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The FCA’s crackdown on reporting payments to governments: A practical guide for mining companies

27/04/2021

At a glance

Earlier this month the Financial Conduct Authority (FCA) published Primary Market Bulletin No. 33 which includes various points for issuers to note emphasising the importance of often overlooked reporting obligations and pushing for stricter compliance.

Amongst the points highlighted, was an emphasis on the disclosure of payments to governments disclosure by issuers in the extractive industries. This is, on the face of it, is a relatively simple reporting requirement which, in reality is beset by a number of technical difficulties.

For most resource focused companies, meeting this reporting obligation is not difficult, particularly for those dual listed overseas who are likely to be subject to similar obligations (i.e. ESTMA in Canada). However, the DTR reporting requirement is very specific about the form and formatting of the report and it is here that a number of companies are failing to meet their obligations – in most cases (understandably but incorrectly) electing to simply release an RNS rather than deal with the technical filing.

It is clear that the FCA is cracking down on this perceived failure, so the guide below has been prepared for issuers and based on our (painful) experience!

Who does it apply to?

  • Under DTR 4, any issuer active in the extractive or logging industries and whose securities are admitted to a regulated market (i.e. Main Market, not AIM).
  • Under the Reports on Payments to Governments Regulations 2014, companies incorporated in England and Wales, if they are a large undertaking or a public interest entity; and a mining or quarrying undertaking or a logging undertaking.

(a ‘large undertaking’ is meets at least two of the three following criteria: (a) its balance sheet total on its balance sheet date exceeds £18 million; (b) its net turnover on its balance sheet date exceeds £36 million; (c) the average number of employees during the financial year to which the balance sheet relates exceeds 250).

What needs to be reported?

In general terms, for each financial year, the report must state the following information in relation to the relevant activities of the undertaking:

  • the government to which each payment has been made, including the country of that government;
  • the total amount of payments made to each government;
  • the total amount per type of payment made to each government; and
  • where those payments have been attributed to a specific project, the total amount per type of payment made for each such project and the total amount of payments for each such project.

A payment need not be taken into account in the report if: (a) it is a single payment of an amount less than £86,000; or (b) it forms part of a series of related payments within a financial year whose total amount is less than £86,000.

Where payments in kind are made to a government, the report must state the value of such payments in kind and, where applicable, the volume of those payments in kind, and the directors must provide supporting notes to explain how the value has been determined.

Where should the report be filed?

This is where the issue gets complicated!

  • For companies filing under the Reports on Payments to Governments Regulations (i.e. large UK AIM companies)

The report must simply be filed at Companies House within 11 months of the end of the financial year of the undertaking. Also note, there is an exemption under the regulations, if the company is subject to equivalent reporting requirements, and the payments to governments made by the undertaking are included in a report prepared in accordance with equivalent reporting requirements then the company need only file the equivalent report within 28 days after such report is made publicly available.

  • For companies subject to the DTR requirement (i.e. all Main Market companies)

There is no equivalent reporting exemption – even though in most cases the reports will be identical.

The issuer must file the report on payments to governments with the FCA.

The report must be filed by uploading it to national storage mechanism for regulatory announcements. This means that the report will need to be uploaded by whoever has access to the company’s NSM account accessed here or they will need to be authorised to do so by providing an authorisation letter here.

The report must be in XML (extensible markup language) format and must use the XML data schema. In short, it is not enough to simply upload a ‘standard’ RNS or excel spreadsheet of the information – it must be in .xml format. This is not as complicated as it first appears. An .xml file is really just plain text files that uses custom tags to describe the structure and other features of the document. In this instance the custom tags, are simply the relevant definitions, country codes and currency codes etc.

The technical information that needs to incorporated into the.xml file can be found here and these need to be incorporated into an .xml file that is created in excel. There are lots of guides on how to do this, like here.

It is worth noting that not all of the ‘tags’ that will be imported will be relevant, indeed most companies may need to retain 3 or 4 of these, covering government, type of payment, country, currency etc. It should also be noted that two reports are likely to be needed, one dealing with country/governments and one dealing with individual projects.

The end result will look like any other spreadsheet but, crucially, will be in .xml format which is what needs to be uploaded to the specific section of the NSM website. It is useful to have a look at other companies reports as a reference and a good resource on where to find them can be found here.

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