The UK Financial Conduct Authority has published changes to its rules on related party transactions to bring these into line with amendments to the EU Shareholder Rights Directive. Affected companies must publicly announce relevant transactions and, in the case of UK companies, obtain prior independent board approval for them. The main impact will be on companies whose shares or GDRs have a standard listing on the UK Official List and the small number of unlisted UK companies whose shares are traded on a regulated market (such as the London Stock Exchange's main market, but not AIM). For the most part, companies whose shares have a premium listing on the UK Official List will not be affected as the existing related party regime applying to them is more onerous than the new rules. The FCA's new rules come into force for financial years beginning on or after 10 June 2019.
The FCA discusses the changes in its recently released policy statement (PS19/13). The detail is set out in the FCA instrument amending the Listing Rules and DTRs.
Scope
- The new rules apply to all UK companies with shares traded on an EEA-regulated market, such as the London Stock Exchange's main market. The FCA has also decided to extend some aspects of the new regime to overseas companies incorporated outside the EEA whose shares or GDRs are listed on the Official List. However, companies with a premium listing on the Official List will have no further obligations under the new rules if they comply with the existing, more onerous regime in relation to related party transactions.
Related party transactions
- The new rules apply to transactions with related parties equal to 5 per cent or more in size by reference to any of four tests: gross assets, profits, consideration and gross capital. These are similar to the existing class tests for related party transactions with premium listed companies. However, 'related party' has the meaning given to it in EU-adopted IFRS (or, if the company prefers, in the accounting standards it applies in its annual accounts, if deemed equivalent by the EU). Companies must aggregate transactions in any 12-month period to check if the 5 per cent threshold is reached.
- There are some limited carve-outs, including for ordinary course transactions on normal market terms and, for UK companies, directors' remuneration arrangements in line with the company's approved remuneration policy. The exception for directors' pay is not available for overseas companies, but pay arrangements should rarely meet the threshold for announcement under these rules.