Primary Market Bulletin No. 18: new technical notes confirmed and new sponsor technical notes proposed

On 31 August 2017, the Financial Conduct Authority (FCA) published Primary Market Bulletin No. 18. This edition provides feedback on changes to the FCA’s Knowledge Base proposed in Primary Market Bulletin Nos. 16 and 17. The FCA is also consulting on further changes to the Knowledge Base.

Changes to the Knowledge Base

The changes include:

Confirmed technical notes from Primary Market Bulletin No. 17 on sponsor conflicts and shareholder obligations

Amendments to the existing technical note Identifying and managing conflicts (UKLA/TN/701.3). The note is published in the form set out in Primary Market Bulletin No. 17, on which no feedback was received. See Primary Market Bulletin 17: update on identifying and managing sponsor conflicts for a summary of the FCA’s proposals.

Amendments to the existing technical note Shareholder obligations (UKLA/TN/543.3) to reflect the new TR-1 form that came into force on 30 June 2017. The note is published in the form set out in Primary Market Bulletin No. 17, on which no feedback was received.

New procedural note on the substitution of debt issuers

The addition of a new procedural note Substitution of issuer of debt securities (UKLA/PN/911.1) explaining the procedural mechanics of replacing a debt issuer on the Official List through a substitution, as permitted under the terms and conditions of debt securities. The note sets out the two step process of: (1) the request for the issuer substitution; and (2) once the request is agreed, the request to amend the Official List. The note also sets out key issues to consider prior to submission of a request to replace a debt issuer.

Consultation on further changes to the Knowledge Base

The changes can be broken down into three broad categories: sponsor services, the Listing Rules and the Prospectus Rules and include:

Sponsor services

Updating the existing technical note Sponsors’ obligations on financial position and prospects procedures (UKLA/TN/708.3) to align the language with the FCA’s proposed new technical notes outlining its expectations of sponsors and their obligations under LR 8.3.4R, LR 8.4.2R(3) and LR 8.4.12R(2) (listed below). The FCA notes that it has not sought to change the approach outlined in the previous technical note because it believes this workstream is well-established and understood by sponsors.

Based on its review of work undertaken by sponsors to meet their obligations under LR 8.3.4R, LR 8.4.2R(3) and 8.4.12R(2), the FCA is proposing three new technical notes which will provide useful guidance to help sponsors fully understand the FCA’s expectations when demonstrating that due and careful enquiry has been undertaken by sponsors to enable them to make the required declaration(s) to the FCA. The guidance is not intended to be exhaustive and a sponsor should exercise professional judgement when it decides what steps it should take to comply with the relevant rule. The draft technical notes are:

• Sponsors’ duty regarding directors of listed companies (UKLA/TN/718.1) setting out the work the FCA expects a sponsor to carry out to comply with its obligations under LR 8.3.4R to ensure that the directors of an applicant or listed company understand their responsibilities and obligations under the Listing Rules, the Disclosure Requirements and the Transparency Rules (together the Rules).
• Sponsors’ obligations on established procedures (UKLA/TN/719.1) setting out the work the FCA expects a sponsor to carry out to comply with its obligations under LR 8.4.2R(3) to ensure the directors of an applicant have established procedures which enable it to comply with the Rules on an ongoing basis.
• Sponsors’ obligations on no adverse impact (UKLA/TN/720.1) setting out the work the FCA expects a sponsor to carry out in order to comply with its obligations under LR 8.4.12R(2) to ensure that a listed company’s ability to comply with the Rules are not adversely affected when the listed company undertakes certain transactions.

See Primary Market Bulletin No. 18: new guidance on sponsor’s obligations proposed for a summary of the FCA’s guidance in these draft technical notes.

Listing Rules

The inclusion of a new section to the existing technical note Profit forecast and estimates (UKLA/TN/340.2) setting out the matters that the FCA will take into account when determining whether the reasons for an existing profit forecast or estimate being deemed to be no longer valid are credible. If an existing forecast or estimate is no longer valid, the issuer is not obliged to state the assumptions behind the forecast in a prospectus or class 1 circular nor, in the case of a prospectus, have an accountant report on the forecast. The note also includes a selection of typical factors that the FCA has seen, together with some considerations on when these are more or less likely to be credible reasons for invalidity. However, the FCA advises that the list is not exhaustive nor should it be taken that these reasons will always be accepted as it will assess each case on its merits.

A new technical note Quantified Financial Benefits Statements (UKLA/TN/315.1) setting out the FCA’s approach to the inclusion in prospectuses or circulars of reports from reporting accountants and financial advisers prepared for the purposes of Rule 28.1(a) of the City Code on Takeovers and Mergers (the Code) or confirmatory statements from reporting accountants and financial advisers given for the purposes of Rule 27.2(d)(ii) of the Code. The FCA advises that if a report, statement based on a report or confirmatory statement is included in a prospectus or supplementary prospectus a consent and authorisation statement covering the report or statement must be included and the reporting accountants and financial advisers will need to accept responsibility for the same and include a statement in the document to this effect. If such a report or statement is included in a class 1 circular or related party circular, the FCA advises that an appropriate consent statement must also be included.

Prospectus Rules

Amendments to the existing technical note Exemptions from the requirement to trading and the marketing of securities (UKLA/TN/602.2) to reflect the changes made by the new Prospectus Regulation that came into force on 20 July 2017 (ie a new prospectus will not be required for the admission to trading of fungible shares representing less than 20% (up from 10%) of the same class of shares already admitted to trading on the same regulated market).

A new technical note FRS 102 Cash Flow Statement Exemptions (UKLA/TN/635.1) considering the interaction between the ability under FRS 102 for investment funds that meet certain conditions to be exempt from preparing cash flow statements and the requirement under Annex 1 Part 20.1 of Prospectus Rules Appendix 3 which requires that audited financial information in a prospectus prepared according to national accounting standards must include a cash flow statement. The FCA advises that whilst it has the power to authorise the omission of information from a prospectus in limited circumstances any request for omission of a cash flow statement will be considered on a case-by-case basis and the FCA should be contacted at an early stage.

Next steps

Responses to the FCA’s proposals are due by 11 October 2017.