UK Quoted Company Newsletter Q3 2023

Introduction

Welcome to the most recent edition of our UK quoted company newsletter, the aim of which is to collate and highlight relevant legal, regulatory and topical developments that we have written about primarily in the third quarter of 2023.

Corporate Reporting

1. Government shelves corporate reporting requirements for 'size-based PIEs'

The Department of Business and Trade has announced the withdrawal of the draft Companies (Strategic Report and Directors' Report) (Amendment) Regulations 2023 which required enhanced corporate reporting by a new category of 'size-based' public interest entities (PIE). It has done so after 'consultation with business' on the wider reporting regime. Instead it will 'pursue options to reduce the burden of red tape to ensure the UK is one of the best places in the world to do business'. These proposals will be set out 'shortly'.

AGC 39 contains more detail on the proposed legislation which was due to be implemented for relevant size-based PIEs with securities admitted to trading on UK regulated markets for financial years beginning on or after 1 January 2025. The legislation would have applied to other in-scope PIEs a year later - i.e. private companies and those with securities admitted to trading on AIM. 

Please click on the link below for further information.

AGC 42 (19/10/23) Refer to article 1

2. FCA guidance on structured digital reporting of financial statements

The Financial Conduct Authority (FCA) published Handbook Notice 111, which summarises feedback the FCA received on proposals in Consultation Paper 23/2 (CP 23/2) to simplify Handbook rules that require in-scope listed companies to publish their annual financial reports in a structured digital reporting format. The final rules came into effect on 28 July 2023 and apply to financial years starting on or after 1 January 2022. 

Please click on the link below for further information.

AGC 40 (1/8/23) Refer to article 1

3. Government called on to mandate ethnicity pay gap reporting

ShareAction and Runnymede Trust have called on the UK government to adhere to its 2018 commitment to mandate Ethnicity Pay Gap reporting for workplaces with 250 or more employees. 

Please click on the link below for further information.

AGC 41 (26/9/23) Refer to article 11

4. EU proposes adjustments to corporate reporting thresholds

The European Commission has published for consultation, a proposal amending Directive (EU) 2013/34 concerning adjustments of the size criteria for micro, small, medium-sized and large companies. The explanatory notes state that the European Commission considers it necessary to amend the monetary size criteria in Directive (EU) 2013/34, namely, the balance sheet total and the net turnover, for determining the size category of a company by 25 per cent to adjust for the effects of inflation. 

Please click on the link below for further information.

AGC 41 (26/9/23) Refer to article 4

5. The influence of proxy advisors and ESG rating agencies on FTSE 350 companies

A research report commissioned by the Financial Reporting Council examines the influence of proxy voting advisors and ESG rating agencies on reporting by FTSE 350 companies. Both companies and investors welcome greater transparency on the methodologies used by ESG rating agencies including, for example, more information on the specific ESG factors covered and how they are weighted and the quality assurance process. 

Please click on the link below for further information.

AGC 38 (19/7/23) Refer to article 3

6. FRC publishes review of fair value measurement

The Financial Reporting Council has published a thematic review of fair value measurement and, in particular, related disclosures. IFRS 13 ‘Fair Value Measurement’, has featured in the FRC's Corporate Reporting Review team’s 'Top Ten' matters of challenge several times in the past. While the FRC believes that the application of IFRS 13 is generally satisfactorily applied by larger companies and its principles are well understood by certain sectors such as banking, insurance and real estate, smaller companies appear to struggle with the requirements.

Please click on the link below for further information.

AGC 38 (19/7/23) Refer to article 14

Audit and Audit Reform

7. Delays to audit reform 

According to the Financial Times, 'The government is preparing to omit a much-delayed overhaul of the UK’s audit and corporate governance regimes from its programme of flagship legislative reforms for the coming year.' The FT believe that the primary legislation needed to take forward aspects of the reform package will not be included in the King's Speech on 7 November 2023 due to a lack of available time in the next Parliamentary session.

This means that the creation of the successor body to the FRC, the Audit, Reporting and Governance Authority or 'ARGA' may not come to fruition until 2026 or 2027. It is also likely to mean that the new regime whereby ARGA can hold directors accountable for breach of their duties in relation to financial reporting will be delayed. Its impact on the extension of reporting requirements to a new category of 'size-based' Public Interest Entities – see AGC 39. 

Please click on the link below for further information.

