EQ Bulletin - June 2022

Corporate Re-domiciliation

Following a consultation which was opened on 27 October 2021 and closed on 7 January 2022, the UK Government intends to introduce such a regime, making it possible for companies to move their domicile to and relocate to the UK by enabling the re-domiciliation of companies. This could modernise the UK’s legal framework and bring the UK in line with other countries such as Canada, Singapore and New Zealand. Re-domiciliation would enable a foreign-incorporated company to change its place of incorporation whilst maintaining its legal identity as a corporate body. The Government explains that this will give companies maximum continuity over business operations when redomiciling and substantially reduces administrative complexity compared to other routes of relocating and incorporating in the UK.

The new legislation will need to be enacted to provide for re-domiciliation; however, more detailed analysis and engagement will be required as this is only in the early stages, and further consultation may be necessary.

Read More: Corporate Re-domiciliation Consultation

The Queen’s Speech

The Queen's Speech contained several proposed bills which, if enacted into legislation, will have an impact on companies:

Economic Crime And Corporate Transparency Bill. This bill will:

• broaden the Registrar of Companies powers, including new powers to check, remove or decline information submitted to, or on, the Companies Register;
• introduce identity verification for people who manage, own and control companies and other registered entities;
• provide Companies House with more investigation and enforcement powers and introduce better cross-checking of data;
• strengthen transparency requirements for limited partnerships and enable them to be properly wound up.

The Financial Services and Markets Bill. This bill will:

• revoke retained EU law on financial services, replacing it with a UK approach; amend regulators' objectives to focus more on growth and international competitiveness
• reform rules regulating UK capital markets to promote investment.

Audit Reform Bill. This bill will:

• establish a new statutory regulator, the Audit, Reporting and Governance Authority
• provide measures to open up the market, including managed shared audit in which challenger firms undertake a share of work on large-scale audits
• bring the largest private companies within the definition of public interest entities
• give the new regulator powers to enforce directors' financial reporting duties and supervise corporate reporting.

And finally, the Modern Slavery Bill will mandate areas covered in modern slavery statements, require them to be published on a government-run registry and introduce civil penalties for non-compliance.

Read More: The Queen’s Speech 2022

Financial Reporting Council: Consultation To Draft Amendments To FRS 100

The Financial Reporting Council (FRC) has published a consultation in FRED 80: Draft amendments to FRS 100: Application of Financial Reporting Requirements to reflect changes in company law and decisions on equivalence following the UK’s exit from the European Union (EU). The closing date for the consultation is 26 August 2022.

FRS 100 contains the applicable financial reporting requirements for UK and Republic of Ireland entities. It includes application guidance on the meaning of equivalence both in the context of exemption from the need to prepare consolidated financial statements under section 401 of the Companies Act 2006 (CA2006) (or section 300 of the Companies Act 2014 in the case of Irish preparers) and for certain disclosure exemptions available under FRS 101 and FRS 102.

The proposal from the FRC is that the existing application guidance is replaced with a revised, up to date version, which sets out clearly and separately considerations for both UK and Republic of Ireland preparers. While FRS 100 applies to both UK and Republic of Ireland entities, the current application guidance refers explicitly to UK law only, with the corresponding Republic of Ireland Companies Act 2014 references contained in an appendix. Following the UK’s exit from the EU, the two legal frameworks have diverged, and so the FRC is proposing to deal with each jurisdiction separately.

The FRC also proposes addressing separately the exemptions from consolidation available under subparagraphs (iii), (iv) and (ii) of section 401(2)(b) of the CA 2006 (and for Irish preparers, section 300 of the CA 2014), in that order, as it considers this provides the most logical guidance.

Read More: Application Guidance: The Interpretation of Equivalence

Modern Slavery Reporting Practices In The UK 2022

The Financial Reporting Council (FRC), in conjunction with the UK Anti-Slavery Commissioner and Lancaster University, has published a research report which has found there are significant shortcomings in the quality of companies’ modern slavery reporting. The research was based on a sample of 100 major companies’ modern slavery statements and their strategic and governance reports. Ten percent of companies do not provide a modern slavery statement despite a legal requirement. Of those companies which did comply, only one-third of these statements were considered clear and easy to read. The research found that most modern slavery statements reviewed were fragmented, lacked a clear focus and narrative, and often contained boilerplate language. Disclosures about key performance indicators (KPIs), which measure the effectiveness of steps to minimise modern slavery risks, were particularly poor. Only a quarter of companies disclosed KPI results, and just 12% confirmed they had made informed decisions based on those KPIs.

Most of the statements were wholly backwards-looking, with only a minority identifying emerging issues or a long-term strategy. Although most companies report that they assess modern slavery risk in their own business and supply chain, less than a third disclosed an action plan based on risks identified. In their annual report, relatively few reported on internal controls linked to the oversight of human rights and slavery. Fewer provided any information about when and how frequently their modern slavery policies and governance arrangements are reviewed.

Read More: Modern Slavery Practices In The UK 2022

Guidance On Supply Chain Disclosure

The Financial Reporting Council Lab (FRC Lab) has published guidance setting out some questions and resources that may be useful for companies to consider in preparing their reporting on supply chains. 

