Tuesday 30 November 2021

Malaysia: Securities Commission publishes corporate governance strategic priorities for 2021-2023

Last week the Securities Commission published its corporate governance strategic priorities for 2021-2023: see here. An overview is provided in the below video (or by clicking here). 

Monday 29 November 2021

European Union: EBA publishes revised internal governance guidance for investment firms

The European Banking Authority has published revised guidance on internal governance for investment firms: see here (pdf). The accompanying press release, available here, notes that the guidance has been developed on the basis of Article 26 of Directive (EU) 2019/2034 on the prudential supervision of investment firms, which obliges Member States to ensure that investment firms have "robust" governance arrangements and that, in this regard, the EBA should issue guidelines.

Friday 26 November 2021

UK: England and Wales: equitable constraints and unfair prejudice

Last week - a week ago today, in fact - the Court of Appeal delivered its judgment in Loveridge v Loveridge [2021] EWCA Civ 1697. I note the decision here because of the discussion it contains regarding the scope of equitable constraints in the context of claims for unfair prejudice under section 994 of the Companies Act 2006. One of the alleged equitable constraints related to the circumstances in which a director could be required to repay a loan received from the company. Mrs Justice Falk (with whom Nugee and Bean LJJ agreed) stated (at para. [95]): 

"As Lord Hoffmann explained in O'Neill v Phillips at p. 1099F-G, 'a balance has to be struck between the breadth of the discretion given to the court and the principle of legal certainty'. In circumstances where a loan is interest free and legally repayable either immediately or on demand, it seems to me that the court should be very reluctant to impose equitable constraints that, if recognised, would fetter the exercise of directors' duties and could in reality significantly impair the value of the chose in action that the loans represent".

UK: England and Wales: fraudulent trading under section 993 of the Companies Act 2006

Judgment was delivered today by the Court of Appeal in R v Hunter v [2021] EWCA Crim 1785, a case concerning what has become known as 'ticket touting'. The judgment is now a leading authority on the scope of the fraudulent trading offence found in section 993 of the Companies Act 2006. Section 993(1) provides: "If any business of a company is carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, every person who is knowingly a party to the carrying on of the business in that manner commits an offence". 

In considering the scope of section 993, the court rejected the following arguments: that an intention to deceive is a necessary component of the offence; that the conduct must involve deliberately putting another person's property in jeopardy; that section 993 should be construed as being subject to the common law limitations applicable to the offence of conspiracy to defraud. Moreover, the court observed (para. [120]):

The focus upon purpose means that the law is prophylactic. A fraudulent purpose might be proven before anyone is actually defrauded or becomes an actual victim of the fraud. In the present case if the Prosecution had charged the defendants after they had acquired the relevant bots and other software and the multiple credit cards and had set up a system for using an array of false identifies, but before the defendants had put that system into operation and used it to trick ticket vendors into selling them tickets and/or to place end consumers at risk, then the offence would still have been committed even though there was no actual fraud and no actual harm to end consumers and therefore no victims. A fraudulent purpose would still be in existence and business acts to achieve that purpose would have been carried out. Of course, evidence of implementation might afford powerful additional evidence of the fraudulent purpose, but implementation of a fraudulent purpose is not an essential ingredient of the offence". 

BCBS consultation - principles for the effective management and supervision of climate-related financial risk

The Basel Committee on Banking Supervision has published a consultation paper in which views are sought on proposed principles for the effective management and supervision of climate-related financial risk: see here (pdf).

UK: FRC publishes annual review of corporate governance reporting

The Financial Reporting Council has published the latest edition of its annual review of corporate governance reporting: see here (pdf). Accompanying the report is a podcast in which members of the FRC discuss the report's key themes: see here (mp3). The report sets out the FRC's expectations for reporting across the five sections of the UK Corporate Governance Code, and identifies areas where improvement is required - notably the disclosures relating to non-compliance with the Code, diversity and succession planning.

UK: England and Wales: Smart contracts and the law of England and Wales

The Law Commission has published a paper in which it sets out its view that the law of England and Wales is able to facilitate and support the use of smart legal contracts; moreover, in its view, current legal principles apply to smart contracts in largely the same way as they do in respect of traditional contracts. The Commission's paper is available here.

