Ashurst Governance & Compliance Update – Issue 51

Economic Crime and Corporate Transparency

1. Companies House publishes guidance on removing information from the register 

Companies House has published new guidance on removing information to address incorrect and inconsistent information on the various registers it keeps.

The guidance states that the Registrar of Companies will remove information if satisfied that:

• information in a document is false;
• a document has been submitted without the company’s knowledge or authorisation; or
• a document records a transaction that never occurred.

A person can apply to Companies House to remove information if:

• that person’s details have been used without their knowledge or authorisation;
• a filing has been made in respect of that person’s company without its authority; or
• a filing reflects a transaction that did not occur.

In certain circumstances, Companies House may require a declaration or court order to proceed.

Companies House has also provided a new Form RP08, to be used when applying to remove information or material that was not properly delivered to Companies House, and which was delivered under the Companies Act 2006 or associated legislation. Note that this form cannot be used to apply to rectify the registered office address of company or in relation to material delivered under the Companies Act 1985 or earlier legislation. 

Reform of the Listing Regime

2. Proposed changes to the UK Listing Regime – Indicative impact to the FTSE UK Index Series

FTSE Russell has provided advance notice on how its FTSE UK Index Series Ground Rules are expected to be adapted if the FCA’s listing regime proposals, as set out in CP 23/31, are adopted. For our overview of the key features of CP 23/31, see Item 1 of AGC Update, Issue 46.

FCA listing regime proposals

Central to the FCA's reform proposals is the creation of a new single listing category for equity shares of commercial companies (ESCC) which will replace the existing premium and standard segments. Other new listing categories include the transition category, based on current rules for standard listed shares, the international secondary listing category for non-UK incorporated companies with a primary listing overseas, the shell companies category and the non-equity shares and non-voting equity shares category. Retained categories include the closed-ended investment funds (CEIF) category, the open-ended investment companies category and the debt and debt-like securities category, amongst others. 

FTSE Russell response 

Currently, inclusion in the FTSE UK Index Series is linked to premium listing (in addition to other requirements). In response to the FCA's listing regime proposals, FTSE Russell anticipates that the ESCC and the CEIF categories will become the eligible index 'universe' for the FTSE UK Index Series, replacing the premium segment.

As securities currently listed on the premium segment will be automatically mapped to the ESCC and CEIF categories, there is not expected to be an immediate impact to the FTSE UK Index Series on day one of the new listing regime.

It is proposed that existing standard listed commercial companies will be mapped to the new transition category, unless such issuers are eligible for another listing category, such as the international secondary listing category. FTSE Russell has indicated that companies listed in the transition and international secondary listing categories will be ineligible for the FTSE UK Index Series – in line with the current treatment of companies listed on the standard segment.

FTSE Russell highlights that its projections relating to the FTSE Russell indices are not final and are subject to change, depending on any further developments announced by the FCA. 

Next steps

The final form of the new UK Listing Rules sourcebook (UKLR) is expected to be published early in the second half of this year. It is envisaged that there will be a short implementation period of two weeks before the UKLR come into force. Changes to the FTSE Russell UK Ground Rules are expected to follow shortly thereafter. FTSE Russell will provide further updates in due course.

3. Transitional provisions for 'mid-flight' transactions 

Following the publication of the FCA's tranche 2 rules (see Item 7 of AGC Update, Issue 50), we now have more visibility on the transitional provisions for mid-flight transactions by 'former' premium listed issuers - i.e. transactions that have not yet completed at the point the UKLRs come into force. See our summary of the transitional provisions here.

Smarter Regulation Reforms

4. Government sets out agenda to cut red tape for small businesses 

In a series of recent related developments, the government is seeking to progress its 'Smarter Regulation' agenda as first set out in its 'Smarter regulation to grow the economy' policy paper, published in May 2023. By way of reminder, the policy paper set out how the government would improve regulation to reduce burdens and drive economic growth following the UK's departure from the European Union.

Firstly, the government issued a press release concerning a reform package to boost apprenticeships and cut red tape for small businesses. In particular, it includes mention of: (i) deregulatory measures to simplify both non-financial and financial reporting for SMEs; and (ii) a consultation later this year on further changes including exempting medium-sized companies from some current regulatory requirements. 