AGC 41 (26/9/23) Refer to article 5

8. FRC audit quality report

The FRC published its annual inspection and supervision results of the largest audit firms - Audit Quality Inspection and Supervision Report. Overall, 75 per cent. of audits inspected were good or required limited improvement (compared to 71 per cent. in 2021 and 67 per cent. in 2020). 

Please click on the link below for further information.

AGC 39 (1/8/23) Refer to article 3

Rules and Regulation

9. FCA publishes Primary Market Bulletin No 45 with a focus on ISSB Standards

The FCA has published Primary Market Bulletin 45, which covers the implementation of ISSB standards for listed companies, the audit of financial statements by third country audit firms and the application of transitional provisions in relation to minimum market capitalisation for shell companies. It also includes a reminder to issuers that the FCA has introduced multi-factor authentication (MFA) for its systems and that the option to skip MFA registration when logging into the Electronic Submission System will end soon. 

Please click on the link below for further information.

AGC 41 (26/9/23) Refer to article 6 

10. Chancellor announces Mansion House Reforms

As part of the Chancellor's series of Mansion House Reforms which build on the Edinburgh Reforms, the government announced a package of initiatives to encourage companies to grow and list in the UK. 

Please click here for our briefing on the Mansion House Reforms and the link below for more information.

AGC 38 (19/7/23) Refer to article 5

11. FCA launches webpage dealing with Russian and Belarusian sanctions confirmations

The FCA published a webpage setting out the requirement for issuers to provide a Russia and Belarus sanctions confirmation when making a vetting, guidance or listing application request. 

Please click on the link below for further information.

AGC 39 (1/8/23) Refer to article 4 

12. Dividends: LSE 2024 Dividend Procedure Timetable

The London Stock Exchange published its 2024 Dividend Procedure Timetable. This is published on an annual basis as a guide for companies with shares listed on the Official List or admitted to trading on AIM on setting their interim and final dividend programmes. 

Please click on the link below for further information.

AGC 40 (1/8/23) Refer to article 1

13. SEC rules on public company cybersecurity disclosures

The US Securities and Exchange Commission has adopted final rules requiring disclosure of material cybersecurity incidents and periodic disclosure of a registrant’s cybersecurity risk management, strategy and governance in annual reports. The Commission has also adopted rules requiring foreign private issuers to make comparable disclosures. A Fact Sheet relating to the new rules can be found here. 

Please click on the link below for further information.

AGC 41 (26/9/23) Refer to article 7

14. Consultation launched on the first financial market infrastructure Sandbox

HM Treasury has published a consultation on the first financial market infrastructures Sandbox, the 'Digital Securities Sandbox' (DSS), which will enable digital services to be tested and ultimately adopted across financial markets. The DSS will enable financial market infrastructures to be established that will utilise digital asset technology, which can perform a number of activities in relation to digital securities under a temporarily modified legislative and regulatory framework. 

Please click on the link below for further information.

AGC 39 (1/8/23) Refer to article 10 

15. HMRC to preserve current zero per cent charge on UK share issues on overseas markets

HMRC published a policy paper consulting on proposals to ensure the existing 0 per cent charge to stamp duty and stamp duty reserve tax (SDRT) on the issue of UK shares on overseas markets via depositary receipt systems and clearance services will continue to apply after the end of 2023. The proposals preserve the current position under retained EU law, which will be revoked at the end of 2023 under the Retained EU Law (Revocation and Reform) Act 2023. 

Please click on the link below for further information. 

AGC 41 (26/9/23) Refer to article 8 

Corporate Governance

16. Chartered Governance Institute updates board performance evaluation resources

The Chartered Governance Institute published the following revised documents: (i) Code of Practice for board reviewers ; (ii) Principles of good practice for listed companies using external board reviewers; and (iii) Guidance for listed companies on reporting on board performance reviews. The Financial Reporting Council believes that the disclosure of board performance evaluations is an area of reporting in need of attention, a fact borne out by the proposed revisions to the UK Corporate Governance Code. Consequently, these documents should be looked on as an important guide to the commission, conduct and disclosure of evaluations if they have not been considered as such already. 

Please click on the link below for further information.

AGC 38 (19/7/23) Refer to article 1

17. Investment Association guidance on requisitioning resolutions 

The Investment Association published guidance, Effective Requisitioning of Shareholder Resolutions, for its members on the effective requisitioning of shareholder resolutions, highlighting key considerations and the steps that investors can take. 

