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Legal & Regulatory roundup

By Gavin Hinks

EU flag, EU sustainability, Sustainable Finance

FRC stewardship code underlines ‘outcomes’

A new UK stewardship code, published by the Financial Reporting Council, has asked investors to place more emphasis on performance against published policies.

Andrew Ninian, stewardship director at the Investment Association, said: “Asset managers have been clear that any new code should require signatories to report against actual stewardship activity, rather than just the policy that sits behind them, and should also reflect the growing range of issues that asset managers engage on, such as diversity and ESG.

“The new proposed code recognises these key issues and provides a platform for them to be firmly embedded in the final version of the stewardship code.”

Consultation on the code closed on 29 March.

Sir Win Bischoff, chairman of the Financial Reporting Council, said the code “sets both higher expectations for stewardship practice and introduces more rigorous public reporting with a focus on outcomes and effectiveness. We believe the changes proposed put it at the forefront of stewardship internationally.”

Singapore M&A code sees dual-class clarification

Financial regulators in Singapore have moved to clarify the rules surrounding mergers and acquisitions involving companies with dual-class shares.

The clarification relates to stock holders who own dual-class shares and whether their total shareholding could trigger a “mandatory” offer under the code.

The Monetary Authority of Singapore said the need to make a mandatory offer would be waived if the regulatory threshold was crossed through no action of the owners of the shares. “Where the shareholder is independent of the conversion or reduction event, the requirement to make a mandatory offer will be waived,” it clarified.

“If the shareholder is not independent of the conversion or reduction event, the mandatory offer requirement will still be waived if he reduces his voting rights to below the mandatory offer thresholds, or obtains the approval of independent shareholders to waive their right to a mandatory offer within a specified time.”

Photo: Sehenswerk, Shutterstock

EU under pressure to update Non-Financial Reporting rules

Further calls have been made for improvements to the EU’s Non-Financial Reporting Directive (NFRD) after research revealed disappointing results for campaigners.

The Alliance for Corporate Transparency, a group of not-for-profits, found that only half the companies surveyed provided clear information on targets and risks associated with their impact on the environment.

A majority of firms also failed to produce details of how their commitments to human rights would be put into action.

Filip Gregor of Frank Bold, a campaigning law firm and alliance member, said: “To ensure comparable and meaningful disclosure the legislation needs to be clearer. Standardisation of disclosure balanced with flexibility is indispensable to enable sustainable finance and corporate accountability.”

EU set to improve clarity for workers in gig economy

New EU regulations on making working conditions more transparent for gig economy and zero-hours contracts has taken a step closer to becoming law.

The regulations, to be included in the so-called Written Statement Directive, calls on companies to inform workers of their working conditions.

Marianne Thyssen, commissioner for employment and social affairs, said: “Today’s economy needs flexible labour contracts, but flexibility must be combined with minimum protection. With the agreement that is on the table today, we will offer those who are in flexible employment relations more transparency and predictability, especially the most vulnerable ones.”

It is believed that up to three million workers across the EU could benefit from the new legislation, which now has to be formally adopted by the European Parliament and Council.

Facebook

Photo: Shutterstock

Facebook to appeal German data ruling

A German regulator has ordered Facebook to modify its data policies after ruling the company had abused its market position to collect information from users without their agreement.

Andreas Mundt, chief executive of the Federal Cartel Office, Germany’s national competition regulator, said: “In future, Facebook will no longer be allowed to force its users to agree to the practically unrestricted collection and assigning of non-Facebook data to their Facebook accounts.”

Facebook said it would appeal. In a blog it said: “We disagree with their conclusions and intend to appeal so that people in Germany continue to benefit fully from all our services.”

The case hinges on the way the site matches data from WhatsApp or Instagram with Facebook users. The Cartel Office said this could only happen with consent from users and Facebook has been given 12 months to develop proposals for doing so.

The ruling marks another chapter in the increasingly controversial use of customer data and rising concerns for the privacy of internet users.

Lawyers believe the ruling could have wide-ranging implications for business models reliant on the collection of customer data.

Audit committee role set to change

UK audit committees could see their relationship with auditors significantly reformed after new proposals were published by the Competition and Markets Authority (CMA).

Among the wide-ranging recommendations of the interim report, it suggests audit committees could spend more time on auditor scrutiny; that investors need to accept smaller firms as auditors if audit committees choose them; and other executives should have less influence on the audit process.

Perhaps the biggest change for audit committee members is a proposal that audit committees should report directly to a regulator during the tender and engagement processes; and regulators should rebuke audit committees if they believe their performance is below par.

The proposals came as part of the CMA paper on reforming the audit market, which includes separating audit from consulting services in audit firms and introducing a dual audit regime.

CMA chairman Andrew Tyrie said: “The CMA will now consult on a number of proposals for robust reform. These intractable problems may take some years to sort out. If it turns out that the proposals are not far-reaching enough, the CMA will persist until the problems are addressed.”

Consultation on the proposals closed in January.

Greg Clark

Greg Clark. Photo: Shutterstock

UK joins project to regulate Fourth Industrial Revolution

The UK is set to partner with the World Economic Forum (WEF) to develop regulation for the fourth industrial revolution in artificial intelligence, autonomous transport, drones and medicine.

Business secretary Greg Clark said: “The government sees active and agile regulators as key to creating the business environment in which the industries of the future can grow, as part of our modern Industrial Strategy.

“This new international collaboration will ensure the UK leads the way in guaranteeing the UK and global regulatory system keeps pace with the speed of change.”

”The partnership has been driven by concerns that technology is developing at a much faster rate than ethical, legal and consumer protection.

Watchdog worries about impairments

The financial regulator in Australia has sent a warning to auditors and directors over the treatment of non-financial assets in financial reports.

The Australian Securities and Investments Commission (ASIC) clarified the accounting treatment in 2015, but after inspections this year decided to reiterate the advice.

John Price, ASIC commissioner, said: “ASIC’s concerns continue to relate to impairment of non-financial assets and inappropriate accounting treatment. Directors and auditors should focus on values of assets and accounting policy choices in preparing their December 2018 financial reports.”

ASIC’s inspection revealed that impairment of assets accounted for the highest number of regulatory inquiries when looking at company accounts.

Lyft founders eye influential shares

The founders of internet taxi service Lyft are reportedly set to create a new super voting share.

John Zimmer and Logan Green, president and chief executive respectively, between them own a stake of a little less than 10% of the business.

However, The Wall Street Journal reports they are in the process of creating voting rights that would give them significant influence over the company.

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