FRC issues guidance for electronic format annual reports

On 11 October 2021, the Financial Reporting Lab (‘the Lab’) of the Financial Reporting Council (‘the FRC’) set out practical guidance for companies to start producing their annual financial reports in a structured electronic format.

In its report, the FRC reviews fifty early structured reports and sets out key considerations and tips for companies to help them deliver the quality that will be expected for companies’ official filings.

Companies trading on UK-regulated markets are required to start producing their annual financial reports in a structured electronic format for financial years starting on or after 1 January 2021. This is a requirement introduced by the Financial Conduct Authority as part of the UK implementation of a cross-EU initiative — the European Single Electronic Format, or ESEF. The change only affects the format of the annual financial report — other obligations relating to the report are not affected, the FRC emphasised.

In its report, Structured Reporting: An Early Implementation Study, the FRC offers tips across three broad areas: process, usability and appearance, and tagging.

The key messages of the report are:

  • The majority of reports across the sample fell short of the quality that is expected for companies’ official filings. More than 70% of the files contained tagging errors, more than half had issues limiting their usability and more than 25% had design issues.
  • Although many issues were identified during the review, almost all issues could be solved with appropriate care and attention. A focus on quality by companies is crucial for a successful roll-out of structured reporting.
  • The Lab identified practice tips across three broad areas: process, usability & appearance and tagging.
  • Companies should be aware that the issues identified are clearly visible to users and, therefore, may negatively affect a company's reputation and the willingness of stakeholders to use digital information.

The FRC said companies and boards should ask themselves a series of questions on the three topics that include:

  • Who is leading the project internally? Is extra training or resources needed?
  • Will the structured report be prepared inhouse or will it be outsourced?
  • Will the structured report be prepared in addition to, or instead of, the traditional annual report in PDF?
  • Who in the organisation has governance over the preparation of the report — is digital different from paper?
  • Who will provide governance over the tagging decisions? Will it be the audit committee?

The FRC’s report can be found here.

New capital raising review to boost UK companies and markets

A new review to boost companies listed on UK stock markets by giving them more options when raising capital was launched by HM Treasury on 12 October 2021.

The UK Secondary Capital Raising Review (‘the Review’) will be chaired by senior Freshfields lawyer Mark Austin and will examine whether rule changes and better use of technology could make capital raising more efficient for companies already listed on UK markets. The launch of the Review is the latest step in the Government’s response to Lord Hill’s UK Listings Review, which was set up to make the UK an even more attractive destination for IPOs and optimise the capital raising process for large and small companies.

According to the press release:

The UK’s capital markets were a lifeline for many companies through the pandemic, with £30bn of new equity raised in 2020 to shore up businesses, protect jobs and seize opportunities to grow. However, most of these businesses chose to raise funds through private placings with a small group of institutions, which can be completed faster and at a lower cost but exclude existing shareholders and dilute their stakes in the company. The UK Listing Review found companies are deterred from using other mechanisms like rights issues, which preserve the interests of existing investors in the company, because they involve greater costs, time and uncertainty, and require the publication of a prospectus.

The expert group led by Mark Austin will review these regulatory barriers and open up the choices for listed companies seeking to raise capital, including by looking at the overall duration of the process, considering whether new technology can be used to speed up the information flow to shareholders and help them exercise their rights, and assessing other fundraising mechanisms that are used in international markets.

The Review’s work will be carried out in consultation with relevant stakeholders including the Government and the FCA, buy-side and sell-side firms, listed companies, and legal and academic experts. The Review launched with a Call for Evidence, which will run until 16 November, and will report to the Government in Spring 2022.

More details about the Review are available here.

EU launches world’s largest green bond issuance to date

The European Commission on 12 October 2021 issued €12 billion worth of green bonds on financial markets to finance the green parts of its €800 billion coronavirus recovery fund. The 15-year green bond raised €12 billion ($13.9 billion) and received more than €135 billion of demand, the European Commission said, making it the largest green bond launch and the highest level of demand for a green bond sale to date.

Green bonds are tradeable loans that are used to finance sustainable investments and projects. Along with other financial instruments, green bonds are deemed an important tool for financial markets to invest in the green transition.

Published 13 October, 2021

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