Philippines faces corporate governance ‘obstacles’
The biggest obstacle to raising corporate governance standards in the Philippines to a regional and global par is the failure of local listed companies to adapt to key regulations under the new corporate governance code, according to the country’s corporate regulator.
The new code, implemented at the start of 2017, comprises new regulations for listed firms in the Philippines which include enhanced responsibilities for the board of directors, improved risk management responsibilities, as well as advice on how to maintain board independence and to improve decision-making.
“(Adherence to the rules is) for sustainability, investor protection and national economic development, increased share value and, more importantly, lasting contribution that the company can make to stakeholders and shareholders to the country as a whole,” said Securities and Exchange Commission chairwoman Teresita J. Herbosa, during the Good Governance Advocates and Practitioners of the Philippines’ forum in Pasay City.
Currently, the corporate governance code works under the “comply or explain” approach, which combines voluntary compliance with mandatory disclosure. The regulator, along with analysts, argues that global corporate governance standards for listed companies must become mandatory, and to shift away from “explain”.
Malaysia releases new corporate governance code
A new governance code has been published by the Securities Commission Malaysia (SC), with the aim of improving corporate culture by strengthening accountability and increasing transparency.
The Malaysian Code of Corporate Governance (MCCG) sees the country’s firms complying with a code for the first time.
“This new code is an important milestone in Malaysia’s continued journey in promoting good governance to ensure the sustainability and resilience of the capital market,” said SC chairman Tan Sri Ranjit Ajit Singh in a speech at the launch of the MCCG. “It serves as a compass for boards to steer their companies forward and deepen understanding on the importance of corporate governance.”
The new code represents global best practices and benchmarks. Malaysia hopes the code will help internationalise Malaysia’s corporate governance structures, not just with public companies, but also with non-listed firms, including state-owned businesses, and small and medium-sized firms.
The new MCCG now has 36 practices that are aimed at company boards, including effective auditing, risk management, internal controls, corporate reporting and relationships with stakeholders.
A key feature of the new code is the introduction of a “comprehend, apply and report” (CARE) approach, and shifts from “comply or explain” to “apply or explain an alternative”. This is meant to push listed firms to place more effort in adapting and reporting their corporate governance practices, which will allow stakeholders to see clearly how firms are governed from the top.
Japan: big corporates shift to provide AGM agendas online
Japanese firms are beginning to release the topics and agendas of their annual shareholders’ meetings online, before they send them out by mail to investors. The development comes in response to growing calls from international investors.
Some of the key firms that have decided to release online notices in advance this year include Yakult Honsha, a Japanese drinks maker, along with Meitec, a major staffing business.
The usual items that are discussed during Japanese firms’ annual meetings include executive appointments, which require shareholder approval; financial results and projects; and dividends and strategy. Currently the law states that firms operating in Japan must send out the letter at least two weeks before the meeting.
A corporate governance code introduced in 2015 by the Tokyo Stock Exchange and Financial Services Agency urged firms to release the topics of the invitation letter before it was delivered to shareholders, in order to give them more time to consider investing. At that time though, online disclosure was not compulsory.
Europe: EU companies to face new anti-money laundering obligations
EU companies that are required to prepare and maintain a People with Significant Control (PSC) register will face further obligations from the end of this month (June 2017).
The EU Fourth Anti-Money Laundering Directive introduced the PSC regime last year, and required qualifying companies to take all reasonable steps to hold “adequate, accurate and current information” about their ultimate beneficial owners on an internal beneficial ownership register.
From 26 June 2017, legal entities will have to file their internal registers with a central beneficial ownership register. The information can be filed online and will include information on each beneficial owner contained on the company’s internal beneficial ownership register. Details of the person making the entry on the central register will also need to be included.
The central register will accessible to “competent authorities”; entities required to carry out customer due diligence (eg., accountants, tax advisors, and solicitors); and others with a legitimate interest in enforcing anti-money laundering legislation.
If the Fifth Anti-Money Laundering Directive is implemented as planned, the general public may also be allowed to access certain information held in the Central Register.
Corporate entities that fail to comply with its registration obligations will be guilty of a criminal offence and will face a fine.
Europe: ESMA sets out principles for Brexit among EU member states
A set of Brexit-focused principles, or an “Opinion”, has been released by the European Securities and Markets Authority (ESMA). The Opinion is aimed at EU national competent authorities (NCAs) to address regulatory and supervisory arbitrage risks arising because of Brexit.
Taking a “hard Brexit” as the probable scenario—which means the UK will become a “third country” after its pulls out of the EU by 30 March 2019—the Opinion concentrates on the activities of: AIFMs (alternative investment funds and managers); UCITS (Undertakings for Collective Investment in Transferable Securities) management companies; and MiFID (Markets in Financial Instruments Directive) firms looking to move from the UK to the remaining EU member states.
