Equiniti ezine October 2012

> october 2012

EZINE

inside this issue:

esP Forum 2012 – the key themesWe take you through this year’s ‘must know’ topics

tackling boiler room FraudConsultant John Heaton discusses how boiler room fraud tactics are becoming increasingly sophisticated

Fraud tackled at First touchEquiniti Shareholder Solutions engages with the City of London Police in its fight against fraud

ots ProPosals OTS proposals for simplification of HMRC approved employee share schemes

webcastAll the hot topics with Peter Swabey boiler room Fraud p4

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We take you through this year’s ‘must know’ topics

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esP Forum 2012 – the key themesThe annual ESP forum, held at Hanbury Manor on 20 September this year, produced several fascinating key themes.

Covering a range of topics – from changes in executive remuneration policy to tax simplification and general trends across employee plans – more than 80 delegates enjoyed listening to guest speakers from top UK companies and leading industry experts.

The new BIS recommendations – which will only apply to UK incorporated companies – are still to be finalised. The new and more detailed remuneration policy report makes a number of stipulations. Firstly, companies must set out a single figure that will be given for total pay/reward to executives, and secondly, companies will need to disclose the maximum value of percentage increases in salary. A requirement will be that this is illustrated on a graph, showing CEO pay against TSR (Total Shareholder Return).

One of the major challenges behind the single figure, is that it must now include

LTIP vesting and bonuses, amongst other things. Managing how and when that figure is disclosed to shareholders will be critical, and will not necessarily give as true a picture as the proposals hope. Many cases are bound to hit the headlines and be held up to public scrutiny.

Business Secretary, Vince Cable’s recommendations are generally sensible and welcomed by business, although too much detail can often create more work than is necessary. Flexibility from shareholders and

faith in remuneration committees will also be necessary if we are to move forward with ease. Companies should start thinking about their own remuneration policy report now – some are doing this, but others are turning to their counterparts, with a watchful eye on how they design their policies.

Clawback is a relatively new concept that is quickly spreading across the market, and in particular, to the insurance sector. In general, most companies are now looking to include clawback provisions in their policy reports and shareholders will expect them to be upheld. Considering current economic conditions, it is bound to see significant growth, which could affect all kinds of wider remuneration. It can be an incredibly difficult subject in terms of individual accountability and responsibility with triggers, timing and treatment of clawback.

We also looked at ‘Say on Pay’, the proposed new rules, who will be affected, timing, implementation and policy reports.

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Inevitably there are issues connected with this, such as transitional rules and the vesting of LTIP awards. The forum attendees looked at these and other issues in some detail.

The recently published, (and somewhat scathing in places), independent review from Professor John Kay, (The Kay Review), sets out to transform UK equity markets, by aiming to prevent the underlying problem of short-termism. His recommendations or proposals are aimed at key equity market players, government and regulators, and include the mention of retirement shares for longer-term shareholding over the length of an executive’s career. The consensus from the audience and speakers was that there are obvious advantages and disadvantages of the proposals and they must be looked at carefully, especially with regards to how they might be implemented.

The Office for Tax Simplification (OTS) review is providing new rules that will legislate for self-certification of SAYE, SIP and CSOP plans within an effective compliance framework, from 2014 onwards. This topic is complex and unfortunately there is no guarantee that the new rules will be quicker than at present, or more effective. There

are further details of the OTS proposals for simplification of HMRC approved employee share schemes on page 8.

Employee groups are becoming increasingly mobile across the globe, and the key focus for this increasing niche trend needs to be on getting withholding and social security contributions and taxes right. Tax and legal complexities were looked at across many continents including Asia, Europe and the USA during a session on global share plans from tax specialists.

We also looked at some key trends across the entire UK share plan industry, which included:

■■ Average SIP contribution levels remaining steady, despite economic pressure and the average number of shares and SIP holding value increasing dramatically since 2011.

■■ Partnership shares are still the most commonly offered element of SIPs, with 50% of employees choosing to reinvest their dividends.

■■ Pleasingly, more maturities are now ‘in the money’, with a 40% increase in live contracts above water in 2012, with companies now offering more choices at maturity.

