The FCA’s consultation paper reviews:
- sponsor competence - to ensure that sponsors have relevant “on-the-job” experience and retain sufficient skilled resource to fulfil their role to a high standard;
- joint sponsor arrangements - how well these work in practice; and
- prospectus accuracy – expressly requiring an applicant to submit a compliant and factually accurate prospectus.
Coming on the back of the recent consultation by the London Stock Exchange in connection with AIM, today’s consultation on sponsor competence continues the move by the regulators of the UK equity markets to require enhanced levels of competence and experience from those advising on the relevant rules and dealing with them. However, it is also noteworthy that both proposals have been adapted to recognise that not all firms will be able to show recent experience given recent market activity levels.
Interestingly both proposals also require the issuers to take responsibility to the regulator of the relevant market for the accuracy of documents produced, giving them direct rights if this is not the case.
The consultation closes on 30 April 2014 with feedback expected in the last quarter of 2014.
The FCA recently acquired wide ranging powers in relation to sanctions, suspensions and cancellation of sponsors. For these powers to be used effectively, it believes that the rules on sponsor competence and its expectations need to be transparent. Consequently, the FCA is consulting on new rules which would:
- require sponsors to demonstrate recent sponsor activity, by having submitted a sponsor declaration within the last three years. If, for example, new applicants are unable to demonstrate this, the FCA will “look through” to the employees of the firm rather than the firm itself;
- ensure sponsors have sufficient employees with the appropriate skills, assessed using a “competence framework”. The framework will need to include five minimum standards, for example, knowledge of the procedural requirements and processes of the FCA and the rules and guidance relevant to sponsor services. This will allow sponsors to identify potential knowledge and experience gaps. Individual employees will not be expected to meet all the competency standards but a sponsor will be required to consider how to apply its adopted framework to its staffing model operating on an on-going and transactional basis (the consultation contains a draft Procedural Note with further guidance on this rule); and
- improve communications with the UKLA in response to FCA concerns about the quality of interactions with some individuals at firms. Under the proposals, the named contact between the UKLA and the firm would need to be competent in three specified areas, mirroring three of the standards in the competence framework.
In some complex and larger transactions joint sponsors are appointed, each responsible for complying with their own Listing Rule obligations. In this consultation, the FCA recognises some of the potential benefits of having joint sponsor arrangements but identifies a number of potential issues; for example, transactions can become delayed and the recent unwillingness, on the part of the largest, most active sponsors to act as joint sponsors, other than in the primary contact role. The FCA is keen, at this stage, to discuss the advantages and disadvantages of joint sponsor arrangements. Any proposed changes will be subject to a separate consultation.
Following on from ESMA’s report on ‘Comparison of liability regimes in Member States in relation to the Prospectus Directive’, an explicit obligation on the issuer to produce a compliant and factually accurate prospectus is proposed. The standard proposed reflects that used in the Annexes to the Prospectus Rules but the proposals give a direct right of action to the FCA for any breach.
This update will be relevant to sponsors and issuers with a premium listing on the Main Market.