This edition covers new global sustainability reporting standards, proposals to reform corporate criminal liability laws, the enactment of FSMA 2023, FRC guidance on dividend reporting, Investment Association guidance on requisitioning resolutions, and a Latham & Watkins tracker on the ongoing UK capital markets reforms.

New ISSB Reporting Standards to Bolster Sustainability Reporting

On 26 June 2023, the International Sustainability Standards Board (ISSB) launched its first sustainability-related reporting standards: the General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and the requirements for Climate-related Disclosures (IFRS S2). These standards, which are structured around the four pillars of the Task Force on Climate-related Financial Disclosures (TCFD), will provide businesses with a high-quality reporting framework and ensure investors have access to globally consistent and comparable sustainability-related information.

Listed companies should familiarise themselves with these new standards, as they may be incorporated into UK company law and the listing rule reporting requirements in due course. In particular, as part of its 2023 Green Finance Strategy, the UK government confirmed that it will set up a framework to assess these standards for their suitability for adoption into the UK corporate reporting framework.

The FCA has also announced that, once these ISSB reporting standards are available for use in the UK, it would update its climate-related disclosure rules to reference these standards. Subject to consultation feedback and the UK government’s adoption process, the new ISSB standards should be incorporated into the FCA’s rulebook by H1 2024.

For further details, see this Latham Client Alert.

Proposed Reforms to Hold Companies Criminally Liable for Economic Crimes Committed by Senior Managers

On 15 June 2023, the UK government proposed to reform the corporate criminal liability laws to hold companies liable for economic crimes (such as bribery, fraud, and money laundering) committed by their senior managers.

Currently, a criminal offence will be attributed (pursuant to common law principles) to a company if that offence was committed by its “directing mind and will”. In practice, it has been difficult to attribute offences to a company on this basis where the company has decentralised management, or if the action was committed by a manager several levels removed from board level.

Under the proposal, “senior managers” will be brought within scope of who can be considered the “directing mind and will” of a company. Broadly, this covers persons who play a significant role in the making of decisions about the whole or a substantial part of the activities of the company (regardless of job title). The proposal would make it easier to prosecute large businesses with complex or diffused management structures.

These reforms are expected to be implemented through the Economic Crime and Corporate Transparency Bill which is currently progressing through the House of Lords.

Enactment of FSMA 2023 Marks Key Milestone for Financial Services Reforms

On 29 June 2023, the Financial Services and Markets Bill received Royal Assent, becoming known as the Financial Services and Markets Act 2023. For UK listed companies, the impact of this wide-ranging legislation will not be fully felt until HM Treasury passes the relevant secondary legislation. Key features of the Act include:

• The introduction of a secondary objective for the FCA to facilitate the growth and international competitiveness of the UK economy. The FCA has already begun to integrate this objective into its policy work (e.g., the FCA’s consultation papers seeking to implement the Lord Hill reforms emphasised the importance of ensuring the UK public markets remain an attractive listing venue).
• A framework for repealing and restating retained EU financial services legislation in UK law and regulation. The Act also provides a new regulatory framework (the Designated Activities Regime) under which an activity that does not fall within the regulatory perimeter may be regulated on a stand-alone basis without the firm performing that activity requiring authorisation — in particular, for listed companies, the new UK prospectus regime will be made under the Designated Activities Regime.
• Given their enhanced role in policy-making post-Brexit, the Act seeks to enhance the scrutiny of the financial services regulators to ensure accountability, appropriate democratic input, and transparent oversight.

Companies Urged to Consider the Wider Economic Environment When Reporting on Dividends

On 29 June 2023, the FRC published a report which provides guidance on how to craft high-quality disclosures around dividends. In particular, such disclosures should reflect the new macroeconomic context (i.e., higher interest and inflation rates) and how the dividend policy reflects macro factors.

The report also provides a reminder of upcoming legislative changes in the UK which will require the annual audited disclosure of a company’s distributable profits and a statement of a company’s forward-looking policy on the distribution of profits.

Investment Association Encourages Investors to Consider Escalation via Requisitioning Resolutions

On 29 June 2023, the Investment Association (IA) published guidance to provide institutional investors with an overview of the key steps required to effectively file a resolution at a UK-incorporated company, where shareholders consider it an appropriate escalation mechanism.

The guidance details the key considerations and legal and operational barriers that investors may face at each of these stages (such as regulatory concerns under the Takeover Code regarding acting in concert, UK MAR, and the Disclosure Guidance and Transparency Rules) as well as providing some practical information on how these barriers might be overcome or mitigated.

Latham & Watkins UK Primary Market Reforms Tracker

Latham has published a tracker document which provides an overview of the key developments around reforming the UK capital markets regime following Lord Hill’s UK Listings Review, launched on 19 November 2020 as part of the UK government’s plan to strengthen the UK’s position as a leading global financial centre.

The tracker document includes comparisons to illustrate how the proposals contrast with the existing regime.