The Opinion sets out nine principles regarding authorisation and supervision. These are:
- No automatic recognition of existing authorisations of UK entities post-Brexit;
- Authorisations granted by NCAs in the remaining member states should be rigorous and efficient;
- NCAs should be able to verify the objective reasons for relocation;
- Special attention should be given to avoid letterbox entities in the EU27;
- Outsourcing and delegation to third countries (i.e., the UK post-Brexit) is only possible under strict conditions;
- NCAs should ensure that substance requirements are met;
- NCAs should ensure sound governance of EU entities;
- NCAs must be in a position to effectively supervise and enforce EU law; and
- There should be coordination among NCAs to ensure effective monitoring by ESMA.
UK: Criminal Finances Bill receives Royal Assent
A Bill to extend the powers of enforcement agencies to recover the proceeds of crime, tackle money laundering, tax evasion and corruption, and combat the financing of terrorism, has received Royal Assent.
The Criminal Finances Act 2017 (CFA 2017) creates new criminal offences for corporations that fail to prevent their staff from facilitating tax evasion. There is a “domestic offence” which relates to the evasion of UK tax, and a “foreign offence” which covers evasion of foreign tax.
For the foreign offence to be committed, the offence must be recognised as an offence both in the UK and in the relevant foreign jurisdiction.
For these offences to be committed, an individual or a legal entity must have criminally evaded tax (although it is not necessary that any tax actually be evaded or for the taxpayer to be convicted). There must also be criminal facilitation of the tax evasion offence by any associated person.
Penalties for the tax evasion offence include unlimited financial penalties and ancillary orders, such as confiscation orders or serious crime prevention orders.
Wealth orders are also introduced by CFA 2017, which can require those suspected of serious crime or corruption to explain the sources of their wealth.
The Act enables the seizure and forfeiture of proceeds of crime and terrorist money stored in bank accounts and certain personal or moveable items, and provides legal protections for the sharing of information between regulated companies. It also extends the time period granted to law enforcement agencies to investigate suspicious transactions.
Disclosure orders to cover money laundering and terrorist finance investigations are extended, as is the existing civil recovery regime in the Proceeds of Crime Act, to allow for the recovery of the proceeds of gross human rights abuses or violations overseas.
The expected implementation date for the new law is September 2017.
France: large firms face new ‘duty of care’ on risk management
New legislation has been introduced in France which places a new “duty of vigilance”, or “duty of care”, on large French corporates.
Qualifying legal entities will have to develop and implement yearly “vigilance plans” that outline the measures they will take to identify risks and thwart serious breaches with regard to human rights, fundamental freedoms and the health and safety of individuals and the environment, which arise from company, subsidiary, supplier and subcontractor activities.
Law No. 2017-399 of March 27, 2017 on the “Duty of Care of Parent Companies and Ordering Companies” will apply to any parent company registered in France. This includes firms, during the previous two years, that have employed at least 5,000 employees across the parent company and its direct or indirect French registered subsidiaries; or 10,000 employees across the parent company and its direct or indirect global subsidiaries.
Vigilance plans will have to highlight processes associated with risk assessment and risk management, including regular subsidiary, supplier and subcontractor assessments, and provisions to lessen and/or tackle negative outcomes.
Legal entities that do not abide by their obligation to publish plans can be ordered to do so by the courts in public hearings. Such companies could leave themselves open to civil claims for compensation by people who have suffered as a result of the non-compliance.
UK: Reforms mooted for IPO process
The Financial Conduct Authority (FCA) has proposed reforms to improve the timing, sequencing and quality of information in the UK’s initial public offering (IPO) process.
In its consultation paper—Reforming the availability of information in the UK equity IPO process—the FCA proposes changes to its Conduct of Business Sourcebook to improve the usefulness of prospectuses, and alleviate the risk of conflicts of interest.
The changes would apply to investment banks that carry out “regulated activities”, including underwriting or placing equity securities in an IPO on a regulated market, for which a prospectus is necessary. This would include an IPO on the main market of the London Stock Exchange, but not AIM.
The new rules would allow unconnected analysts to join the bank’s connected analysts in any communication with the issuer’s management, or be allowed to interact with management enough to enable them to form a substantiated opinion before publication of any connected research by syndicate bank analysts.
If the unconnected analysts are allowed to join the bank’s connected analysts in this way, connected research may be published one day after publication of the prospectus or registration document. If not, connected research cannot be published until seven days after publication of the prospectus or registration document.
To mitigate the risk of bias to connected research, analysts will not be able to interact with an issuer to whom the investment bank is proposing to provide underwriting or placing services, until the investment bank has accepted an underwriting or placing mandate. Also, the parties must have contractually agreed and documented the bank’s position in the syndicate.
The FCA expects to publish a policy statement outlining changes to the Conduct of Business Sourcebook later in 2017.