Primary Market Bulletin Issue No. 28 coronavirus (Covid-19) update

Newsletters Published: 27/05/2020 Last updated: 04/09/2020

Newsletter for primary market participants

May 2020/No. 28

About this edition

Welcome to the 28th edition of the Primary Market Bulletin (PMB). In this special edition, we publish a statement on temporary relief for the timing of the publication of half yearly financial reports.

We also include a statement on market practice on ‘going concern’ assessments. This follows difficulties raised by issuers about how to address coronavirus-related uncertainties in the ‘going concern’ assessment and their disclosure in financial statements. Further, we provide commentary on our view on issuers’ engagement with shareholders at this time, and issuers’ role in delivering ‘soft pre-emption’ in placings.

We also draw your attention to our Market Watch newsletter. This contains commentary on market conduct and discipline in the context of coronavirus, including, among others, the appropriate treatment of inside information, information on short selling and identifying and managing conflicts of interest by markets participants that may arise in capital raisings.
  
Finally, readers may also be interested in recent publications by the Financial Reporting Council: Company Guidance and ESMA: Implications of the COVID-19 outbreak on the half-yearly financial reports that cover similar topics to this edition. 

Statement on temporary relief for half yearly financial reports for listed companies

The FCA today confirms additional temporary relief for listed companies facing the challenges of corporate reporting during the coronavirus crisis.

This temporary relief will permit listed companies which need extra time to complete their half yearly financial reports an additional month in which to publish them. Currently, under the Transparency Directive, listed companies are required to publish half yearly financial reports no later than 3 months from the end of the period to which the report relates.  

The additional month, available on a temporary basis, is to reflect the additional capacity concerns that listed companies currently face. It complements the previous FCA Statement of Policy: Delaying annual company accounts during the coronavirus crisis and is consistent with ESMA’s statement of 27 March on financial reporting deadlines in light of COVID-19. See our Q&A for additional detail about the application of this temporary relief for half yearly financial reports.  
 

Policy details

Issuers subject to DTR 4.2 are required to publish their half yearly financial reports within 3 months of the end of the relevant reporting period (DTR 4.2.2R). If they do not meet this deadline, we expect issuers to request a suspension of their listed securities. Where a request is not made, we are able to impose a unilateral suspension if the smooth operation of the market is, or may be, temporarily jeopardised or it is necessary to protect investors (section 77 FSMA and LR 5.1.1R). 

Under our forbearance, provided the half yearly financial reports are published within 4 months, we do not expect an issuer to request a suspension of their securities if they breach DTR 4.2.2R. Nor will we take any steps unilaterally to suspend the listing for breach of DTR 4.2.2R (though we reserve the right to take this action if necessary for other reasons).  

Issuers subject to our rules will not face enforcement action for breach of DTR 4.2.2R provided that they publish their half yearly financial reports within 4 months of the period to which the report relates. 

In effect, this extends the deadline by 1 month.

It is for a company to decide whether to ask its auditors to review interim reports. We have not changed our approach or expectations with regard to DTR 4.2.9R. If a company does conduct an audit or review, it must be reproduced in full, or otherwise a statement that the report has not been audited or reviewed must be included.

ESMA statement on financial reporting deadlines in light of COVID-19

The FCA is taking this action in line with ESMA’s statement of 27 March 2020 on financial reporting deadlines in light of COVID-19, which indicated that ESMA expects National Competent Authorities not to prioritise supervisory actions against issuers in respect of half yearly financial reports for a period of 1 month following the existing deadline.

Duration

This forbearance is intended to be temporary while the UK faces the disruption of the coronavirus pandemic and its aftermath. We will keep its application under review. When the disruption subsides we will announce how we will end the policy in a fair, orderly and transparent way.

Statement on market practice on going concern assessments

We understand that some issuers also have concerns about how to address coronavirus-related uncertainties in the ‘going concern’ assessment that must be performed whenever financial statements are produced. 

The measures we have taken on deadlines for the publication of annual and half-yearly financial reports will go some way to addressing this by allowing more time to perform these assessments. However, we recognise they may not address all the concerns that issuers have. We understand that issuers may also face difficulties where the auditor’s review of the assessment highlights a need for the inclusion of additional remarks in their opinion. Issuers are concerned that these additional remarks will be viewed unduly negatively by investors and intermediaries. 

As we said in our joint statement by the FCA, FRC and PRA on 26 March 2020, in the extraordinary circumstances of the coronavirus pandemic, it is likely that more companies’ financial statements will need to include such disclosures. This is an inevitable consequence of the disruption companies face. It is vital that investors are properly informed as to the impact of coronavirus. Therefore, we are continuing to urge issuers and auditors to be clear and transparent about these impacts in their financial statements.

However, it is equally important investors and intermediaries understand what these disclosures mean and react appropriately. The Financial Reporting Council published useful guidance on the meaning of the various additional disclosures auditors may include in their reports.  

As we said in our joint statement on 26 March, in these extraordinary circumstances, previous market practice needs to adjust. Market participants, including intermediaries, should not draw unduly adverse inferences from these disclosures, nor from issuers changing their financial calendars to make use of the extra time we have allowed them.

We continue to encourage investors, lenders and other users of financial statements to take into account the unique set of circumstances arising from coronavirus which might result in uncertainty in companies’ financial positions when assessing their response to such disclosure.

Conflicts of interest and shareholder engagement

We welcome industry bodies coming together and communicating clearly what changes to market practices are appropriate at this time. 
 
We continue to encourage issuers to engage with shareholders to ensure investors are appropriately informed and aware of the issuer’s actions. Shareholders are likely to find it helpful if issuers are as open as possible about the implications of coronavirus on their business. This includes formal disclosures to the market through both financial reports and trading updates. Issuers could consider if there are other ways to engage with and provide participation opportunities for shareholders as far as practicable. 
 
For example, when making alternative arrangements to physical general meetings, we think it good practice for issuers to look at ways to allow shareholders to ask questions of their management and exercise their voting rights effectively. Where issuers have provisions to hold virtual general meetings, we continue to support this as a means for gaining shareholder approval. 
 
In our statement on 8 April 2020 recognising the Pre-emption Rights Group’s statement, we also stated that “Issuers can play an important role in delivering ‘soft pre-emption’ in the placings. We encourage issuers to contribute to delivering ‘soft pre-emption rights’ by exercising their right to be consulted on, and to direct, bookrunners’ allocation policies (MIFID delegated regulation (EU) 2017/565, Art 40(5)).” In this context, issuers with a large number of smaller shareholders could consider if there are routes that may be available to make participation in a capital raising available to those shareholders. We recognise that it may not be possible to achieve this in all cases due to time pressures for the issuer or legal risks. It is for the issuer to decide whether to undertake a capital raising in this way.