Friday 19 November 2021

UK: FRC report - developments in audit

The Financial Reporting Council has published the latest edition of its Developments in Audit publication: see here (pdf). The report explains the FRC's assessment of auditing in the UK and outlines its expectations regarding the improvements that audit firms should make. Two areas where deficiencies in audits continue to be found are in respect of professional sceptisim and challenge of management.

Tuesday 16 November 2021

UK: England and Wales: appealing a decision to defer a company's dissolution

Written judgment was delivered yesterday by ICC Judge Barber in Kumar v Secretary of State for Business, Energy and Industrial Strategy [2021] EWHC 2965 (Ch), following a decision made in September 2021. The judgment is of interest because it appears to be the first authority to consider the process for appealing a decision to defer a company's dissolution under section 205 of the Insolvency Act 1986

The company's dissolution had been deferred until 13 May 2025 (dissolution would ordinarily have occurred on 2 February 2021). Judge Barber held that the deferral no longer served a useful purpose: the original purpose - to investigate the company's affairs - had concluded and had needed only several months. It was also held - in the absence of express, statutory guidance - that Mr Kumar (the company's sole director and sole shareholder) had standing to bring the appeal under section 205. 

UK: FRC report - what makes a good audit?

The Financial Reporting Council has today published a report titled "What makes a good audit?": see here (pdf).

The report contains a foreword, from the FRC's chief executive, Sir Jon Thompson, in which he states: "The Financial Reporting Council is often asked what does a good audit look like? This paper sets out our views of the key elements that make up a good audit as a contribution to the debate within audit firms of how they should improve audit quality. As our inspections work has consistently demonstrated, standards of audit quality in the UK are not acceptable, with just 71% of inspected audits meeting the relevant standards. This is not just a UK phenomenon, but a global challenge".

Wednesday 10 November 2021

Singapore: MAS publishes updated Guidelines on Corporate Governance

Following a consultation earlier this year, the Monetary Authority of Singapore has now published an updated edition of its Guidelines on Corporate Governance for Financial Institutions incorporated in Singapore: see here. Within the definition of financial institutions are: designated financial holding companies, banks, direct insurers, reinsurers and captive insurers.

UK: Financial Services - Future Regulatory Framework Review - Reform proposals

Yesterday the Government published for consultation various reform proposals as part of its Future Regulatory Framework Review for financial services: see here (pdf). 

The paper endorses the current regulatory model as set out in the Financial Services and Markets Act 2000, which reflects the reforms made following the financial crisis over ten years ago - the creation of the FCA, PRA and a greater role for the Bank of England. It does, nevertheless, propose introducing new statutory objectives for the FCA and PRA linked to growth and competitiveness. The regulatory principles are to be amended to provide that growth should occur in a way consistent with the Government commitment to achieve a net zero economy by 2050. The paper also proposes increasing the mechanisms through which the regulators are accountable to Parliament.

And, unsurprisingly, we are to see much current retained EU law transferred to the regulators' rulebooks, with the regulators given new rule-making powers as required.  This process - to be achieved through secondary legislation - is expected to take several years.

UK: FTSE women leaders - Government supports new five year review

The Government has announced its support for a new five year review - to follow on from the Hampton-Alexander Review - the aim of which is to increase the proportion of women occupying senior positions in companies: see here.

Monday 8 November 2021

UK: Financial Services Regulatory Initiatives Forum - fourth regulatory initiatives grid published

The fourth regulatory initiatives grid has been published by the chairs of the Financial Services Regulatory Initiatives Forum: see here. The grid provides a timeline for current initiatives - over 130 - from organisations including HM Treasury, the Bank of England, Financial Conduct Authority and Financial Reporting Council.  

IFRS Foundation: New International Sustainability Standards Board and publication of prototype disclosure requirements

Last week the IFRS Foundation announced: [1] the formation of a new International Sustainability Standards Board - to consolidate the work of existing organisations including the Climate Disclosure Standards Board - with the purpose of developing comprehensive sustainability disclosure standards; and [2] the publication of prototype climate and general disclosure requirements, developed by the Technical Readiness Working Group (a group formed to undertake preparatory work for the ISSB). For further information, see here.