■■ Sharesave saw a drop in five-year scheme take up but an increase in three-year take up. Average participation levels are at 36% with an average monthly saving of £107, despite zero rates.

■■ Unsurprisingly, there is less use of paper and a huge increase in the use of online applications since 2007. In fact, 85% of all SIP and SAYE applications now received by Equiniti are by phone or online.

■■ With the Corporate ISA, 59% of employees investing are of 40-60 years of age, making an average of three trades per year with an investment average of over £13k.

■■ Finally, with executive plans we saw a move away from option based awards to conditional shares, except for a very few senior executives. 91% of FTSE 350 companies now prefer to use performance-based awards.

For more inFormationPlease contact your Relationship Manager


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Consultant John Heaton discusses how boiler room fraud tactics are becoming increasingly sophisticated


With a revised Share Fraud Warning agreed between the Financial Services Authority (FSA) and the ICSA

Registrars Group earlier this year, issuers have already warned more than six million shareholders using the new template.

At least 65 PLCs (amongst all listed companies) have sent the warning to around 6.5 million shareholders. And by the end of this year, a further one million will have received it for the first time in addition to the 1.35 million shareholders who will have been sent a repeat mailing.

To get the message out to shareholders, companies have used a range of the following communication channels:

■■ Flyers/letters sent with company mailings – either the template itself or a form of words based on the template

■■ A warning contained in the Shareholder Information section of the Annual Reports and Accounts

tackling boiler room Fraud■■ The warning incorporated into the dividend

stationery. Typically, this means that it continues to be used whenever a dividend is paid (and accounts for the repeat mailings mentioned above).

Alongside many other companies, Equiniti has updated its website with the revised information. This ensures that shareholders know who to get in touch with to report or discuss any concerns they have. However, accessibility to the warning and guidance varies depending on which website you refer to. Some are very explicit, with one company’s website displaying a warning on its investor page, which is unmissable. On the other hand, some companies have taken a less effective approach – a casual visitor would struggle to find this information.

I recently co-presented on the subject with two representatives from the Serious Fraud Office (SFO). In addition to giving a fascinating


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history of boiler rooms – from brokers in 1697 working ‘outside’ the City of London, through to those working in the USA at the time of the Great Depression who relocated to Canada when their activities were made illegal. The spotlight then moved onto the Netherlands in the 1970s and Spain in the mid to late 80s where some have remained with others now operating out of Dubai and Thailand – they also identified the types of boiler room activity, leading to successful prosecutions:

■■ Sale of unlisted UK company shares by boiler rooms transparently based offshore

■■ Sale of restricted Regulation S shares in small US companies by boiler rooms transparently based outside the UK

■■ Sale of shares in cloned entities by boiler rooms purporting to be based in the UK and registered with the FSA but based off-shore.

The SFO discussed the increased sophistication of fraudsters. They change their methods, use increasingly professional websites and have morphed from share sales into sales of environmental products and

services, land and even fine wines. They also mentioned that (generally private) companies could themselves be sucked into boiler room fraud when raising capital.

Not only has Equiniti witnessed a range of boiler room tactics, but our clients have too. Often aimed at shareholders of companies currently in the national press, the initial contact is an offer to buy the shareholding at an inflated price on behalf of shadowy foreign investors who are said to be acquiring a controlling interest. A request to sign a professional-looking (potentially threatening) non-disclosure agreement soon follows, accompanied by a request for financial details (bank accounts etc). What comes next is a hitch with the purchase, which requires an upfront payment (tax/stamp duty) before the investment can be confirmed – along the lines of an advance fee fraud.

It is unclear the extent to which this is now the main type of boiler room fraud or whether, because it is targeted at specific companies, the issuer or registrar is more likely to hear about it.

When the revised warning was published, it was agreed with the FSA that its use would be monitored and reviewed with them

later in the year – that meeting is currently being arranged. Additional initiatives will be discussed, including feedback from the FSA and enhanced controls on the provision of historic shareholder information by Companies House. The SFO will also be included in that exchange of views.

Equiniti has obtained documentation from shareholders, which, except for the names and addresses of the various entities, is uncannily similar. Any clients interested in these would be welcome to see them.

