FCA Task Force on Climate-related Financial Disclosures
On 15 November 2021 The Financial Conduct Authority (FCA) published Primary Market Bulletin 36 (PMB 36), its newsletter for primary market participants. This edition is focused on climate-related disclosure requirements for listed companies and sets out the FCA’s disclosure expectations and supervisory strategy introducing specific Task Force on Climate-related Financial Disclosures (TCFD).
The PMB follows the introduction of Listing Rule 9.8.6R(8) (LR9) which applies to premium listed commercial companies and came into force for financial years beginning on or after 1 January 2021. This means the first annual financial reports including the required disclosures will be published in spring 2022. LR9 requires a commercial company with a premium listing to include a statement in its annual report on whether it has made climate- related financial disclosures which are consistent with the recommendations of the TCFD. This statement operates on a ‘comply or explain’ basis.
The PMB follows the introduction of Listing Rule 9.8.6R(8) (LR9) which applies to premium listed commercial companies and came into force for financial years beginning on or after 1 January 2021. This means the first annual financial reports including the required disclosures will be published in spring 2022. LR9 requires a commercial company with a premium listing to include a statement in its annual report on whether it has made climate- related financial disclosures which are consistent with the recommendations of the TCFD. This statement operates on a ‘comply or explain’ basis.
In summary, when making the required statement under LR9 a premium listed company must set out:
whether it has made climate-related financial disclosures consistent with the TCFD in its annual report
where it has not made disclosures which are consistent with some or all of the TCFD recommendations and/ or recommended disclosures, an explanation of why together with a description of the steps being taken to make consistent disclosures in the future
if the company has included some or all of its disclosures in a document other than the annual report an explanation of why
where in the annual report (or other document if relevant) the disclosures can be found.
To assist listed companies, their directors and advisers the FCA is consulting on a new technical note to provide further guidance on the disclosure requirements. The note covers, amongst other things, expectations around explanations for non-compliance and the role of third party advisers in preparing disclosures.
Whilst the FCA is responsible for monitoring and, where necessary, enforcing compliance with LR9, the Financial Reporting Council will also play a significant role. The FRC may ask for corrective action to be taken, including seeking an undertaking that disclosures will be enhanced in the next reporting year.
PMB 36 emphasises that where a listed company fails to make the required climate-related disclosures in its annual report, the FCA will request the statement be published via an RIS as soon as possible. Any non-compliance will be viewed seriously by the FCA and lead to action using the full suite of FCA powers and sanctions where appropriate.
The FCA has published proposals to extend these climate related disclosure requirements to issuers of standard listed equity shares (other than standard listed investment entities and shell companies). The new rule (if implemented as proposed) will directly mirror the structure and wording of the rule in LR 9 and associated guidance.
AQSE Response to SPAC consultation
Aquis Stock Exchange (AQSE) published its response on 7 December 2021 to its October 2021 consultation on proposed changes to the rules governing the eligibility criteria and ongoing obligations applicable to special purpose acquisition companies (SPACs) on the Access segment of the AQSE Growth Market. Changes include:
Broadening the scope of the SPAC rules:
A new definition of 'enterprise company' has been added to the Access Rulebook. The definition will encompass companies that may have previously classified themselves as SPACs or investing companies. The term ‘venture company’ had been proposed in the consultation, but feedback suggested that this might be confused with venture capital.Minimum fundraise at admission:
Enterprise companies will be required to raise a minimum of £2 million prior to or at admission.Maximum valuation of twice the company's net assets:
The market capitalisation of an enterprise company at admission should be no more than twice its net tangible assets.Free float:
To be eligible for admission, an enterprise company must have a minimum free float of 25%. While not proposed in the consultation, the increase is recognised as being beneficial in helping to maximise liquidity and limit volatility..Time limit to make an investment or acquisition:
AQSE will be able to suspend (and subsequently withdraw) an enterprise company if the company has not substantially progressed its investment plan or completed an acquisition or reverse takeover within 2 years of admission.
The amended Access Rulebook has also been published and will take effect from 8 December 2021.
