UK: Government white paper - "Restoring trust in audit and corporate governance" - update

The Government white paper Restoring Trust in Audit and Corporate Governance was published last March with the consultation period ending in July: see here. Today, FT.COM has reported: "Ministers will set out plans to overhaul the regulation of UK auditors and boardrooms in the coming weeks, ending a long wait for the reforms that were first proposed more than three years ago. The proposals have been circulated to government departments for final sign-off, according to two government officials. But they cautioned of possible further delays to the implementation of the new rules as there was no guarantee they would be included in the government’s next legislative programme".

UK: Common Framework Agreement on Company Law between the UK Government and the Northern Ireland Executive

A provisional version of a common framework agreement on company law, between the UK Government and the Northern Ireland Executive, was published earlier this week: see here (pdf).

UK: HMT, HMRC and BEIS call for evidence - the umbrella company market

A joint call for evidence - from HM Treasury, HMRC and the Department for Business, Energy and Industrial Strategy - has been made in respect umbrella companies: see here (pdf). An umbrella company is, for the purposes of the call for evidence, defined as a "business which employs a worker with a view to that worker being supplied to work for, and under the control of, the end-client". The call for evidence seeks views on the role that such companies play in the labour market and the interactions they have with the tax and employment rights systems. It does so noting that concerns have been made about the risks to workers and taxpayers associated with the umbrella company model. 

UK: Government publishes "Greening Finance: A Roadmap to Sustainable Investing"

Yesterday the Government published "Greening Finance: A Roadmap to Sustainable Investing": see here (pdf). The document sets out the Government's plans for the creation of a new integrated framework for sustainability disclosures - to be known as Sustainability Disclosure Requirements (SDR) and building on proposals published earlier this year, for consultation, requiring mandatory TCFD aligned climate-related financial disclosures by certain companies.  

The new framework contains three components: (1) corporate disclosure requirements, to be made with reference to international standards and a new UK "green taxonomy"; (2) asset manager and asset owner disclosure requirements; and (3) investment product disclosure requirements, including the introduction of a sustainable investment labelling regime. A summary is available here. 

UK: BEIS research paper - Executive pay and investment in the UK

The Department for Business, Energy and Industrial Strategy has published a new paper, as part of its research paper series, titled "Executive pay and investment in the UK": see here (pdf). To quote directly from the executive summary: 

Whilst there is good evidence to suggest that CEO performance targets do influence firm performance in a manner consistent with increasing CEO payout, it is much less clear that CEOs are influencing firm performance (and therefore their pay) by changing investment. There is some evidence of such investment decisions amongst certain firms, but less clear evidence of this behaviour across the wider FTSE All-Share group.  We note that the latter finding does not necessarily mean that CEO pay is correctly set in most large firms. Indeed, one reason why there is little need for CEOs to reduce investment to hit the threshold payout could be that threshold targets are too easy to hit. Still, the evidence does not suggest a systematic problem with executive pay causing underinvestment". 

UK: FRC publishes 21/22 draft plan, strategy and budget

A few days ago the Financial Reporting Council published its draft plan, strategy and budget for 2021/22: see here (pdf). Alongside the work being done to create ARGA - the new Audit, Reporting and Governance Authority - the document notes the intention to "[u]ndertake assessments of performance against the UK Corporate Governance Code, the UK Stewardship Code and the Wates Corporate Governance Code for Large Private Companies. Subject to the outcome of Government consultation [a white paper is expected soon, the Financial Times has reported], consult on revisions to the UK Corporate Governance Code and associated guidance ahead of legislation"

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UK: the accounting and audit framework from 1 January 2021 - letters to firms

The Department for Business, Energy and Industrial Strategy and the Financial Reporting Council have written to accounting and audit firms explaining the key changes that will arise, in respect of the accounting and audit frameworks, from the start of 2021 (and when the transition period ends): see, respectively, here (pdf) and here (pdf). 

UK: BEIS research paper - perceptions of non-financial reporting

The Department for Business, Energy and Industrial Strategy has published a research paper on stakeholder perceptions of non-financial reporting: see here (pdf).