For enquiries, or to rePort any relevant inFormation

Please contact your Relationship Manager



IdENtIty fraud


Equiniti Shareholder Solutions engages with the City of London Police in its fight against fraud

Growing identity fraud is a worrying trend and according to the KPMG fraud barometer, 2011 was a record

year for the amount of fraud committed in the UK with figures reaching £3.5 billion. Press coverage today places UK identity fraud as the highest in Europe.

Identity fraud accounts for just under half of all fraud cases and has increased by 10% since 2010.

As a business, Equiniti continues to look for ways to enhance and improve systems, mitigation controls and awareness in relation to fraud prevention and detection. We know managing risk and minimising fraud is of critical importance to you and we aim to do all we can to tackle this head on in all our processes.

A classic example of where fraud may be attempted is where a shareholder is required, in line with our standard requirements, to submit a passport or driving licence together with supporting documentation such as a utility

Fraud tackled at First touch


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IdENtIty fraud


bill to confirm identity. When documents are received for scanning, it is at this point that the human eye, document handling experience and training are really the most effective techniques for detecting fraudulent documents.

Shareholder Solution Operations, supported by the Group’s Financial Crime Team, has undertaken new initiatives and training specifically to assist with the early and effective detection of fraudulent identity documentation.

The City of London Police Training Academy was enlisted to deliver a bespoke course designed to provide more than 20 key front line Equiniti staff with the skills and knowledge necessary to rapidly identify fraudulent documents and identities and prevent possible fraud on shareholder accounts.

The one day course held in August this year was designed to complement existing Equiniti training by further developing the skills required to check and verify a range of identity documents, such as passports and driving licences, in both the UK and around the world. The training provided key tips on what to look out for when spotting forgeries and altered documents. Staff at Equiniti’s office in Worthing, were supplied with realistic

For more inFormationPlease contact your Relationship Manager

examples and training materials tailored specifically to meet identity fraud threat. This also included tailored training packs and ultraviolet light pens, which reveal water marks on documentation and cheques.

This proactive approach towards fraud prevention and detection is critical to protect the integrity and reputation of Equiniti, its clients and their shareholders.

Fran Phillips, Manager in Financial Crime said: “By enlisting the external training of police professionals, this has provided an excellent and detailed insight into the up-to-date threats and trends in respect of identity fraud and other related financial crime and most importantly how to combat such risk. The course was delivered to a targeted audience and feedback has confirmed this was excellent value in terms of both delivery and content. Given this success, the Equiniti Group will be looking to deploy this training in other core operational areas.”


ots proposals


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Equiniti responds to consultation document

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In March of this year, the Office of Tax Simplification published a report containing recommendations to the

Chancellor of the Exchequer on how HMRC approved employee share schemes and relevant tax legislation could be simplified.

This was followed in June with a consultation document: ‘Office of Tax Simplification’s report on tax advantaged employee share schemes’. The consultation document was designed to seek views and further evidence on the recommendations and posed 31 questions.

ots ProPosals For simPliFication oF hmrc aPProved emPloyee share schemes

to see a coPy oF equiniti’s resPonse Please contact your Relationship Manager

Topics included:■■ A new approval process■■ Investigation into whether the CSOP scheme

is still relevant for UK businesses■■ If CSOP is found to still be of relevance,

whether the EMI and CSOP schemes should be merged ■■ Changes to prescriptive rules regarding

the operation of schemes■■ Aligning the retirement provisions for SIP,

SAYE and CSOP■■ Operation of PAYE for SIP shares that

leave a plan

Equiniti responded to this document in September. Further announcements from HMRC are scheduled for later this year with changes likely to be introduced during 2013 and 2014.

A link to the consultation document is available via this link.


http://www.equiniti.com/MediaCentre/ezine/Documents/OTS%20reportOctezine.pdf

wEbcast


Peter Swabey, Director of Equiniti David Venus and the Company Secretary of Equiniti talks about some of the hot topics that will be on our desks between now and Christmas 2012.

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industry uPdate q4 2012

http://www.equiniti.com/MediaCentre/Webcasts/Pages/IndustryUpdate_Q42012.aspx