Please click on the link below for further information.

AGC 38 (19/7/23) Refer to article 2

18. FCA publishes Vote Reporting Group consultation 

The Financial Conduct Authority published a consultation and discussion paper from the Vote Reporting Group that proposes a voluntary, standardised and comprehensive ‘vote reporting template’ for asset managers to use when communicating their voting activity to their asset owner clients.

Please click on the link below for further information.

AGC 41 (26/9/23) Refer to article 3

ESG and Sustainability

19. IFRS Sustainability Disclosure Standards 

The International Sustainability Standards Board (ISSB) published final versions of two key sustainability standards (IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures) which aim to consolidate a raft of sustainability and climate-related disclosures, including the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and Sustainability Accounting Standards Board (SASB) Standards. These new standards should ensure that sustainability disclosures are consistent and helpful for decision-makers. They are also intended to provide a single global baseline for sustainability disclosures upon which jurisdiction-specific requirements can be built. 

Please click on the link below for further information or see our briefing note here.

AGC 38 (19/7/23) Refer to article 7

20. IFRS Sustainability Disclosure Standards endorsed by international securities regulators

The International Organization of Securities Commissions (IOSCO) announced its endorsement of the ISSB Standards. The announcement followed the recent release of the ISSB’s first two Standards, IFRS S1 and IFRS S2 (see our briefing note here) and sends a strong signal to jurisdictions around the world that the ISSB Standards are fit for purpose for capital market use, enable pricing of sustainability-related risks and opportunities, and facilitate enhanced data collection and analysis. 

Please click on the link below for further information.

AGC 39 (1/8/23) Refer to article 6

21. UK Sustainability Disclosure Standards 

The Department for Business and Trade has published guidance on the government's framework to assess the suitability of the IFRS Sustainability Disclosure Standards S1 and S2 and create UK Sustainability Disclosure Standards (UK SDS). Any future requirements in UK legislation or regulation for companies to report on risks and opportunities relating to sustainability matters, including those arising from climate change will be based on the UK SDS. Pursuant to the framework, the Secretary of State for Business and Trade will consider endorsing S1 and S2 by July 2024. If endorsed, the UK standards will only divert from the global baseline if absolutely necessary for UK specific matters. 

Please click on the link below for further information.

AGC 40 (1/8/23) Refer to article 3

22. IFRS Foundation publishes comparison of IFRS S2 with the TCFD Recommendations

Following the recent publication of the ISSB Standards on climate related disclosures (see our briefing note here), the IFRS Foundation has published a comparison of the requirements in IFRS S2 Climate-related Disclosure and the Task Force on Climate-related Financial Disclosures Recommendations. 

Please click on the link below for further information.

AGC 39 (1/8/23) Refer to article 3

23. Climate-related metrics and targets disclosures – FRC issues thematic review

The FRC has published a thematic review, assessing the quality and maturity of climate-related metrics and targets disclosures. The review considers the Task Force on Climate-Related Financial Disclosures (TCFD) metrics and targets disclosures of twenty UK premium and standard listed companies operating in sectors covered by TCFD sector-specific supplemental guidance. 

Please click on the link below for further information.

AGC 39 (1/8/23) Refer to article 7

24. FRC Lab publishes report on ESG data distribution and consumption

The FRC Lab published a report: 'ESG Data Distribution and Consumption' in which it examines how investors obtain and use ESG data on companies, and highlights what actions companies can take to facilitate this. 

Please click on the link below for further information.

AGC 39 (1/8/23) Refer to article 8

25. TNFD makes major development to sustainability reporting landscape

The Taskforce on Nature-related Financial Disclosures (TNFD) has published the final versions of its disclosure recommendations and guidance. The recommendations aim to provide organisations with a risk management and disclosure framework to assess their dependencies and impacts on nature, the nature-related risks and opportunities material to them, and to support disclosures as part of their annual financial reports. 

Please click on the link below for further information.

AGC 41 (26/9/23) Refer to article 1 

26. ISSB consults on proposed digital taxonomy to improve sustainability information 

The International Sustainability Standards Board (ISSB) published a consultation on its proposed Sustainability Disclosure Taxonomy (SDT). The SDT is intended as a global baseline for tagging sustainability-related financial disclosures and reflects the disclosure requirements in the ISSB’s first two standards - IFRS S1 and IFRS S2. A common digital taxonomy will facilitate digital reporting of sustainability-related financial information prepared, applying the ISSB Standards. This will improve the accessibility and comparability of that information for investors globally. 