In relation to the deregulatory measures to simplify both non-financial and financial reporting for SMEs, these are stated to include: (i) increasing the number of companies which qualify as a smaller or medium sized business through a 50 per cent uplift to the thresholds that determine a company’s size-related status, which the press release states will spare many businesses from certain form-filing and non-financial reporting requirements; and (ii) removing several duplicative reporting requirements, including as to what companies must set out in their annual reports, whilst also making it easier for companies to share digitalised annual reports rather than paper copies. 

In relation to the future consultation, the press release states that the government will also consult on further changes later this year including exempting medium-sized companies from producing strategic reports, and amending company classification thresholds (see below). 

The Department of Business and Trade also released a summary of responses in relation to its Call for Evidence on its Non-Financial Reporting Review. By way of reminder, the call for evidence considered if current company size thresholds (micro, small, medium and large) that determine certain non-financial reporting requirements, and the preparation and filing of accounts with Companies House, remain fit for purpose. Findings from the call for evidence include that too many small firms have been drawn in to non-financial reporting, which is addressed by the above-mentioned press release. However, as regards other findings, including that non-financial reporting complexity is a problem for companies, the summary of responses did not set out any next steps.

The Department of Business and Trade has also published a written Ministerial Statement providing further details on the reforms. For example, it states that the government intends to lay legislation this summer to achieve the deregulatory measures for SMEs; that the 50 per cent uplift would lead to the company classification threshold changes shown in the table in the Ministerial Statement (see link earlier in this paragraph); that the effect of these changes would be that 5,000 large companies would be reclassified as medium-sized and access more proportionate reporting; 13,000 medium-sized companies would be reclassified as small companies, enabling them to benefit from statutory audit exemptions as well as the ability to file simpler accounts; and 113,000 small companies would be reclassified as micro- companies which would allow them to file simpler accounts.

The Ministerial Statement also states in relation to the further consultation later this year regarding medium-sized companies, that as well as consulting on raising the threshold on the number of employees to be classified as a medium-sized company from 250 to 500, it will also consult on exempting medium-sized companies from having to produce a strategic report and on exempting smaller public interest entities from audit tendering and rotation requirements.

The FRC has issued a press release welcoming these proposals, noting that it has been closely involved in the review. 

Sustainability

5. FRC launches market study on UK sustainability assurance market 

The FRC has announced the launch of a study to examine the UK market for sustainability assurance services. The study aims to ensure this market is functioning effectively and providing high quality assurance over companies' sustainability reporting.

As some major audit firms are significant suppliers in the market for sustainability assurance services, in addition to providing statutory audits, the FRC wants to understand any potential implications for competition and resilience in the UK's statutory audit market.

Key areas of the FRC's market study include:

• Choice, quality and competition in the sustainability assurance market.
• Capacity constraints and barriers to entry or expansion.
• Potential impacts from changing international regulations.
• Any interplay between the sustainability assurance and statutory audit markets.

The FRC is inviting all interested parties to submit comments and evidence on the sustainability assurance market by June 13, 2024. The market study is expected to conclude in early 2025.

Payment Practices Reporting

6. Revised Payment Practices Regulations come into force

By way of reminder, the revised Payment Practices and Performance Regulations will come into force on 5 April 2024. For our overview of the changes to this regime, see Item 5 of AGC Update, Issue 45.

Regulation in practice 

7. FRC sets priorities for 2024 - 2025

The FRC has published its Plan and Budget for 2024-25. 

Outlining its aims for a year of consolidation and prioritisation to support public interest outcomes and UK economic growth, the FRC will focus on its core purpose of promoting trust and confidence in audit, corporate reporting and governance. A key priority will be further embedding the FRC's ‘growth duty’ into all regulatory decision-making.

The combined £71.5m budgeted cost for the FRC and UK Endorsement Board in 2024-25 is 5 per cent lower than previously forecast, but higher than 2023-24 (£66.3m), reflecting inflation. It includes provision for a new FRC office in Birmingham, supporting the government's levelling-up agenda.

Authors: Will Chalk, Partner; Rob Hanley, Partner; Marianna Kennedy, Senior Associate, Vanessa Marrison, Expertise Counsel; Becky Clissman, Counsel