| Company Law Reform Bill [HL] - continued | House of Lords |
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Clause 837: Information to be made available to public 1579. This new provision gives the Secretary of State the power to make regulations placing an obligation on statutory auditors to make information regarding their ownership, governance, internal controls with respect to quality and independence of audit work, turnover and names of persons for whom the person has acted as statutory auditor, available to the public. Any such obligations are additional to those referred to in clause 836. CHAPTER 5: REGISTERED THIRD COUNTRY AUDITORS Clause 838: Meaning of "third country auditor", "registered third country auditor" etc 1580. This is a new provision that sets out the definition of a third country auditor and a registered third country auditor. Clause 839: Duties of registered third country auditors 1581. Subsections (1) - (3) require registered third country auditors to be subject to systems of independent monitoring and discipline in accordance with Schedule 12. These provisions mirror supervision arrangements for statutory auditors contained in clauses 809(1) (membership of a Recognised Supervisory Body) and 814 (Supervisory Bodies) and Schedule 10. Subsection (4) empowers the Secretary of State to disapply the requirement in subsections (1) to (3). Schedule 12: Arrangements in which registered third country auditors are required to participate Paragraph 1: Arrangements for independent monitoring of audits of traded non-Community companies 1582. This is a new requirement for monitoring auditors who carry out statutory audit of traded non-Community companies. This paragraph cross-refers to clause 839. It requires that the arrangements for the monitoring of these persons are independent. Paragraph 2: Arrangements for independent investigations for disciplinary purposes 1583. This is a new requirement for monitoring auditors who carry out statutory audit of traded non-Community companies. This paragraph cross-refers to clause 839. It requires that the disciplinary arrangements for these persons are independent. Paragraph 3: Supplementary: arrangements to operate independently of body 1584. This is a new requirement for monitoring auditors who carry out statutory audit of traded non-Community companies. It specifies the criteria for ensuring that the monitoring and disciplining of third country auditors is carried out independently of them. Paragraph 4: Supplementary: funding of arrangements 1585. This is a new requirement for monitoring auditors who carry out statutory audit of traded non-Community companies. It requires third country auditors to pay the costs of the monitoring and disciplinary arrangement that may be required. Paragraph 5: Supplementary: scope of arrangement 1586. This is a new requirement for monitoring auditors who carry out statutory audit of traded non-Community companies. This paragraph allows for additional arrangements going beyond paragraphs 1 or 2. Paragraph 6: Specification of particular arrangements by the Secretary of State 1587. This is a new requirement for monitoring auditors who carry out statutory audit of traded non-Community companies. It allows the Secretary of State to specify what arrangements the third country auditor is required to participate in where more than one of the arrangements contained in clause 839 exist. Clauses 840 and 841: Information 1588. These clauses replicate for registered third country auditors the requirements in clauses 820 and 821 for the notification of information to the Secretary of State. Third country auditors may be required to provide any information that might reasonably be required for the Secretary of State to carry out his functions. Clauses 842 and 843: Enforcement 1589. The provisions in clause 842 enable the Secretary of State to apply to the court for an order to make a registered third country auditor comply with its obligations under the Part. The provisions in clause 843 empower the Secretary of State to make provision as to the removal of the third country auditors from the register of auditors in certain circumstances. In doing so, regard must be had to whether the third country auditor has complied with his obligations under this Part. CHAPTER 6: SUPPLEMENTARY AND GENERAL Clauses 844 and 845: Power to require second company audit 1590. These clauses restate section 29 of the 1989 Act empowering the Secretary of State to require a second audit of a company in circumstances where the person appointed as statutory auditor was not an appropriate person. Subsection (2) permits the Secretary of State to direct either that a second audit is performed or that a review of the first audit is carried out (which will inform whether a second audit is required). Subsections (5) to (8) sets out the criminal sanctions on the company should it fail to comply with that order. Clause 845 allows the audited person to recover the costs of the second audit from the first auditor. Clause 846: Misleading, false and deceptive