UK: The new chair of the Financial Reporting Council (ARGA)

The Department for Business, Energy and Industrial Strategy has today announced that Simon Dingemans is to become the new chair of the Financial Reporting Council and its successor organisation (the Audit, Reporting and Governance Authority): see here. Mr Dingemans will replace Sir Winfried Bischoff.

Mr Dingemans' appointment was subject to a pre-appointment hearing before the BEIS Committee in Parliament several days ago: see here. The Committee's report was published yesterday: see here. The Committee endorsed Mr Dingemans' appointment but noted its concern that he had "not fully appreciated the scale of the challenge ahead, and the degree of commitment required for an organisation in need of root-and-branch reform". The Committee also recommended that he should not take on any additional roles that could be perceived to compromise his independence.

NB: The Secretary of State at the BEIS Department announced, in a speech several days ago, that the new chief executive of the FRC/ARGA will be Sir Jonathan Thompson: see here.

UK: The Draft Registration of Overseas Entities Bill

At this time last year, give or take a day or two, the Government published the draft Registration of Overseas Entities Bill: see here. A Joint Parliamentary Committee was subsequently formed for the purpose of scrutinising the Bill and it reported in May: see here. Yesterday, the Government's response to the Committee's report was published: see here (pdf).

UK: Government consults on CMA statutory audit market recommendations

Earlier this year, the Competition and Markets Authority published its report and recommendations in respect of the statutory audit market: see here. The recommendations are now the subject of an initial consultation by the Department for Business, Energy and Industrial Strategy that opened yesterday: see here (pdf).

Views are being sought on the core remedies proposed by the CMA, including the enhanced regulatory oversight of audit committees; the introduction of mandatory joint audits of FTSE 350 firms; proposals to mitigate the effects of the distress or a failure of a 'Big Four' firm; and the operational split between audit and non-audit practices of ‘Big Four’ firms. Views are also sought on other proposals that did not form part of the CMA's core remedies.

UK: England and Wales: Law Commission project on intermediated securities system

The Law Commission for England and Wales has announced the start of a project concerning intermediated securities: see here. The Commission states in its announcement that "concerns have been raised about the effect of a system of intermediation on corporate governance and transparency, whilst there is uncertainty over what legal redress is available to investors, if issues with their securities arise". The project is being undertaken at the request of the Department for Business, Energy and Industrial Strategy. A call for evidence will be published in the summer and a scoping study is expected in summer 2020.

UK: Establishing the Accounting Standards Endorsement Board

The position of chairman of the new UK Accounting Standards Endorsement Board (UKEB) has been advertised on the Public Appointments website: see here. The advertisement, and role description it contains, is useful in that it sets out what role the UKEB will have and its place within the new regulatory framework following the UK's departure from the European Union.

Further information about the new framework was provided earlier this year in the explanatory memorandum accompanying the International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019: see here (pdf). These Regulations, in chapter 3,  give the Secretary of State delegated powers to adopt and endorse IFRS for use in the UK and the process that must be followed. The Secretary of State is also given, by chapter 4, the power through regulations to delegate this decision-making function to another body. We now know that this body will be the UKEB.

UK: ICSA consults on the effectiveness of the independent evaluation of listed company boards

In the statement published last year following its insolvency and corporate governance consultation, the Department for Business, Energy and Industrial Strategy stated that it had invited ICSA to convene a group with the purpose of identifying ways to improve the quality and effectiveness of board evaluations: see here (pdf, para. 1.66). The group has been formed and a day or so ago published a consultation paper: see here (pdf). The paper begins by seeking views on the purpose of board evaluation before summarising the evidence regarding current practice. It then invites suggestions and views on various matters and proposals, including a code of practice for the providers of board evaluation services and voluntary principles for listed companies when engaging external reviewers.

UK: Government consultation 'Corporate Transparency and Registration Reform'

The Department for Business, Energy and Industrial Strategy has published a consultation paper titled Corporate Transparency and Registration Reform: see here (pdf). The paper sets out reforms to the company incorporation process within the UK, in particular the information and checks that are necessary to ensure the accuracy of the information on the register concerning directors, shareholders and those with significant control.

