My written statement of 25 October 2006 concerning the Transparency Directive (2004/109/EC) undertook to publish the terms of reference for the “Davies Review”. The terms of reference now follow.
Section 1270 of the Companies Act 2006 establishes a new statutory regime for liability in damages to third parties in respect of disclosures under the Transparency Directive (2004/109/EC). The Government consulted last year on whether the statutory regime should be extended. Responses to the consultation confirmed that this was a complex area in which it is vital to get the policy right, but were not conclusive.
The Government want to strike the right balance between the interests of investors and issuers, providing appropriate incentives to make timely and accurate disclosures in compliance with statutory rules, and an appropriate—but limited—right to recover losses. Section 1270 of the Companies Act amends the Financial Services and Markets Act 2000, inserting a new section 90B that provides for a power to amend the statutory regime.
The Government appointed Professor Paul Davies, the Cassel Professor of Commercial Law at the London School of Economics in October 2006 to undertake a review of issuer liability. The Davies review will:
Consider the law relating to liability in damages of issuers of securities traded on a regulated market or alternative markets (such as AIM or Plus Markets) in respect of statements and publications made to the market and which are incorrect, false or misleading or have not been made promptly;
Consider how any such liability may be affected by regulatory obligations attaching to issuers and directors;
Consider the case for providing for a specific right to damages by those relying on such statements and publications in the context of securities market activities, in particular: the circumstances that might give rise to a right, against whom a right might be enforceable and the consistency with the effect of corporate governance and conventions, standards or rules affecting the information that issuers publish to shareholders and others and how they publish it;
Consider the impacts on:
issuers, markets, investors and others;
the quantity and quality of information disclosed;
the competitiveness of the UK as a good place to do business;
Take into account the liability of issuers and their managements in other centres of financial services in Europe or more widely including the USA;
Make recommendations to the Treasury on whether to exercise the section 1270 power and, if so, how.
In making recommendations to the Treasury, the review will advise on:
options for a new regime if recommended;
who might bring actions to sue for damages;
the kinds of damages that might be awarded and potential effects of paying those damages on issuers, including effects on their business and employees, directors or senior executives, and on the supply of qualified individuals willing to take on director and non-executive director roles in consequence;
and other related matters.