statements 1591. This clause is a restatement of section 41 of the 1989 Act but also extends these offences to third country auditors. Subsection (1) sets out offences in respect of persons who provide information that they know to be misleading, false or deceptive. Subsection (2) makes it an offence for a person to hold himself out as a statutory auditor where he is not registered as such under clause 836. Subsection (3) makes a similar provision for third country auditors. Subsection (4) makes it an offence for either a supervisory or qualifying body to hold itself out as recognised when it is not so recognised. Subsections (5) to (7) provide for penalties for those found guilty of these offences. Subsection (8) provides a defence if the person took all reasonable precautions and exercised due diligence to avoid committing the offence. Clause 847: Fees 1592. This provision is based on section 45 of the 1989 Act and extends the powers of the Secretary of State to make regulations to prescribe periodical fees to include Auditors General and registered third country auditors as well as recognised supervisory bodies and recognised qualifying bodies. Clauses 848 and 849: Delegation of Secretary of State's functions 1593. These provisions replace section 46 of the 1989 Act as amended by sections 3 to 5 of the C(AICE) Act 2004 and empower the Secretary of State to establish a body, or appoint an existing body, to exercise his functions relating to statutory auditors and the recognition of bodies that supervise auditors and/or provide professional qualifications. To do so, the Secretary of State must make a delegation order that is in accordance with Schedule 13. The Professional Oversight Body for Accountancy is currently appointed under section 46 of the 1989 Act to exercise the Secretary of State's functions. 1594. Clause 849 specifies the conditions for delegating functions to an existing body. It ensures that an existing body is not precluded from exercising any delegated function on the basis of its involvement with the monitoring, investigation or disciplinary arrangements that are set out in Schedule 10. Schedule 13: Supplementary provisions with respect to delegation order Paragraph 1: Operation of this Schedule 1595. This paragraph is a restatement of paragraph 1 of Schedule 13 to the 1989 Act. It cross-refers to clause 848 and the provision of the Secretary of State to delegate functions to an independent body. Paragraph 2: Status 1596. This paragraph is a restatement of paragraph 2 of Schedule 13 to the 1989 Act. It specifies that the delegated body is not to be regarded as acting on behalf of the Crown. Paragraph 3: Name, members and chairman 1597. This paragraph is a restatement of paragraph 3 of Schedule 13 to the 1989 Act and deals with the compositional requirements of the delegated body. Paragraph 4: Financial provisions 1598. This paragraph is a restatement of paragraph 4 of Schedule 13 to the 1989 Act and specifies that the delegated body must pay the Chairman and members such remuneration and allowances as the Secretary of State may determine. Paragraph 5: Proceedings 1599. This paragraph is a restatement of paragraph 5 of Schedule 13 to The 1989 Act and specifies that the delegation order may make provisions for the body's proceedings. Paragraph 6: Fees 1600. This paragraph is a restatement of paragraph 6 of Schedule 13 to the 1989 Act and specifies that the delegated body may retain fees that it has charged in pursuit of its functions. Paragraphs 7 to 9: Legislative functions 1601. This paragraph is a restatement of paragraphs 7 to 9 of Schedule 13 to the 1989 Act. It provides for the delegated body to exercise legislative functions by instrument in writing and not by statutory instrument. Instruments must be made available to the public and the Secretary of State may require the body to consult prior to the making of regulations. Paragraph 10: Report and accounts 1602. This paragraph is a restatement of paragraph 10 of Schedule 13 to the 1989 Act. It requires the delegated body to annually report to the Secretary of State on the performance of its functions. At sub-paragraphs (5) to (8) are provisions regarding the accounts of the delegated body. Paragraphs 11 to 13: Other supplementary provisions 1603. These paragraphs are a restatement of paragraphs 11, 12 and 13 of Schedule 13 to the 1989 Act. They allow the Secretary of State to make transitional arrangements where he delegates powers to the delegated body. They also specify that a transfer of a function to the delegated body does not affect decisions previously made. Clause 850: Directions to comply with international obligations 1604. This provision restates section 40 of the 1989 Act and empowers the Secretary of State to direct recognised supervisory or qualifying bodies, or any body delegated under clause 848, to comply with Community or other international obligations. If it fails to comply with a direction, the Secretary of State can apply to the court for his direction to be enforced. Clauses 851: Offences by bodies corporate, partnerships