New Legislative Measures to Strengthen UK Corporate Reporting

On 19 July 2023, the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations were laid in Parliament. The new regulations will introduce:

• an annual resilience statement, setting out how a company is managing risk and building or maintaining resilience over the short, medium, and long term;
• a triennial Audit and Assurance Policy Statement, explaining how the company proposes to assure non-financial reporting over the following three years as well as providing an annual update on the implementation of the policy;
• an annual statement about distributable profits and the company’s policy on distributions; and
• an annual statement on steps taken to prevent and detect material fraud.

These regulations form part of the government’s wider audit and corporate governance reform plans, as consulted on through the March 2021 White Paper on “Restoring Trust in Audit and Corporate Governance” and finalised in the government’s May 2022 response to that White Paper consultation.

If approved, the regulations will apply in respect of financial years beginning on or after 1 January 2025 for UK companies admitted to trading on a UK regulated market (which have at least 750 employees and an annual turnover of £750 million or more). From 2026, the regulations will extend to other companies with at least 750 employees and an annual turnover of £750 million or more.

Since these proposed regulations will unlikely be subject to material amendment, listed companies should already consider adapting their internal processes ahead of the regulations coming into force. The Financial Reporting Council (FRC) is expected to publish draft guidance on the new reporting requirements for consultation by the end of 2023 or early 2024.

FCA Reveals Initial Views on the Regulation of Primary Multilateral Trading Facilities and Public Offer Platforms

On 13 July 2023, the FCA published its fifth and sixth engagement papers to solicit discussion and feedback on the regulation of primary multilateral trading facilities (MTFs) (such as AIM) and public offer platforms under the new regime for public offers and admissions to trading.

Key points:

• Primary MTFs — The FCA would have rule-making powers to ensure that primary market MTFs that allow retail participation (such as AIM and the AQSE Growth Market) require issuers to produce an MTF admission prospectus in specified circumstances. The engagement paper covers the FCA’s initial considerations regarding the approach to regulating primary MTFs (including the circumstances in which an MTF admission prospectus would need to be published, and responsibility for such a document).

  Overall, the proposals should encourage AIM companies to undertake fundraisings involving broader investor participation (i.e., including retail) — given that AIM companies currently prefer to raise funds from institutional investors only, to avoid triggering the requirement to publish an FCA-approved prospectus.

• Public Offer Platforms — Under the new regime, issuers not admitted to trading on a regulated market or MTF would be required to make their UK public offers through a public offer platform if they are seeking to raise funds in excess of £5 million, unless the offer falls under other exemptions. The FCA is soliciting views on the regulatory framework for such public offer platforms, focusing on investor protection measures such as the due diligence platforms would need to perform when onboarding companies, and the level of disclosures to investors.

Stakeholders should send feedback on the engagement papers by email to the FCA by 29 September 2023. For further details, please see this Latham blog post.

Digitisation Taskforce Proposals to Dematerialise All Paper Share Certificates

On 10 July 2023, the Digitisation Taskforce published its interim report. The report’s potential recommendations include:

• bringing forward legislation, and amending company’s articles of association, to stop the issuance of new paper share certificates;
• legislative steps to require dematerialisation of all share certificates at a future date;
• government to consult with issuer and investor representatives on the preferred approach to “residual” paper share certificates held by lost/uncontactable holders; and
• intermediaries to implement common technology enabling them to respond to issuer requests for information on ultimate beneficial owners.

Feedback on the interim report should be sent to the Digitisation Taskforce by 25 September. The Taskforce is expected to publish final recommendations and an implementation plan by spring 2024.

HM Treasury Investment Research Review Issues Recommendations to Increase the Provision of Investment Research

On 10 July 2023, HM Treasury published its Investment Research Review which provides a series of recommendations to increase the provision of investment research, particularly to address the lack of coverage on smaller-cap companies. The recommendations include reversing the MiFID II unbundling requirements (providing buy-side firms more optionality for paying for research) and introducing a research platform to help generate research.

The FCA intends to consult “on an accelerated timetable” on potential changes to its rules, and to publish final rules in the first half of 2024. For further details, please see this Latham blog post.

New CGI Documents to Support Effective Board Performance Reviews

On 5 July 2023, the Corporate Governance Institute (CGI) published its updated Code of Practice for Board Reviewers and two accompanying documents:

The principles of good practice are intended to outline how an organisation should engage with its reviewer in order to achieve the maximum benefit from the engagement and give assurance to its stakeholders. The guidance on reporting is intended to balance the information requirements of the organisation’s stakeholders against the board’s legitimate desire to avoid breaching confidentiality.

Listed company personnel who facilitate board performance reviews should consider these materials to achieve the best possible outcomes.