition of related party Exempt transactions Relief for smaller transactions Shareholder approval
Class transactions Premium only Class tests Class 2 announcement Class 1 announcement,
circular and shareholder approval
Reverse takeovers Premium and standard Requirement for
suspension Avoiding suspension
Share issues Premium only Rights issues, open offers and
placings
Prospectuses Premium and standard Requirement for prospectus –
public offer or admission to trading
Content, approval and publication requirements
Advertisement regime
Share buy-backs Premium only Requirements for purchases
from related parties, purchases under 15% and purchases of 15% or more
Continuing obligations – corporate transactions
LR 11 LR 9.5
PRLR 10
LR 5.6 LR 12
63
Dealings by managers Premium and standard Regime applies to PDMRs and
CAPs No dealing in closed periods Notification obligations
Insider lists Premium and standard Must keep insider lists Prescribed form
Disclosing inside information Premium and standard Obligation to disclose
inside information Delay if in legitimate
interests
Financial reporting Premium and standard Half-Yearly Financial Report Annual Financial Report
Dealings by shareholders Premium and standard Notification obligation – 3% and
every percentage thereafter Requirement to announce total
voting rights
Corporate governance Premium and standard Requirement for audit
committee Annual corporate governance
statement
Continuing obligations – disclosure and transparency
MAR Art 19& DTR 3 DTR 4
DTR 5MAR
Art 18 &DTR 2
MARArt 17 &DTR 2
DTR 7
64
Regulatory enforcement
Lamprell fined £2.4m by FSAOil rig maker Lamprell has been fined £2.4m by the Financial Services Authority (FSA) over a “serious” failing of its internal control systems before it issued a series of profit warnings last year.
March 2013
Reckitt Benckiser fined for failing to disclose executive share dealingsThe Financial Conduct Authority found weaknesses in the company’s systems and controls between July 2005 and October 2012.
January 2015
Russian oil firm Exillon fined for failing to disclose payments to chairman Maksat Arip
Russian oil company Exillon Energy paid out nearly £1m on private jets, school fees and credit card payments for its former chairman Maksat Arip - but failed to disclose the payments.
April 2012
Nestor fined £175,000 over tradesNestor Healthcare Group, a provider of social and primary care services now part of Saga, has been fined £175,000 for allowing its directors to trade in company shares without obtaining necessary approvals from the board. The Financial Services Authority found that Nestor, listed on the London Stock Exchange until the 2010 buyout, had proper policies in place to prevent improper trading but “weak procedures allowed for this policy to be forgotten by the board”.
February 2013
Tribunal sends out warning on inside information in wake of Hannam case
Star rainmaker, Ian Hannam, found to have committed market abuse by tribunal
May 2014
Pru moves into top five of FSA penalty league with £30m fineThe regulator announced it had fined “companies in the Prudential Group £30m” for breaching its principles and the listing principles of the UK Listing Authority. The fine was broken down into £14m for Prudential plc for listing rules breaches and £16m for Prudential Assurance Company.
April 2013
FCA fines Asia Resource Minerals £4.65m for listing violations
June 2015
65
Questions?
Will PearcePartner, [email protected] T: +44 (0)20 7418 1448 M: +44 (0)7785 254 976
This presentation has been prepared for general information only: it is not intended to be exhaustive or to constitute legal advice.
Employee Share Schemes:Balancing Risk and Reward
The ICSA Shares Conference 2016
14 July 2016
Stephen WoodhousePartner
Charlotte FleckSolicitor
www.pettfranklin.com
Employee Share Schemes
• Share plan design• Taxation of employee share plans
– Basic tax treatment and statutory share schemes– Operating an ESOT
• Malus and clawback• Reporting requirements• Market Abuse Regulation
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 67
Employee Share Schemes
• Executive share plans– Incentivise performance– Align interests with shareholders
• Increasing criticism of option plans as focusing executives on short-term share price rather than long term value– Need to think hard at the outset about performance
targets and metrics used– How long is the long term?
• What do investors want?
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 68
Tax Treatment of Employee Share Plans
• Basic tax treatment– Income tax on upfront value or on option exercise– Capital gains tax on gain in value thereafter
• Need to make sure plan provides for operation of PAYE - any holding requirements should normally allow for sale of enough shares to cover tax– S.222 charges – what about leavers?
• Tax is a reputational risk and there is increasing concern about any planning perceived as tax avoidance
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 69
Statutory Share Plans
• CSOP– Market value share option with gain in value
above exercise price subject to CGT– £30,000 award limit
• Sharesave/SAYE– All-employee share option plan– 3 or 5 year monthly savings contract – current nil
interest rates but option may be at a discount– Employee can exercise or take out cash
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 70
Statutory Share Plans
• Share Incentive Plan– Free shares – up to £3,600 pa– Partnership Shares – up to £1,800 pa– Matching Shares – up to £1,800 pa– Dividend Shares
• Must offer to all employees on equal terms• Concern over disparity between executive pay and
lower-paid employees – do share plans have a role?• Group plans – need to be careful to track employee
eligibility
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 71
Malus and Clawback
• Essential – but need to think hard at the outset about circumstances in which operate– Negative publicity over “rewards for failure”– Discretion must be exercised reasonably and in
good faith• How can you make sure clawback is
enforceable?– Clauses should be clearly drafted and drawn to
attention of employee
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 72
Reporting requirements
• Directors’ remuneration reporting– Can this become too complex and legalistic?– Commercially sensitive information (e.g. performance targets)
should still be disclosed after the fact• Voting on remuneration policies – shareholder
expectations becoming stricter?• HMRC annual share scheme reporting
– Reporting by employees in Self Assessment returns – should share awards be reported even where all tax has been deducted under PAYE?
• Need to notify PDMR transactions to the market
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Market Abuse Regulation
• MAR closed periods• Insider dealing• PDMR notification requirements
– Does not retain all Model Code exceptions for employee share plans
– Need for clear internal policies and procedures more acute than ever – can be fined for failing to notify so not an afterthought
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 74
Questions?
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 75
Contact details
David Pett [email protected] mobile: 07836 657 658
William Franklin [email protected] mobile: 07889 726767
Stephen Woodhouse [email protected] mobile: 07836 756031
Charlotte Fleck [email protected] mobile: 07703 826 321
Office: 0121 348 7878
Twitter: www.twitter.com/pettfranklinLLP
For lots of information, go to our website:www.pettfranklin.com
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 76
Brexit: panel discussionAndrew Ninian, Director, Corporate Governance and Engagement, The Investment Association
Will Pearce, Partner, Davis Polk & Wardwell LLP
Stephen Woodhouse, Partner, Pett, Franklin & Co. LLP
Brexit: panel discussionDuring the panel discussion, it was suggested that a link to a reminder published by
the Financial Reporting Council on 12 July, highlighting “some matters for directors to consider when preparing their forthcoming half-yearly and annual financial reports”
might be useful for delegates.
https://www.frc.org.uk/News-and-Events/FRC-Press/Press/2016/July/Reminders-for-half-yearly-and-annual-financial-rep.aspx