and unincorporated associations 1605. This provision restates section 42 of the 1989 Act and deals with offences committed by bodies corporate, partnerships and other unincorporated associations. Where an offence committed by such a body is committed with the consent or connivance or, or attributable to the neglect of, an officer (in the case of a body corporate), a partner (in the case of a partnership) or an officer or member (in the case of an unincorporated association), that officer, partner or member is also guilty of the offence. Clause 852: Time limits for prosecution of offences 1606. This provision restates section 43 of the 1989 Act and sets a twelve-month time limit for the prosecution of offences within each of the jurisdictions. Subsections (1) to (4) identify that the date on which knowledge of the offence becomes known to either the Secretary of State or Director of Public Prosecutions (for England and Wales), the Lord Advocate (for Scotland) or Director of Public Prosecutions for Northern Ireland is taken as the date from which the twelve month time limit commences. Clause 853: Jurisdiction and procedure in respect of offences 1607. This provision restates section 44 of the 1989 Act and deals with the jurisdiction and procedure in respect of offences. It specifies that the jurisdiction is that in which either a body corporate or unincorporated association has its place of business or an individual is located. Clause 854: Service of notices 1608. This provision restates section 49 of the 1989 Act and states how notices may be served under this Part of the Bill on any person other than the Secretary of State. Clause 855: Documents in electronic form 1609. This is a new provision to allow delivery of notices, directions or other documents in electronic form. This provision allows the use of e-communications where existing provisions in this Part impose requirements on the giving or sending of notices, directions or other documents, provided the recipient indicates he is prepared to accept this form of delivery. Clause 856: Meaning of "associate" 1610. This provision restates section 52 of the 1989 Act and defines the meaning of 'associate'. This definition is particularly relevant for the independence requirement for statutory auditors set out in clause 811. Clause 857: Minor definitions 1611. This provision is a restatement of section 53 of the 1989 Act with certain extra definitions. Subsection (3) empowers the Secretary of State, by regulations, to make amendments to this Part which are needed in relation to the application of the Part to a "firm" (as defined by subsection (1)) which is not a partnership or body corporate. Clause 858: Index of defined expressions 1612. This provision contains an index to the defined terms used in the Part. Clauses 859: Power to make provision in consequence of changes affecting accountancy bodies 1613. This provision restates section 51 of the 1989 Act. The provision empowers the Secretary of State to amend by regulation other legislation that refers to accountancy bodies in the event of a name change, merger or transfer of engagements affecting the bodies. Clause 860 and Schedule 14: Consequential amendments 1614. Clause 860 introduces Schedule 14, which contains some amendments consequential on this Part to the C(AICE) Act 2004. PART 34: MISCELLANEOUS PROVISIONS Transparency and corporate governance rules Clause 861: Transparency and corporate governance rules 1615. Clause 861 inserts four new sections into Part 6 of the Financial Services and Markets Act 2000 ("FSMA 2000"): sections 90A, 90B, 90C and 90D. Part 6 of FSMA 2000 deals with the regulation of securities that are traded on markets in the UK. These new sections enable the "competent authority" (which is the Financial Services Authority ("the FSA")) to make two new types of rules. Firstly, section 90A enables them to make transparency rules. Secondly, section 90D enables them to make corporate governance rules. 1616. Transparency rules will require information to be either notified or made public by issuers of securities who are regulated in the UK and whose securities are traded on a regulated market. Certain aspects of the rules can also be extended to apply to issuers whose shares are traded on other UK markets. The rules will also require notification to issuers of shares, and to the markets, of the number of votes attached to shares of such issuers controlled by people who hold a specified proportion of those votes. One of the main purposes of such rules is to ensure that the markets on which securities are traded have sufficient information about the issuers of the securities, and the level of holdings in those securities, to enable the prices of those securities to accurately reflect these matters which affect their value. 