Primary Market Bulletin No.6 - updates to UKLA Knowledge Base
Market reCap October 2013 edition
- Takeover code - further Code changes on profit forecasts
- Changes to companies subject to Takeover Code
- Primary Market Bulletin No.6 - updates to UKLA Knowledge Base
- EU's proposed new Market Abuse Rules are unveiled
- Abort fees in engagement letters - a case study
- Law reversed on pensions liabilities in insolvency
As reported previously in Market reCap, the UK Listing Authority ("UKLA") launched its online guidance repository, 'Knowledge Base', to address the problem of the diversity of sources of guidance on the Listing Rules, Prospectus Rules and Disclosure and Transparency Rules. Knowledge Base can now be found here at the Financial Conduct Authority's ("FCA") website.
Following feedback received from consultations, the FCA has in its Primary Market Bulletin No.6 identified the publication of and changes made to certain existing procedural and technical notes within Knowledge Base. It has also summarised the updates issued by the European Securities and Markets Authority ("ESMA").
Sponsor guidance on conflicts
In recognition that greater guidance would be helpful for sponsors, the FCA has issued a technical note to address some common queries it receives in relation to identifying and managing conflicts of interest by sponsors in accordance with LR8.3.7A.
The FCA encourages sponsors to create a comprehensive conflicts policy and in particular gives the following examples of certain limited circumstances when a perception could arise that a sponsor may be unable to carry out its role in a proper manner:
- listings, capital raisings or disposals which may be perceived as facilitating an exit or realisation for the sponsor’s group;
- unusual, synthetic or high-risk investment structures developed and promoted by the sponsor for listing; and
- previous involvement of the sponsor’s group in the management or governance of an applicant by virtue of board representation and/or private equity style holdings and the subsequent listing which provides the sponsor’s group with an exit (whole or partial).
The FCA also advises that the following factors be taken into account where a sponsor has an interest in the issuer (for example, through an existing loan facility), and the issuer is either in financial distress and the transaction has a ‘rescue element’, or taking pre-emptive action with regards to its current financing structure:
(i) the prevailing circumstances of the issuer and transaction;
(ii) the significance of the loan to the sponsor or sponsor’s group; and
(iii) other exposures (in addition to any loan facility) the sponsor or its group has to the issuer.
In order to maintain effective organisational and administrative arrangements ensuring that conflicts do not adversely affect a sponsor's ability to perform its functions properly, the FCA advises that:
- sponsors (including those firms that act as an agent for another sponsor) maintain appropriate records to support conflict assessments (including the basis upon which the firm has reached its conflict decisions), noting the revised record keeping requirements published in CP12/25;
- sponsors establish ‘Chinese Walls’ between the sponsor team and other areas of the business with an interest in the issuer; and
- where certain information is required about the existence of a loan facility provided by its group, employees providing sponsor services should not be apprised of the significance of the loan to the sponsor or its group, or be in contact with colleagues that are accountable for the loan. Sponsors should therefore hold detailed conflicts discussions with respect to the significance of the loan to the sponsor or sponsor’s group with the sponsor firm’s compliance or legal department.
Sponsors may consult with the Sponsor Supervision Team to determine the extent to which conflict issues and their management should be discussed with the UKLA.
Other new guidance
In addition, the FCA has published final versions of the following notes:
- UKLA/PM/907.1 – Block listings, giving guidance to issuers on how to make an appropriate application for a block listing; and
- UKLA/TN/710.1 – Sponsor services: Principles for sponsors, giving guidance on when an approved sponsor is conducting sponsor services.
The FCA has amended the following notes:
- UKLA/PN/901.2 – Eligibility process and UKLA/PN/903.2 – Review and approval of documents: following feedback received that running the eligibility review process in parallel with the prospectus review process would remove the opportunity to hold early discussions with the FCA on eligibility before substantial costs are incurred. These notes have been amended to more openly encourage advisers to submit an eligibility letter to the FCA before submitting a prospectus;
- UKLA/TN/506.1 – Periodic financial information and inside information: to clarify certain minor points and cross-refer to UKLA/TN/521.1 – Assessing and handling inside information; and
- UKLA/TN/621.2 – Risk factors: to reflect the introduction of Annex 22 of the Prospectus Directive Regulations.
Primary Market Bulletin No.6 explains that ESMA has published the “19th updated version of its Questions and Answers on Prospectuses”, which includes updates on profit estimates, estimates of expenses charged by a financial intermediary in a retail cascade and the age of financial information included in prospectuses.
Further, ESMA has published a Report to the European Commission titled “Comparison of liability regimes in Member States in relation to the Prospectus Directive”, relating to factual information on national liability regimes in EEA States in order to provide some clarity to market participants about the different regimes in place in each of the member states.