UK Secondary Capital Raising Review
The government recently launched the UK Secondary Capital Raising Review (the Review) to consider how to improve secondary capital raising processes for UK listed companies.
Background
On 3 March 2021, the government published its report (UK Listing Review) following a review of the UK’s listing regime. The review’s objective was to propose recommendations to boost the UK as a destination for IPOs and optimise the capital raising process for companies seeking to list on UK markets.
One of those recommendations was to consider how to improve the efficiency of secondary capital raisings by listed companies.
Review
The UK Secondary Capital Raising Review was established by the government in response to certain of the UK Listing Review’s recommendation and was asked to focus on various areas including:
whether the overall duration of the secondary capital raising process could be reduced including, in relation to rights issues, by reducing the period in which shareholders trade their rights
the use of new technology in the process to ensure that shareholders receive relevant information in a timely fashion and are able to exercise their rights
whether fund-raising models in other jurisdictions should be considered for use in the UK
whether there are any other ways of improving the capital-raising process by UK listed companies that are consistent with the UK's commitment to high standards
A report and recommendations are expected in spring 2022.
UK Prospectus regime review
On 16 December, the UK government published its response to its proposals to reform the UK's prospectus regime. The response summarises feedback to the government’s consultation launched in July which sought views on proposals to reform the UK’s prospectus regime.
Background
The consultation was launched following recommendations made by Lord Hill in his UK Listing Review Report published in March this year - a review driven by Brexit and designed to identify reforms to boost the UK as a market for IPOs. In accepting those recommendations the government committed to carry out a fundamental review of the UK prospectus regime.
Review Summary
The responses to the government’s review are potentially far-reaching with broad support for the following proposals:
Reform of UK Prospectus Regime
Separate rules relating to admission to trading from public offers to address unnecessary duplication in the existing framework.Admissions to trading
Delegation of further powers to the FCA including:the proposed power new rule-making powers on admissions to trading
discretion to determine whether or not a prospectus is required when securities are admitted to trading on regulated markets
Forward looking statements
The inclusion of more forward-looking information in prospectuses and corresponding reduction of the liability attaching to these statements in line with the existing standard of liability for information (subject to these statements being clearly identified as such within the prospectus).Public offers of securities
Recognition of admission documents published in relation to admission to a junior market (e.g. AIM or the Aquis Growth Market) as a form of prospectus.
Retention of the existing prohibition on public offers of securities, with new exemptions for companies with (or applying to have) securities admitted to trading on junior markets.
Reform of what constitutes 'the public' in a public offering of securities by the creation of a new exemption for existing holders of securities- so removing from the public offers restriction fundraising offers to close stakeholders including rights issues.
Option for the public offer of securities by private companies to be registered with a firm authorised to operate a platform for public offers of securities.
Next steps
The government will set out its intended course of action in due course.
Climate-related financial disclosures: standard listed companies
The FCA has confirmed (Policy Statement 21/23) that it will be extending to standard listed companies the obligation to make climate related disclosures.
A new continuing obligation in LR 14.3.27 R is to be introduced requiring in-scope standard listed companies to include a statement in their annual reports for accounting periods beginning on or after 1 January 2022 setting out:
whether they have made disclosures consistent with the Recommendations of the Task Force on Climaterelated Financial Disclosures (TCFD Recommendations) in their annual financial report
where they have not, an explanation of why and a description of any steps they are taking/plan to take to make consistent disclosures in the future, and the timeframe for doing so
where some or all of their disclosures are in a document other than the annual report, an explanation of why
an explanation of where in the annual report (or other relevant document) the various disclosures can be found.
The new rule mirrors the existing obligation in LR 9.8.6 R (8) for premium listed companies in relation to climate related disclosures and which applies to accounting periods beginning on or after 1 January 2021. The new Listing Rule is accompanied by guidance to assist companies in determining whether their disclosures are compliant with the TCFD Recommendations.
The new Listing Rule for standard listed companies will apply for accounting periods beginning on or after 1 January 2022.