1617. Corporate governance rules will require issuers of securities whose securities are, or are going to be, admitted to trading on a regulated market to organise their internal structures and processes in certain ways. Corporate governance rules are limited to implementing obligations imposed on the UK by Community law and dealing with matters arising out of or relating to such obligations. Transparency rules are not limited in the same way. New Section 90A: Transparency rules 1618. Subsection (1)(a) of new section 90A of FSMA 2000 enables the FSA to make transparency rules for the purposes of the Transparency Directive (2004/109/EC). Paragraphs (b) and (c) of subsection (1) also enable the FSA to make transparency rules more widely in two specified circumstances. 1619. The rule-making power at paragraph (a) will enable the FSA to make rules to implement the Transparency Directive in the UK. The rules which may be made include voteholder notification rules (see subsection (3)) and issuer notification rules (see subsection (4)). A transposition note has been prepared on the Transparency Directive and is attached as an annex. The power at paragraph (a) is not limited to implementation of the Directive but also enables the FSA to make rules for the underlying purposes of the Directive. The Transparency Directive itself covers only issuers whose securities are traded on regulated markets and people who hold votes attached to shares in such issuers. There are three main categories of obligation that are imposed under the Directive and that the FSA's transparency rules will implement in respect of UK markets and issuers:
1620. It is expected that rules made under section 90A(1)(a) will implement the Transparency Directive by requiring issuers to make public their annual accounts and reports, prepared in accordance with the EU International Accounts Standards Regulation (Regulation (EC) 1606/2002), and half-yearly and interim management statements about their business, and that they will require issuers to treat holders of the same securities equally. It is also expected that rules under section 90A(1)(a) will require holders of votes attached to shares in issuers within the scope of the Transparency Directive to make disclosure about their holdings when the proportion of votes that they hold reaches certain specified levels. 1621. The power under section 90A(1)(b) extends the ability of the FSA to make rules about disclosures of voteholdings to UK markets that are not regulated markets (within the meaning of section 103(1) of FSMA 2000). The rules made under section 90A(1)(b) must be "voteholder notification rules" or "issuer notification rules". The provisions in sections 90A, 90B and 90C ensure that the FSA will be able to set up a parallel regime in non-regulated markets in relation to disclosures of voteholdings, to the regime which must be imposed in regulated markets as a result of the Transparency Directive. This means that the FSA will be able to require voteholders to notify issuers when their holdings reach certain specified levels. The rules can require issuers of shares on non-regulated markets to disclose information passed to them by voteholders. They can also require issuers to disclose certain other information relating to their capital, for example what different classes of share they have issued and what the total number of voting rights attached to each class is. 1622. The power under section 90A(1)(c) enables rules to extend the disclosure obligations relating to voteholdings to holders of certain other financial instruments. Such rules are called "extension rules". These instruments are ones which give the holder a level of economic, as opposed to legal, control over votes attached to shares. An example of the type of instrument which the rules could extend to cover is a contract for difference, known as a "CFD". 1623. Section 90A(2) widens the scope for the FSA to develop rules to deal with any matters arising out of the Transparency Directive. This allows the rules to address other matters arising from the Directive's implementation, for example, to ensure that secondary legislation adopted by the Commission can be incorporated into the transparency rules, and that optional aspects of the Directive can be implemented, where the FSA consider this appropriate. 1624. The remaining subsections of section 90A define concepts that relate to the rule-making powers in subsection (1). To a large extent they mirror the requirements in the Transparency Directive about disclosure and notification of voteholdings, to ensure that there will be consistency in the regimes applied to regulated markets and non-regulated markets. New Section 90B: Further provision about transparency rules 1625. New section 90B of FSMA 2000, inserted by clause 861, sets out further provisions on the requirements which various types of transparency rules may impose. 