HM Treasury’s Transition Plan Taskforce aims to influence international standard setting and make the UK the world’s first net zero-aligned financial centre.

By Paul A. Davies, Michael D. Green, Nicola Higgs, Anne Mainwaring, James Bee, and Dianne Bell

On 25 April 2022, HM Treasury (HMT) announced the launch of the UK Transition Plan Taskforce (TPT) to help drive decarbonisation by ensuring that financial institutions and companies prepare plans to achieve net zero, as well as to support efforts to tackle greenwashing. This move is an important step connected with the UK’s development of the new Sustainability Disclosure Requirements (SDR) regime that Chancellor Rishi Sunak announced at his Mansion House speech in July 2021. HMT’s stated aim is to develop “a gold standard for climate transition plans” and for the UK to become the world’s first net zero-aligned financial centre.

An increasing number of companies are making public commitments to decarbonise their operations and reach net zero emissions, but transition plans announced so far are, according to the TPT, “varied in detail and quality”,[i] thereby limiting the ability of stakeholders to assess the credibility of such transition plans. Proposed rules announced by the Chancellor at COP26 would require large companies and certain financial sector firms to publish a transition plan from 2023. The TPT will, over the next two years, develop: (i) a sector-neutral framework for private sector transition plans; (ii) a sector-specific guidance for finance and other sectors; and (iii) recommendations regarding the preparation and use of transition plans. The TPT’s expectations are for such transition plans to be science-based and to help inform the UK’s SDR. (See Latham’s recent briefing for an outline of the SDR regime.)

Guidance clarifies assessment of liability under Rule 3110, including designation as supervisor, application of reasonableness standard, and factors for and against charging compliance officials.

By Marlon Q. Paz, John J. Sikora Jr., Stephen P. Wink, and Deric Behar

On March 17, 2022, the Financial Industry Regulatory Authority, Inc. (FINRA) published Regulatory Notice 22-10 (Reg. Notice 22-10), reminding broker-dealers of the scope of liability for chief compliance officers (CCOs) under FINRA’s Supervision Rule (Rule 3110). The role of compliance, and that of the CCO in particular, which is often characterized as “vital” in helping to prevent, detect, and remediate potential violations of internal policies and procedures and the securities laws, has been the subject of policy debate for some time.[1] In Reg. Notice 22-10, FINRA outlines a blueprint to assess the potential liability of CCOs under Rule 3110.

Rule 3110 imposes various supervisory obligations on member firms, such as the obligation to “establish and maintain a system, including written procedures, to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.” Firms are also required to designate registered principals as supervisors for these responsibilities. The express or implied designation of supervisory authority is the basis for individual liability under Rule 3110.

The consultation response heralds innovation-friendly reform to the UK wholesale capital markets regime.

By Rob Moulton and Dianne Bell

On 1 March 2022, HM Treasury published its response to the July 2021 consultation on the Wholesale Markets Review after considering the feedback received. The consultation response sets out changes that are expected to “liberate businesses from unwieldy and stifling rules that hold back their ability to grow and innovate”, according to Economic Secretary to the Treasury John Glen.

The changes indicate a more dynamic and flexible UK prospectus regime with the FCA to play a central role through enhanced rule-making powers.

By Chris Horton, James Inness, Anna Ngo, and Johannes Poon

On 1 March 2022, the UK government (through HM Treasury (HMT)) announced the outcome of its consultation to reform the UK prospectus regime. The consultation was published in response to recommendations from Lord Hill’s UK Listing Review to enhance the competitiveness of the UK capital markets. Broadly, the announced changes indicate a more dynamic and flexible UK prospectus regime with the FCA to play a central role through enhanced rule-making powers.

The HMT’s announcement essentially indicates a direction of travel. The impact of these changes will not be fully understood until the publication of the legislative changes and the FCA’s consultation papers. HMT states that the government will legislate to replace the existing prospectus regime when parliamentary time allows.

Proposed changes seek to reflect the integration of sustainability considerations into MiFID II.

