UK regulators announce a further package of measures to ease the burden on issuers.

By Chris Horton, James Inness, Rob Moulton, Koushik Prasad, Connor Cahalane, and Charlotte Collins

In response to the COVID-19 pandemic, UK regulators have published further measures affecting issuers, to try to preserve the flow of information to investors and support the continued functioning of the UK’s capital markets. However, the FCA has also noted that issuers will still need to observe their other disclosure obligations, in particular those concerning inside information under the Market Abuse Regulation.

The FCA, PRA, and FRC published a joint statement announcing a number of new measures, including:

  • A Statement of Policy by the FCA, allowing issuers an extra two months to publish their audited annual financial reports.
  • Guidance from the FRC for issuers preparing financial statements at this time. This is supplemented by a Dear CEO letter from the PRA regarding the approach that PRA-authorised banks and investment firms should take to assessing expected loss provisions under IFRS 9.
  • Guidance from the FRC for audit firms seeking to obtain audit evidence.

This follows the previous statement from the FCA asking issuers to delay the publication of their preliminary financial accounts by at least two weeks. The FCA observes that, though voluntary, the moratorium has been well observed, and confirms that it can end on 5 April 2020.

The statement also highlights that, in the present circumstances, market practice is likely to change, and provides the following examples of what these changes might include:

  • Modified audit opinions if auditors are unable to gather the necessary audit evidence to complete the audit in full
  • More audited financial statements including disclosures that management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern
  • Changes to timetables for publication of financial information that had been set before the full implications of COVID-19 were clear

FCA Statement of Policy

The FCA’s Statement of Policy permits issuers to delay the publication of audited annual financial reports by two months, so that they only need to be published within six months from the end of the financial year (rather than the usual four). While ordinarily an issuer that does not meet the four-month deadline under DTR 4.1.3R is expected to request a suspension of their listed securities, or may have their securities suspended by the FCA, the FCA clarifies that issuers will not face enforcement action for breach of DTR 4.1.3R provided that they publish their results within the six-month timeframe.

The FCA has also issued some Q&A on the Statement of Policy, to clarify the policy approach. For example, these explain that the temporary measures apply to all issuers subject to DTR 4.1, but do not currently extend to half-yearly financial reports, which must still be published within three months of the half-year end in accordance with DTR 4.2.

This runs contrary to the statement subsequently published by ESMA, urging national regulators across Europe to allow issuers an extra two months to prepare their annual financial reports, and an extra month to prepare their half-yearly financial reports (for reporting periods ending on or after 31 December 2019 but before 1 April 2020).

Though the FCA recognises that some issuers will still want to maintain the usual timing for their annual financial reports, it encourages issuers to use the extension if they feel they need to, and urges market participants not to draw adverse conclusions in relation to issuers that choose to do so. The FCA strongly recommends that issuers review all elements of their timetables for the publication of financial information in order to use the time available appropriately to ensure accurate and carefully prepared disclosures. Further, the FCA highlights that regulation can only do so much, and that, for the relief to be effective, there also needs to be a shift in market practice and expectation such that issuers using the extra time are not penalised by the market.

The FCA emphasises that this policy is temporary, and so it will be kept under review. When the current disruption abates, the FCA plans to announce how it will end the policy in a fair, orderly, and transparent way.

FRC Guidance

The FRC has issued additional guidance for companies on corporate governance and reporting. The key messages from the FRC are that:

  • Companies should develop and implement mitigating actions and processes to continue to operate an effective control environment, addressing key reporting and other controls that may otherwise not prove effective in the current circumstances.
  • Companies should consider how to secure reliable and relevant information on a continuing basis, in order to manage future operations.
  • Companies should pay attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is paid, not just proposed, and sufficient resources remain to continue to meet the company’s needs. Where the company is no longer able to pay a dividend, directors should halt any dividend and communicate as appropriate to the market.

The FRC also urges boards to consider various measures to ensure that the flow of information for preparation of financial statements, risk management processes, and internal controls is ongoing.

The FRC provides specific guidance on the information investors expect relating to liquidity, viability, and solvency of companies, as users of corporate reports want to understand the key assumptions and judgements a board is making when assessing resilience and preparing company financial statements.

The FRC has separately provided guidance for auditors carrying out audit engagements that may be affected by COVID-19. Detailed guidance is available here.

Companies House Filings

The Department for Business, Energy & Industrial Strategy has also announced that, effective 25 March 2020, businesses will be able to apply for a three-month extension for filing their accounts, and those applications citing issues around COVID-19 will be automatically and immediately granted an extension. Applications can be made through a fast-tracked online system and will take just 15 minutes to complete.

The announcement notes that the government is also in close consultation with various stakeholders to address the impact COVID-19 may have on companies’ ability to hold Annual General Meetings — updated guidance will be published in due course.