1626. Subsections (1) to (4) provide that voteholder notification rules and issuer notification rules under section 90A can only require notification about levels of votes held where the level of votes a person controls meets or crosses specified thresholds. The information to be disclosed under voteholder notification rules only relates to the voting rights held by a person. The specific thresholds requiring notification will be set out in the voteholder notification rules or, in the case of a disclosure by an issuer of voting rights it holds in respect of its own shares, the issuer notification rules (see subsection (4)). Other information that can be required under issuer notification rules, such as information about the issuer's capital, is not limited by subsection (2) and can be required at any time. 1627. Subsection (5) makes it clear that transparency rules covering areas outside the scope of the Transparency Directive can specify how the proportion of voting rights, and proportions within classes, are to be determined. Subsection (6) will enable the FSA to make public information that voteholders or issuers are required to make public, where they fail to do so themselves. 1628. There is some overlap between notifications required by the Panel on Takeovers and Mergers in the rules made under Part 22, and notifications required by the Transparency Directive. Section 90B(7) enables transparency rules to cross-refer to the City Code on Takeovers and Mergers, which will enable greater alignment between the two sets of rules. New Section 90C: Competent authority's power to call for information 1629. New section 90C of FSMA 2000 permits the FSA to call for information from specified persons, including issuers of shares, voteholders and their auditors and directors. The FSA will be empowered to request specific information or documents, or information or documentation of a nature it describes (subsection (1)). 1630. Subsection (3) enables the FSA to determine the timeframe for production and provision of information, and the location for the information to be provided. Subsection (4) limits the FSA to requesting information and documents reasonably required in connection with the transparency rules. 1631. The FSA is permitted, under subsection (7), to take copies of and extracts from the documentation provided, and may also require the persons providing the information, or any "relevant person" within the meaning of subsection (10), to submit an explanation of any documentation produced. 1632. Failing compliance with the requirement to produce a document, the FSA is permitted under subsection (9) to require a person to state where the document is. New Section 90D: Corporate governance rules 1633. New section 90D of FSMA 2000 gives the competent authority (ie the FSA) a power to make rules implementing, enabling the implementation of and dealing with matters arising out of Community obligations on corporate governance for issuers on a regulated market. 1634. This rule-making power will enable the FSA to make corporate governance rules to cover issuers for whom the UK is the home member state and whose securities are traded on a regulated market elsewhere in the EEA. 1635. Subsection (2) sets out the type of corporate governance provision covered by this rule making power. These include:
1636. Subsection (3) provides that burdens must not be imposed on issuers outside the UK greater than those imposed on issuers in the UK. Clause 862: Consequential amendments of the Financial Services and Markets Act 2000 1637. This clause makes consequential amendments to other parts of FSMA 2000, related to the FSA's new rule-making powers inserted into Part 6 of that Act by clause 861. 1638. Subsection (2) extends, for the purposes of the transparency rules which can apply to non-regulated UK markets, the factors to which the FSA must have regard when making rules under Part 6 of FSMA 2000, so that they need to have regard to effects on markets other than regulated markets. 1639. Subsection (3) provides that transparency rules and corporate governance rules are "Part 6 rules" for the purposes of Part 6 of FSMA. But subsection (3) also makes clear that these rules are distinct and separate from other Part 6 rules, such as the listing rules, disclosure rules, and prospectus rules. These different kinds of rules impose different, and sometimes overlapping, obligations on different groups of issuers. 1640. Subsection (4)(a) amends the penalty regime for breaches of Part 6 rules, in section 91 of FSMA 2000, so that it applies also to non-compliance with transparency rules, provisions made under the Transparency Directive, and corporate governance rules. 1641. Subsection (5) amends section 97 of FSMA 2000 to enable the FSA to appoint a person to carry out investigations into breaches of the transparency rules or related provisions or the corporate governance rules. 1642. Subsection (6) amends section 99 of FSMA 2000, which relates to fees, so as to enable the FSA to levy fees in the transparency rules. 1643. Subsections (7) and (8) amend two definitions in Part 6 of FSMA 2000 to refer to the up to date Community legislation. They are the definitions of 'transferable securities' and 'regulated market' and the cross references are now to the definitions in the Markets in Financial Instruments Directive (2004/39/EC). |
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| © Parliamentary copyright 2005 | Prepared: 17 November 2005 |