FCA publishes Primary Market Bulletin 45

Publication of Sustainability Disclosure Standards by the International Sustainability Standards Board ("ISSB")

The ISSB published its first two IFRS Sustainability Disclosure Standards on 26 June 2023.

Publication S1 General Requirements for Disclosure of Sustainability-related Financial Information ("S1") requires entities to disclose information about sustainability-related risks and opportunities which are useful to primary users of general-purpose financial reports. This involves the disclosure of material information about sustainability-related risks and opportunities, which could reasonably be expected to affect the entity's prospects.

Publication S2 Climate-related Disclosures ("S2") requires entities to disclose information about climate-related risks and opportunities which could reasonably be expected to affect the entity's prospects.

S1 and S2 build on and incorporate the recommendations of the Task Force on Climate-Related Disclosures ("TCFD"). The FCA views the publication of these standards as a way to create a global, internationally consistent standard for corporate sustainability disclosures, increasing transparency and enabling investors to make more comprehensive decisions about their investments.

Once S1 and S2 are adopted in the UK, the British government is aiming to make endorsement decisions on the first two ISSB standards, to create the UK Sustainability Disclosure Standards ("UK SDS") by July 2024. The FCA aims to finalise its policy position by the end of next year, with the new requirements applying to financial years falling on or after 1 January 2025. Reporting under UK SDS is anticipated to start from 2026. The FCA also expects to consult on the proposed guidance on its expectations for disclosures concerning listed companies' transition plans, which includes targets and actions aiming to achieve a lower-carbon economy. The FCA guidance will be developed by reference to the output from the Transition Plan Taskforce ("TPT").

While the ISSB standards will not replace the TCFD disclosure framework immediately, listed companies are strongly encouraged to consider the following standards now and for future reporting:

1. Improve their reporting in line with existing climate-related disclosure rules

The FCA emphasises the need for listed companies to improve their climate reporting by considering the TCFD recommendations and guidance. Companies are also encouraged to consider the areas identified for improvement in recent FCA publications, including:

• Primary Market Bulletin 36 (TCFD aligned climate-related disclosure requirements);
• Technical Note 802.1 (TCFD aligned climate-related disclosure requirements for listed companies);
• Primary Market Bulletin 42 (Climate-related financial disclosures – ongoing monitoring); and
• Thematic reviews undertaken by the FCA and the FRC.

It is noted that companies should consider disclosing climate-related matters in financial statements when the effect is material and show connectivity between climate-related disclosures and the financial statements.

2. Engage early and consider voluntary reporting

Listed companies should familiarise themselves with S1, S2, the ISSB standards and TPT Disclosure Framework and Guidance (once published), to enable them to identify gaps in their data and find opportunities to improve internal processes. Listed companies are also encouraged to voluntarily supplement their existing reporting with disclosures aligned with ISSB standards and the TPT Framework.

3. Respond to the Technical Advisory Committee call for evidence

The FCA is appealing to listed companies to respond to the Committee's call for evidence (closing on 11 October 2023), as well as its own consultation on implementation (again, when published).

Audit of financial statements by third country audit firms

Issuers which are UK-traded third country companies are required to ensure their auditors are on the Financial Reporting Council ("FRC") register. Without this registration, the financial statements will not be considered "audited" for the purpose of compliance with DTR 4.1.7 R.

Third country issuers are encouraged to appoint an FRC-registered auditor as soon as possible, before the audit process starts. The FCA has previously written to third country issuers with published financial statements failing to include audit reports by such auditors, informing them that the FCA can take action- including suspending the issuer's listing- in response to a breach of DTR 4.1.7 R (4). The FCA has now clarified its approach, proposing to temporarily suspend an issuer's listing under its powers in LR 5.1.1 R (1) wherever it becomes aware of a published audit report not provided by an FRC-registered third country auditor.

Issuers should:

• Apply to the FCA for a suspension of listing before a breach of DTR 4.1.7 R (4) occurs; and
• Consider whether the breach may trigger disclosure obligations under the UK Market Abuse Regulation.

Transitional provisions concerning minimum market capitalisation for shell companies

The FCA highlights the transitional provisions which are still available to shell companies, where the company plans to undertake a reverse takeover resulting in the enlarged entity needing to apply for a listing. The provisions allow companies to list with a minimum market capitalisation of £700,000.

If an issuer wishes to rely on such transitional provisions, the deadline to complete its submission to the FCA for an eligibility and prospectus review is 16:00 pm on 1 December 2023. After that date, all such issuer applications for listing will require a minimum market capitalisation of £30 million. Where no eligibility and prospectus review is submitted, or where a submission is withdrawn or lapses, the company can remain listed.

The FCA encourages issuers to speak to their advisers to consider the availability to them of the transitional provisions.

Multi-factor authentication to become mandatory

The introduction of multi-factor authentication when logging into the Electronic Submission System (ESS) marks a further step towards protecting and controlling access to data. The FCA have advised users that the option to "skip" multi-factor authentication will soon come to an end. Users are encouraged to register as soon as possible to ensure there are no interruptions to their accessing the ESS system.