Views are sought on extending the powers of Companies House so that it can query information that is filed, seek further evidence and share information with other agencies. The paper also seeks views on proposals to limit the power, under section 392 of the Companies Act 2006, to shorten a company's accounting reference period; this mechanism, the paper states, is being used abusively by some in order to delay the availability of financial information.

The press release accompanying the consultation paper carries the headline "Companies House reforms consultation launched today" but it is important to note that the paper also seeks views on aspects of company law not immediately obvious from this focus on Companies House. The best example of this is a question that may well prove controversial: should there be a cap on the number of directorships that one person can hold? The paper states: "...it unlikely that a person could reasonably be considered to be performing their duties as a company director where they are holding large numbers of directorships ... The government is therefore considering the introduction of a cap on the number of directorships that an individual may hold concurrently" (at para. 237).

Views are also sought on the extension of section 124A of the Insolvency Act 1986 - which provides that the Secretary of State may seek to wind-up a company or limited liability partnership on public interest grounds - to limited partnerships. This suggestion follows other proposals published last year on the reform of limited partnership law: see here (pdf).

UK: FRC/ARGA - first Government remit letter published

One of the recommendations made by Sir John Kingman, in his review of the Financial Reporting Council, was that the Government should issue the FRC (and its propopsed successor: the Audit, Reporting and Governance Authority) with a remit letter, at least once during the lifetime of each Parliament, setting out "those aspects of economic policy that the regulator should have regard to when advancing its objectives and discharging its duties". It was also recommended that the FRC/ARGA should respond publicly to the remit letter. The first of these exchanges took place in March and have now been published: see here (pdf) and here (pdf).

UK: replacing the FRC with the new Audit, Reporting and Governance Authority

The Government, through the Department for Business, Energy and Industrial Strategy, has published a consultation paper in respect of the recommendations made by the Kingman Review of the Financial Reporting Council: see here (pdf).

The Government has, amongst other things, accepted the Review's recommendation that the FRC should be replaced by a new regulator to be called the Audit, Reporting and Governance Authority. The new Authority's powers, purpose and objectives will be contained in legislation and complemented by a remit letter from the Government. Ahead of the new Authority's creation through legislation, the paper explains that the FRC has voluntarily agreed to become bound by a remit letter from the Government and that such a letter has been issued.

Whilst primary legislation will also be required in respect of the new Authority's board, the Government has decided to make some changes to the current board of the FRC, including the appointment of a new chair and deputy chair; those appointed will, in due course, hold these positions with the new Authority.

The Government also states that it will work with the FRC as part of the current consultation on updating the UK Stewardship Code to ensure that the revised Code addresses the concerns raised in the Kingman Review. According to the Government, the UK Stewardship Code must be "demonstrably improved".

UK: BEIS publishes updated guidance for the Companies (Miscellaneous Reporting) Regulations 2018

The Department for Business, Energy and Industrial Strategy has today published updated guidance concerning the Companies (Miscellaneous Reporting) Regulations 2018: see here. The Regulations contain several new reporting obligations including the requirement for certain large companies to include in their strategic report a "section 172(1) statement". This statement, to quote directly from article 4 of the Regulations, "describes how the directors have had regard to the matters set out in section 172(1)(a) to (f) when performing their duty under section 172 [of the Companies Act 2006]".

UK: The Registration of Overseas Entities - draft Bill published

A draft of the Registration of Overseas Entities Bill has been published by the Department for Business, Energy and Industrial Strategy: see here. The Bill, when law, will provide for the framework requiring overseas entities owning land in the United Kingdom to register with Companies House and to provide information concerning their beneficial owners (and to update this information). Published alongside the Bill is a research report exploring the potential impacts of the proposed register: see here (pdf).

UK: women on FTSE100 boards

The Department for Business, Energy and Industrial Strategy has today - International Women's Day - published data on the proportion of women on FTSE100 boards: see here. The headlines include: there are 309 women on FTSE100 boards; a quarter of FTSE350 board positions are occupied by women; and FTSE100 companies are on track to have a third of board positions occupied by women by 2020.