Published and draft legislation - United Kingdom

Transactions with related parties

Policy Statement 19/13, Financial Conduct Authority

In May the Financial Conduct Authority (FCA) published regulation PS19/13 on related party transactions to deepen its commitment to shareholders and increase corporate disclosure.

The new regulation, which falls within the remit of Directive (EU) 2017/828 on long-term shareholder engagement in listed companies, came into force on 10th June[1], and will affect transactions carried out between issuers or their subsidiaries with a related party. The most important points of the regulation are as follows:

 Related parties

The new regulations broaden the definition given in the LR 11[2] of “related party” to include those recognized as such in accounting regulation. Related parties are thus the following:

  • Board members and senior managers of the issuer, together with those of the parent company if there is one, plus all close family members and the institutions they control
  • Group companies, except in transactions conducted with a subsidiary
  • Associate companies and joint ventures: there is an associate relationship when one institution exercises a significant influence over another. This situation is presumed to exist when an institution has 20% or more of the voting rights

Significant transactions

A new feature in the regulation is that issuers must appraise the transactions they conduct. Thus, they will have to determine whether a transaction is significant or not. That is, whether it involves 5% or more of its total assets, profits, market capitalization or gross capital. If it does, it will have to:

  • Publish the information in a Regulatory Information Service (RIS), including the names of the related parties, the nature of the link, date of the transaction, among other information
  • Obtain the approval of the board of directors, with the abstention of those members who are the related parties

Exemptions

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As a general rule, the new regulation exempts those transactions that are conducted in the normal course of business and that are carried out under normal market conditions. Further exceptions include:

  • Transactions or agreements between an issuer and subsidiary companies, provided there is no other related party with an interest in that subsidiary
  • Board member remunerations approved under the 2006 Companies Act
  • Transactions offered to all shareholders under the same terms and conditions, guaranteeing equal treatment on the one hand, and protection of the issuer’s interests on the other

Repeat transactions with the same related party

Transactions carried out with the same related party and with any of their associates during a 12-month period must be added to the 5% materiality calculation.

UK listed companies are not the only institutions that will have to identify related parties and review their procedures to assess whether the transactions they carry out are significant or, by contrast, part of their normal business dealings. In Spain, work is being done to amend Royal Decree 1/2010 on private companies, together with other financial regulations to adapt them to the demands of the European directive.

 

[1] Deadline for transposing the Directive into national legislation

[2] LR 11 Related party transactions: Premium listing

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