By Nicola Higgs, Anne Mainwaring, Dianne Bell, and Charlotte Collins

ESMA is consulting on updates to its Guidelines on the MiFID II suitability requirements, in light of upcoming changes that will embed sustainability considerations into the MiFID II framework. These changes will require firms to consider sustainability preferences as part of the suitability process when providing advisory and portfolio management services. ESMA is considering how it needs to update its Guidelines to reflect these new requirements, in order to assist firms in understanding what is expected of them in an area potentially difficult to navigate given that many clients may have limited understanding of sustainability factors and ESG or sustainability-related products, and that the availability of such products is still reasonably limited.

Broad reform to listing regimes, growing ESG scrutiny, and increasing retail participation in fundraisings are among the areas to watch.

By Chris Horton, James Inness, Anna Ngo, and Johannes Poon

Last year was memorable for UK equity capital markets (ECM). The IPO market was at its busiest since 2014, and we encountered innovative deal structures such as the emergence of special purpose acquisition companies (SPACs) in the UK, direct listings, and growing retail participation in fundraisings. In

The expansion would include Shenzhen Stock Exchange and potentially European stock exchanges, and would permit overseas issuers to raise capital in China through CDR listings.

By Chris Horton, James Inness, Anna Ngo, Terris Tang, Cathy Yeung, and Johannes Poon

On 17 December 2021, the China Securities Regulatory Commission (CSRC) launched a consultation that proposes a major expansion to the scope of the Shanghai London Stock Connect programme. The Stock Connect currently allows eligible companies listed on the Shanghai Stock Exchange or the London Stock Exchange to list depositary receipts on the other exchange that can be traded under local rules in the local time zone.

FCA makes clear that it expects a cultural shift in how firms focus on consumers.

By David Berman, Nicola Higgs, Rob Moulton, and Charlotte Collins

On 7 December 2021, the FCA published its second Consultation Paper (CP21/36) on introducing a new Consumer Duty. This follows an earlier consultation in May 2021, which set out high-level proposals for how the Consumer Duty would work, but did not include any draft rules or guidance (see FCA Proposes New Consumer Duty). This second consultation sets out more developed proposals, taking on board feedback received to the first consultation, and so gives firms a clearer idea of what the regulator will expect.

The new rules aim to make London a more attractive listing venue for founder-led and other innovative IPO candidates.

By Chris Horton, James Inness, Anna Ngo, and Johannes Poon

On 2 December 2021, the UK Financial Conduct Authority (FCA) published a Policy Statement (PS21/22) confirming the following key changes to its listing rules that took effect from 3 December 2021:

  • Limited form of dual class share structure permitted under the premium listing segment

Premium-listed issuers can now adopt a targeted and time-limited form of dual class share structure (DCSS) which would operate to prevent the removal of a director and deter takeovers during a five-year period following admission.

The roadmap introduces sustainability disclosure requirements for UK companies and reveals further developments in relation to a UK Green Taxonomy.

By David BermanPaul A. DaviesNicola HiggsMichael D. GreenAnne Mainwaring, and James Bee

On 18 October 2021, the UK government released a report titled “Greening Finance: Roadmap to Sustainable Investing” (the Roadmap), which is intended to encourage UK businesses and investors to have regard to climate and other environmental, social, and governance (ESG) considerations in their decision-making processes. The Roadmap follows the government’s 2019 Green Finance Strategy, which set out a suite of policies to assist in aligning UK financial flows with a low-carbon planet.

The government states that it views the task of “greening the financial system”[1] as composed of three fundamental phases. The Roadmap addresses the first phase: informing investors and consumers and addressing the information gap in relation to environmental and sustainability  issues between corporates and investors.[2] Notably, the Roadmap also introduces sustainability disclosure requirements (SDR) for UK companies and reveals further developments in relation to the UK Green Taxonomy (Taxonomy). In addition, the Roadmap identifies proposed timeframes for further developments on each of these topics.