Slides from ICSA Policy Update 24 March 2015.

1. Policy update
Peter Swabey, FCIS,
Policy & Research Director, ICSA
24th
March 2015

2. Policy update
Agenda
PSC Register
UK implementation of the Audit Directive
Pre-emption group guidelines
Investor stewardship
www.slideshare.net/icsaevents

3. Policy Update
The PSC Register
‘The register of persons with significant control’

4. PSC Register: implementation
Small Business, Enterprise & Employment Bill
Output from the Red-tape challenge
The primary legislation is currently being debated in Parliament.
BIS aim to consult on draft secondary legislation over summer.
Companies will start keeping their own PSC Register from
January 2016.
They will need to start filing this information at Companies
House from April 2016.

5. PSC Register: policy
There are five core elements to new Part 21A of the
Companies Act 2006 (CA06):
1.The definition of a ‘person with significant control’
2.The legal entities in scope of requirements
3.Obtaining the information
4.The register
5.Disclosure of and access to the information
BIS have replicated or extended existing company law
criminal offences to deal with those who fail to provide
information or provide false information.

6. PSC Register: definition
BIS have used the existing definition of ‘beneficial owner’ in the EU anti-
money laundering context as the basis.
New Schedule 1A to the CA06 sets out five ‘specified conditions’. An
individual meeting one or more of these conditions is a Person with
Significant Control (‘PSC’):
1. Ownership of more than 25% shares
2. Ownership of more than 25% voting rights
3. Ownership of right to appoint or remove a majority of the board of directors
4. Right to exercise significant influence or control
5.Right to exercise significant influence or control over a trust or firm which trust
or firm would be a PSC, were it an individual)
In certain circumstances a legal entity must be noted in the
register (‘relevant legal entities’ or ‘RLEs’).

7. PSC Register: scope
All UK companies, except companies listed on UK
regulated or prescribed markets, will have to keep a
PSC register.
BIS will apply reform to Limited Liability
Partnerships through secondary legislation.
BIS are considering:
•Whether to exempt other types of companies subject to stringent
disclosure requirements
•How to implement the wider scope of the EU AML Directive

8. PSC Register: obtaining information
Companies must take reasonable steps to find out if they
have any PSCs or RLEs and identify them.
In some cases the company will already have this information.
In others the company will need to serve notice on individuals
and others. A person in receipt of such a notice is required to
reply. Failure to do so is a criminal offence. Shares may also
be subject to restrictions by the company.
PSCs and RLEs are also required to disclose their interest in
the company to the company in certain circumstances.

9. PSC Register: the company’s register
Companies must hold and keep available for public inspection a
PSC register. This will contain information on the PSCs’:
•Full name
•Service address
•Country or state of usual residence
•Nationality
•Full date of birth
•Usual residential address (not publicly available)
•Date on which PSC obtained control
•The nature of his or her control over the company
Register must be kept up to date as information changes.
People may access the register on request.

10. PSC Register: the central register
Companies must provide all the information in their PSC
register to Companies House on incorporation and then at
least once every 12 months as part of the new confirmation
statement.
All information will be made available on the public register
except:
• The full date of birth (only the month and year will be
shown on the public register, except where the company
elects to keep its PSC information solely on the register
at Companies House)
• The usual residential address

11. PSC Register: the central register
Individuals at serious risk of harm will be able to apply to
the registrar of companies to prevent their information being
publicly disclosed on the company’s register and the central
register.
BIS have recently consulted on this regime.
Specified public authorities will have access to protected
data on request.

12. PSC Register: guidance
Two types of guidance:
•Statutory
•Non-statutory
The legislation requires the Secretary of State to publish
guidance on the meaning of ‘significant influence or control’ in
the context of the PSC register.
This statutory guidance has legal effect and will be
produced by BIS.

13. PSC Register: guidance
Non-statutory guidance will be produced by a working group
acting on behalf of BIS and will address issues like:
•What is a PSC or an RLE and what do they need to do
•What information is being collected and why
•Who can access it and how
•Which companies are affected and what they need to do
•What ‘reasonable steps’ means
•What to do if you don’t receive the required information
•How to manage your PSC Register
•What to do if you are a PSC

14. PSC Register: guidance
The plan is to publish the guidance in October, well in advance
of when statutory duties kick in in January.
Feedback on what you would like to see included in the
guidance welcome.
pswabey@icsa.org.uk

15. Policy Update
UK Implementation of the Audit Directive

16. UK Implementation of the
Audit Directive
EU Regulation and Directive on Audit published 27th
May 2014
Principal changes:
•Mandatory rotation of auditors
•Restriction of non-audit services
•Mandatory duties of the audit committee
•More detailed audit reporting
•Banning of restrictions on appointment of auditor

17. UK Implementation of the
Audit Directive
Mandatory rotation of auditors
•Audit tenure restricted to a maximum of 10 years
•Or 20 years if the Member State allows and there is a public
tender at 10 years
Restriction of non-audit services
•Non-audit services subject to tighter restrictions, including
a fee ratio

