Recent Developments for UK PLCs — December 2024

FCA Highlights Common MAR Compliance Mistakes

On 15 November 2024, the FCA released Primary Market Bulletin 52, offering guidance on compliance with MAR and DTR requirements, particularly in identifying and disclosing inside information, managing shareholder communications, and handling Primary Information Provider (PIP) outages.

• Identifying Inside Information: The FCA highlights challenges in recognising inside information in three scenarios:
  • Periodic Financial Information: Companies must disclose below-forecast performance promptly, even if they are aware of it weeks before scheduled earnings announcements (such announcements should be brought forward as necessary). In particular, the FCA rejects justifications for non-disclosure on the basis that under-performance will be offset by over-performance later in the year.
  • CEO Resignations and Appointments: Both the resignation and appointment of a CEO may constitute inside information. A company’s assessment of whether the developments during these processes constitute inside information should be carried out continuously and on a case-by-case basis. Separate assessments are necessary, and any leaks will require market notification as soon as possible. The FCA is very focused on artificial chronologies.
  • Offer Processes: The FCA disagrees with the notion that inside information only crystallises upon a target board's acceptance of a takeover offer (stating that certain advisers have taken the view that inside information is not present because the likelihood of the transaction taking place before acceptance was not deemed certain). Citing Hannam, the FCA reminds companies that the threshold is lower, and receipt of an offer could constitute inside information before formal consideration.

The FCA advises issuers to establish disclosure committees, enable key personnel to make announcements outside normal schedules, and ensure proper training and documentation.

• Shareholder Communications: Although engaging with shareholders is necessary for good corporate governance, the FCA warns against unlawfully disclosing inside information during private calls or through apps such as WhatsApp, Telegram, and LinkedIn. Recommendations include avoiding such communications during closed periods and ensuring inside information is cleansed (i.e., there is no inside information in the company in relation to which disclosure is being delayed) before private calls.
• PIP Outages: During the Crowdstrike IT outage in July 2024, some companies inadvertently disclosed inside information by publishing it on their website when the information had not been released by the PIP due to the outage. The FCA advises companies setting up alternative PIP accounts and checking whether the information has been released by the PIP before publishing the information themselves (e.g., on their website or other media channels).

Prepare for New Landmark Fraud Prevention Offence

On 6 November 2024, the UK Home Office published its statutory guidance on the new corporate offence of “failure to prevent fraud” which will come into force on 1 September 2025. The offence aims to make it easier for prosecutors to hold large businesses accountable for fraud committed for their benefit and is expected to drive a “major shift in corporate culture”.

This new offence will apply to organisations with any two of the following: (1) more than 250 employees; (2) more than £36 million turnover; and (3) more than £18 million in total assets. Organisations can establish a defence by demonstrating that they had reasonable fraud prevention procedures in place at the time the fraud was committed, and the extent of procedures considered reasonable will depend on an organisation’s risk profile and the scale and complexity of its activities. The guidance describes at a high level the types of measures that the government expects organisations to implement, underpinned by six key principles: top-level commitment; risk assessment; proportionate risk-based prevention procedures; due diligence; communication (including training); and monitoring and review.

Businesses should take advantage of the remaining transition period to refresh their compliance programmes in light of this new offence. Recommended actions may include undertaking risk assessments, reviewing policies and training materials, and reviewing agreements with third parties providing services on their behalf. For further details, please see this Latham blog post.

FRC Launches Progressive Consultation on Wide-Ranging Revisions to Its Stewardship Code

On 11 November 2024, the Financial Reporting Council (FRC) launched its consultation on proposed revisions to its Stewardship Code. This formal consultation follows extensive stakeholder engagement by the FRC this year and the FRC’s updates to certain reporting requirements under the Code in July 2024. The proposed changes include:

• narrowing the definition of stewardship to support better and more transparent conversations between participants in the investment chain about their investment beliefs and objectives, and how their stewardship supports these;
• streamlining the Code’s principles with more concise reporting prompts to help concentrate reporting on the most insightful areas, while also reducing the volume of reporting;
• tailoring the Service Provider Principles to include, for the first time, principles that are dedicated to proxy advisors and investment consultants;
• for the first time, issuing guidance to support signatories in demonstrating how they have implemented stewardship throughout the year;
• introducing policy and context disclosures (covering information about the signatory’s organisation, its governance, and resourcing), which would be reviewed less frequently by the FRC (every three years) and updated only as necessary by the signatory; and
• testing whether the updated Code could better enable signatories to use cross-referencing to publicly available external information they publish to meet other requirements or frameworks to support their reporting against the Code.

For further details, please see this Latham blog post.

FCA Softens “Name and Shame” Proposals

On 28 November 2024, the FCA published a further consultation on changes to its Enforcement Guide. The FCA initially proposed that it would publicly announce enforcement investigations at an early stage, including naming the entity involved. 

In light of an unprecedented response from industry and the government, this further consultation includes the following major changes to the initial proposals:

• The impact of an announcement on the relevant entity and the potential for an announcement to seriously disrupt public confidence in the financial system or the market would be relevant to the FCA’s “public interest test” in determining whether to announce an investigation and name the subject of investigation.
• Entities under investigation would generally get 10 business days’ prior notice (instead of one day as originally suggested) to make their representations to the FCA, with a further two business days to review the final text before the FCA proceeds with an announcement if it decides to go ahead.
• The FCA would not announce investigations that are already underway when the changes come into effect.

The FCA is emphatic that its proposals would only affect a very small number of regulated firms. Responses are requested by 17 February 2025, and the FCA board is due to make a decision on the proposals in Q1 2025. For further details, please see this Latham blog post.

Takeover Panel Narrows Scope of Companies Subject to the Takeover Code

On 6 November 2024, the Takeover Panel finalised its proposals to narrow significantly the scope of companies subject to the Takeover Code (Code).

Key points:

• From 3 February 2025, the Code will only apply to companies that are both registered and listed in the UK, the Channel Islands, or the Isle of Man — and to such companies for a period of two years following a delisting.
• From 3 February 2025 to 2 February 2027, transition arrangements will apply to certain unquoted public and private companies subject to the Code immediately prior to 3 February 2025. This includes private companies listed on a UK exchange for more than three years previously or listed solely overseas, companies for which a price had been quoted outside a regulated exchange, companies whose shares were traded on a matched bargain facility, and private companies that had previously published a prospectus.

For these companies, broadly, the Code will continue to apply during this transition period provided that the company meets the “residency test” (i.e., having their place of central management and control in the UK, the Channel Islands, or the Isle of Man) at the time of the transaction.

UK-registered and UK-listed companies will remain subject to the Code and will need to adhere to a new provision requiring them to inform shareholders if a delisting occurs, indicating that Code protections will no longer apply after the two-year run-off period. Companies that will not be subject to the Code at the conclusion of the transition period should engage with stakeholders and evaluate potential actions to take before the Code ceases to apply, such as modifying their articles to ensure certain investor protections or facilitating shareholder exits from their investments.