Significant regulation

UK Corporate Governance Code

The latest iteration in the code - formerly known as the Combined Code (because it combined Cadbtuy with the subsequent, major recommendations from those that followed) - dates from 2018 and came into effect on 1 January 2019.

Its major provisions can be summarised as follows:

  • • According to the FRC (its sponsoring organisation), it emphasises the need for positive relationships between companies, shareholders and stakeholders.
  • • It stresses the importance of a clear prupose and strategy aligned with healthy corporate culture.
  • • It indicates the significance of high-quality board composition and a focus on diversity.
  • • It stresses that senior staff remuneration should be proportionate and support long-term success.

Again, according to the FRC, it is designed to “set higher standards of corporate governance to promote transparency and integrity in busmess; and attract investment in the UK for the long term, benefitting the economy and wider society”.

The Code does not set out a rigid set of rules. Instead it offers “flexibility through the application of Principles” and through the use of the ‘comply or explain' rubric it seeks to push companies into ‘best practice’. According to the FRC’s accompanying introduction, “It is the responsibility of boards to use this flexibility wisely and of investors and then advisors to assess differing company approaches thoughtfully”. The latest version of the code is considerably reduced in length from its predecessors with so-called Supporting Principles having been removed from the text. There are in addition, fewer absolute provisions.

Companies which want to have their shares listed are obliged to sign up to the provisions of the UK Corporate Governance Code, which then forms part of the ‘listing contract’, together with other provisions, between the company and the London Stock Exchange.

The Listing Rules

When a company enters its shares into the public market, it does so through a long process of verification of its records, financial history and future prospects by accountants, lawyers and market administrators.

At the root of tills process is a document which effectively forms the contract between the company and the market (in the case of the UK, this is the London Stock Exchange). This document comprises the listing rules -the agr eement which controls the governance of the company and which it undertakes to uphold.

Tire Listing Rules are administered by the Financial Conduct Authority. The FCAusedtobe called additionally ‘The UK Listing Authority’, but that term is being phased out (by the FCA) in favour of references to the FCA’s ‘Primary' Market Responsibilities’.

Tire London Stock Exchange had a previous history of self-regulation (‘club regulation’, as sociologists would call it) and the Listing Rules are based on this experience, with the added complication that under EU rules all listing requirements had to dovetail to allow the ‘passporting' of listings between European exchanges. In practice, this meant the UK rules always met and occasionally exceeded the EU requirements (‘super-equivalence’). The Listing Requirements embody the most recent iteration of the UK Corporate Governance Code. Companies are expected to comply with provisions m the code on executive pay, on the ‘comply or explain’ principle of disclosure and with the obligations regarding shareholder protection and the release of information to the market.

There are twenty separate sections with three appendices:

LR 1. Preliminary: All securities

LR 2, Requirements for listing: All securities

LR 3, Listing applications: All securities

LR 4, Listing particulars for professional securities market and certain other securities: All securities

LR 5, Suspending, cancelling and restoring listing: All securities

LR 6, Additional requirements for premium listing (commercial company)

LR 7, Listing principles: Premium listing

LR 8, Sponsors: Premium listing

LR 9, Continuing obligations

LR 10, Significant transactions: Premium listing

LR 11, Related party transactions: Premium listing

LR 12, Dealing in own securities and treasury shares: Premium listing

LR 13, Contents of circulars: Premium listing

LR 14, Standard listing (shares)

LR 15, Closed-ended investment funds: Premium listing

LR 16, Open-ended investment companies: Premium listing

LR 17, Debt and debt-like securities: Standard listing

LR 18, Certificates representing certain securities: Standard listing

LR 19, Securitised derivatives: Standard listing

LR 20, Miscellaneous securities: Standard listing

LR Appendix 1, Relevant definitions

LR Appendix 2, Fees and financial penalty income

LR Appendix 3, List of regulatory information services

There are three grades of listing:

Premium Listing

A Premium Listing is available only to equity shares issued by trading companies and closed and open-ended investment entities. Issuers with a Premium Listing are required to meet the UK’s super-equivalent rules which are higher than the EU minimum requirements. A Premium Listing means the company is expected to meet the UK’s highest standards of regulation and corporate governance - and as a consequence may enjoy a lower-cost of capital through greater transparency and through building investor confidence.

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