Primary Market Bulletin No.7 – FCA guidance for sponsors
Market reCap February 2014 edition
- Primary Market Bulletin No.7
- Sponsor competence review under Listing Rules
- New controls on controlling shareholders
- AIM Notice 38
- Takeover Panel Practice Statement No 27
- ESMA statement
- Success fees
- Service of English legal proceedings on overseas directors
The Financial Conduct Authority (FCA) published Primary Market Bulletin No.7 in October 2013. Amongst other guidance, the FCA consulted on draft technical notes giving guidance on its additional powers to supervise and discipline sponsors and on the obligation on sponsors under the Listing Rules to deal with the FCA in an open and co-operative manner. The consultation period ended on 19 November 2013.
Additional powers to supervise and discipline sponsors
Draft technical note UKLA/TN/712.1 provides guidance on how the FCA intends to use its additional statutory powers regarding the supervision and discipline of sponsors. In particular, the FCA clarifies when it would consider restricting, limiting or suspending sponsor services or suspending a sponsor’s approval.
The FCA has the power to limit or restrict the scope of sponsor services where, for example, a sponsor or new applicant does not have the relevant experience, or appropriate systems and controls, to provide the complete range of services. The FCA has indicated that it will use this power on a generic basis, rather than on a transaction-by-transaction basis, and is most likely to do so in the event that, based on information that it acquires through its supervisory role or on assessment of an application, it has concerns that a sponsor does not have the relevant experience and expertise or appropriate systems and controls to provide sponsor services for a particular type of issuer, type or size of transaction or sector.
Where, for example, there is an unplanned, temporary or permanent loss of experienced members of staff affecting its ability to meet the sponsor approval criteria or there is a corporate reorganisation of a sponsor or an event resulting in uncertainty about its future, a sponsor may seek suspension of its approval (rather than cancellation). This would allow the sponsor to take steps to comply with the approval criteria and avoid the administration and cost of cancelling and reapplying for an approval.
The FCA may suspend a sponsor's approval or impose restrictions or limitations on sponsor services to further its operational objectives in relation to consumer protection, market integrity or competition. Whilst the FCA is only likely to intervene in limited circumstances, it might use such power if, for example, it feels that a sponsor is unable to manage an actual or perceived conflict of interest or seeks to accept a mandate for which the FCA considers it is unable to meet the relevant competence requirements, or where there are serious concerns that a sponsor's systems and controls are not appropriate to support the proposed sponsor service.
The FCA also consulted on a draft procedural note (UKLA/PN/910.1) giving guidance on procedural aspects of its new powers to suspend, limit or restrict sponsors.
Dealing with the FCA in an open and co-operative manner (LR8.3.5R)
Under Listing Rule 8.3.5R, sponsors are obliged to deal with the FCA in an open and co-operative way at all times. In its draft technical note UKLA/TN/713.1, the FCA has highlighted conflicts identification and management as an area where it expects sponsors to be communicating with it at an early stage and to consider whether they are under a positive duty to disclose the matter to the FCA.
In addition, the FCA has advised that a sponsor should also consider this obligation when it is entering into contractual arrangements. For example, when negotiating its position on a non-disclosure agreement, there may be a need to extend the usual carve-out relating to disclosures required by the FCA so that this includes any additional disclosures which may be required by the obligation to deal with the FCA in an open and co-operative way.
The FCA has finalised its guidance on supplementary prospectuses (UKLA/TN/605.2), zero coupon notes (UKLA/TN/631.1) and final terms (UKLA/TN/629.2). These new technical notes have now been added to the UKLA Knowledge Base.