18. UK Implementation of the
Audit Directive
Mandatory duties of the audit committee
•Members must meet minimum qualification criteria
•Committee to have statutory responsibilities over auditor
selection and for the financial reporting and audit process.
More detailed audit reporting
•To include more detail about how the audit was conducted and
key issues identified.
Banning of restrictions on appointment of auditor
•E.g. contractual restrictions from bank

19. UK Implementation of the
Audit Directive
Both Directive and Regulation include ‘Member State Options’
Two discussion papers published in December 2014:
BIS document – responses by 19th
March
FRC document – responses by 20th
March

20. UK Implementation of the
Audit Directive
BIS discussion paper seeks views on reforms to enhance
confidence and strengthen the audit regime, including legislative
and non-legislative actions necessary to:
• Strengthen standards for the audit of Public Interest Entities
(PIEs);
• Improve confidence in the independence of auditors;
• Avoid excessive concentration in the audit market; and
• Make audit reporting more informative.

21. UK Implementation of the
Audit Directive
•Mandatory rotation – should tendering earlier than ten years
be encouraged?
•Definition of ‘public interest entity’ – should this be extended
beyond that in the Directive?
•Regulation and oversight of audit – should the FRC have
primary responsibility?
•Composition of audit committees – should this be mandated
by FCA and PRA rules?

22. UK Implementation of the
Audit Directive
FRC discussion paper seeks views on the member state options
in the Directive and Regulation, including:
•whether the more stringent requirements on PIEs should be
extended to other entities;
•whether to work on a ‘black list’ or ‘white list’ model
•whether the cap on permitted non-audit services should be
extended to network firms
•whether the existing 5 year on / 5 year off rule for audit
partners should be retained or replaced by the 7/3
model in the regulation

23. UK Implementation of the
Audit Directive
ICSA responses to BIS and FRC:
•New measures should cover the requirements of the new
Directive and Regulation, and no more.
•We do not support new measures that introduce additional
requirements (‘gold plating’) unless the benefits can be shown to
outweigh the costs.
•However, where the UK already has more stringent, effective
requirements in place we think these should remain.
•De-regulatory options should be taken up by the UK.

24. UK Implementation of the
Audit Directive
ICSA responses:
•The definition of a PIE should be as defined in the Audit
Directive and not extended to include AIM companies.
•The FRC should be the single competent authority with
ultimate responsibility for the audit regulatory tasks
•A 70% cap on the provision of permitted non-audit services is
sufficient and it should not be any lower.
•The FRC should be able to grant exemptions from the cap
on an exceptional basis.

25. UK Implementation of the
Audit Directive
ICSA responses:
•A blacklist of prohibited non-audit services is workable and
provides for the discretion of audit committees and/or auditors
to exclude other services as they consider necessary.
•The alternative of a ‘whitelist’ of permitted services could tend
to be confusing.
•Full details of our responses will be on the ICSA
website shortly.

26. Policy Update
Pre-emption group guidelines

27. Pre-emption group guidelines
The FRC last week published an update to the 2008 pre-
emption group guidelines – ‘Disapplying Pre-emption Rights: A
Statement of Principles’
•No changes have been made to the key thresholds for general
disapplication of pre-emption rights
•A number of revisions have been made to the Statement, to
clarify the scope of the Principles to take account of market
changes and developments in best practice and provide greater
transparency

28. Pre-emption group guidelines
•Clarification of the scope of the Statement
• it applies to both UK and non-UK incorporated companies
whose shares are admitted to the premium segment of the
Official List of the UK Listing Authority. Companies whose
shares are admitted to the standard segment of the Official
List, to trading on AIM, or to the High Growth Segment of
the London Stock Exchange’s Main Market are
encouraged to adopt the Statement.
• It applies to all issues of equity securities that are
undertaken to raise cash for the issuer or its
subsidiaries, irrespective of the legal form of the
transaction, including, e.g. “cashbox” transactions

29. Pre-emption group guidelines
•Flexibility to undertake non-pre-emptive issuance of equity
securities in connection with acquisitions and specified capital
investments, consistent with existing market practice.
•Greater transparency on the discount at which equity securities
are issued non-pre-emptively.
•The Pre-Emption Group encourages companies and investors
to begin to use the revised Statement immediately, but
acknowledges that as the 2015 AGM season is imminent
some flexibility may be required.

30. Policy Update
Investor stewardship

31. Investor stewardship
•ICSA is working with a number of partners - the 2020
Stewardship Working Party, which comprises 5 institutional
investors (Aviva Investors, BlackRock, GO Investment
Partners, RPMI Railpen and USS) and Tomorrow’s Company;
the NAPF; the Investment Association; the Investor Relations
Society; and the Quoted Companies Alliance to help the FRC
review the extent to which the Stewardship Code has begun to
have an impact on company and investor engagement.

32. Investor stewardship
•A survey has been sent to 1,000 company representatives, to
find out to what extent the Stewardship Code has improved
engagement for companies and what was their overall
experience from their engagement with asset owners and asset
managers.
•The survey findings, which will be supplemented by further
qualitative discussion based on the survey, are expected to be
completed by June 2015.

33. Thought leadership from ICSA
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