The FRC Lab considers that investors are likely to look for information that helps them understand: 

• the context of the supply chain (its size and scope, its nature and resilience, the extent to which sustainable procurement practices are embedded, and the impact on current and future operations, reputation, and brand)
• the impact of supply chain uncertainties, risks and opportunities on long-term value creation and the actions management takes to address them.

Matters it suggests investors would find useful include:

• The raw materials and goods that are critical to the business model in the short and medium-term, and how the supply chain for these elements has been impacted by global disruptions; the international or local restrictions that might impact a supplier's ability to deliver; the extent to which the supply chain is reliant on critical components; the impact of inflationary pressures on the supply chain; and the actions management are taking to actively monitor and manage those risks.
• The nature and scope of the company's digital infrastructure and supply chain; how suppliers and the company monitor for and mitigate against potential vulnerabilities; the plans in place to ensure continuity of hosted services or cloud-based systems; and the extent to which the digital supply chain is reliant on critical components. 
• How the company assesses its suppliers and owners; how they take into account potential legal and reputational risks and the mitigations in place; how they monitor ongoing relationships with suppliers; and whether, when changing suppliers, the change is consistent with wider business cultural values, such as ESG commitments, and whether there could be unintended consequences.

Read More: Guidance On Supply Chain Disclosure

Disclosure Of Auditor Remuneration

The Institute of Chartered Accountants England and Wales (ICAEW) has issued a revised version of its guidance on the disclosure of auditor remuneration for the audit of accounts and other (non-audit) services, per the requirements of the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 as amended.

The guidance is substantially unchanged from the previous version, TECH 13/14. However, amendments have been made to reflect legal and regulatory developments since December 2013, in particular the fact that small companies are no longer required to disclose auditor remuneration and changes to related pronouncements, including the FRC's Revised Ethical Standard, the Companies Act 2006, UK Financial Reporting Standards and the UK Corporate Governance Code.

Read More: Disclosure Of Auditor Remuneration

Climate Related Disclosures – UK Transition Plan Taskforce: Call for Evidence

The UK Transition Plan Taskforce (TPT) has published a call for evidence on its proposed sector-neutral framework for private-sector transition plans. Responses on the call for evidence should be received by 13 July 2022. The TPT proposes to develop the sector-neutral framework through 2022, and to publish a consultation towards the end of the year with a view to finalisation in early 2023. It states that responses will also help to inform its sectoral templates.

Views are sought on several matters including:

• The proposed definition of a transition plan (s), and the key users of, and key use cases for, transition plans.
• The sectors tailored transition plan templates should be developed for.
• The financial or non-financial, mandatory or voluntary frameworks and processes it should consider.
• Where companies should disclose information on transition plans.
• How prescriptive the framework should be; and whether it should seek to standardise the data and metrics used to communicate ambition and measure progress.
• The challenges for Small and Medium Sized Enterprises seeking to prepare or use transition plans.

Read More: UK Transition Plan Taskforce: Call For Evidence

London Stock Exchange Consultation: Voluntary Carbon Market And Amendments To The Admission And Disclosure Standards

The London Stock Exchange (LSE) has issued a market notice N12/22 relating to the consultation on creating LSE's Voluntary Carbon Market and amendments to the Admission and Disclosure Standard. The consultation is open until 11 July 2022. The Voluntary Carbon Market will only apply to certain funds. Initially, the Exchange's Voluntary Carbon Market will be available only to closed-ended investment funds, but other asset classes will be considered in the future.

The proposed changes to the Admission and Disclosure Standards include:

•   Provision for formal applications to be submitted via a Self Service Portal on the Exchange's website.
•   A new rule on confidential information, providing that all communications between the Exchange and an issuer are confidential to the Exchange and should not be disclosed without prior written consent, except as required by another regulatory or statutory body; and this will apply even where the issuer ceases to be admitted to trading.
• A new rule on the jurisdiction, providing that when an issuer ceases to have any securities admitted to trading, the Exchange retains jurisdiction to investigate and take disciplinary action concerning breaches or suspected breaches of the Standards when the issuer had a class of securities admitted to trading; and Rules 4.4 and 4.5 of Section 4 on the provision of information continue to apply for any information or explanation the Exchange requests to discharge its legal responsibilities or regulatory function.
• The amendment of the early notification process in Part 3 of Section 2 to increase the early notification date to at least 30 business days (instead of 20 business days) before proposed admission to trading on the Specialist Fund Segment or High Growth Segment.
• The amendment of Rule 4.7 of Section 4 to provide the Corporate Actions Team at the Exchange must be informed of the proposed corporate actions (not the Stock Situations Analysis Team), and of Schedule 3 to provide that the announcement must include the International Securities Identification Number ( ISIN or the Tradable Instrument Display Mnemonics Code (TIDM). The timing of the announcement of an open offer has been amended to provide that it must be no later than 07:15 on the proposed ex-date, and, in exceptional circumstances, prior written consent from the Exchange must be obtained for any later announcement.

 Read More: N12/22 - Consultation on the creation of London Stock Exchange’s Voluntary Carbon Market and amendments to the Admission and Disclosure Standards | London Stock Exchange: Admission and Disclosure Standards