Please click on the link below for further information.

AGC 40 (1/8/23) Refer to article 3

27. International Standard on Sustainability Assurance Engagements

The International Auditing and Assurance Standards Board (IAASB) has published an exposure draft of its proposed International Standard on Sustainability Assurance 5000, General Requirements for Sustainability Assurance Engagements (ED-5000), which aims to enhance the confidence investors, regulators and other stakeholders have in sustainability information. 

Please click on the link below for further information.

AGC 40 (1/8/23) Refer to article 5

28. EU Sustainability Reporting Standards adopted by European Commission

The European Commission has adopted a Delegated Regulation and two accompanying Annexes setting out the first EU Sustainability Reporting Standards (ESRS). The ESRS will apply to companies subject to the Corporate Sustainability Reporting Directive 2022 ((EU) 2022/2464) (CSRD) (see our briefing on the Corporate Sustainability Reporting Directive - An overview by clicking here). The CSRD amended the Accounting Directive (2013/34/EU) to introduce requirements for in-scope companies to report against the ESRS and required the ESRS to be adopted by June 2023. 

Please click on the link below for further information.

AGC 40 (1/8/23) Refer to article 4

29. Audit Committee Chairs' views on and approach to ESG

The Financial Reporting Council has published a report discussing Audit Committee Chairs' (ACCs) views on, and approach to, ESG activities and reporting. The research, conducted by YouGov, is the result of 40 interviews with the ACCs of predominantly listed companies drawn from a range of sectors. 

Please click on the link below for further information.

AGC 38 (19/7/23) Refer to article 4

Corporate Crime

30. The failure to prevent fraud offence at a glance - what do companies need to know?

The government's new "failure to prevent fraud" is expected to come into force in Q1 2024. The introduction of the offence marks the first notable expansion of UK corporate criminal liability since the introduction of failure to prevent offences for bribery and the facilitation of tax evasion under the Bribery Act 2010 and Criminal Finances Act 2017. However, while the introduction of the offence adds another important element to corporate compliance programmes, it remains to be seen if enforcement of the offence creates an effective deterrent which changes behaviour. 

Please click on the link below to read our briefing on the offence.

Ashurst Update (28/9/23)

31. Expanding the scope of corporate criminal liability for economic crimes

The government has proposed widening the scope of corporate criminal liability for specified economic crimes. The criminal acts of a company's "senior managers" will now be attributable to the company.  The economic crimes to which this will apply are wide-ranging and include fraud, false accounting, money laundering, sanctions evasion, bribery, and tax evasion. The proposal has been accepted by both Houses and is expected to become law.

This is the latest in a line of reforms which are intended to make it easier for authorities to hold corporates to account for criminal conduct, including the announcement of the proposed "failure to prevent fraud" offence (see above).

Please click on the link below to read our briefing which highlights the key considerations for companies and our thoughts on how this may change the management of criminal risk for corporates.

Ashurst Update (28/9/23)

Corporate Cases

32. Derivative claim against directors: climate change strategy

In ClientEarth v Shell Plc [2023] EWHC 1897 (Ch) the High Court refused to allow a claimant to continue a derivative claim against a company’s directors for alleged breaches of their duties in connection with the company’s climate change strategy. A derivative claim is a claim brought by a shareholder of a company against the directors under the Companies Act 2006 in respect of a cause of action vested in the company and seeking relief on behalf of the company. 

This decision confirms the difficulties of using the derivative claims procedure as a route to challenging the good faith decision-making of boards in relation to the climate change strategies of their companies. 

Please click on the link below to read more about this decision.

Ashurst and Practical Law Corporate Update Q3 2023 (20/10/23) Refer to article 2

33. Asset purchase agreement: construction of buyer indemnity

In PA (GI) Ltd v Cigna Insurance Services (Europe) Ltd [2023] EWHC 1360 (Comm) the High Court held that an indemnity, under which the buyer of a business indemnified the seller and other members of the seller’s group, covered liabilities for historic negligence arising from the mis-selling of insurance products. 

This decision highlights the importance for an indemnity to expressly deal with the issue of whether or not it covers liability arising from the negligence of a party. The indemnity should also clearly address who can benefit from it, including whether members of the indemnified party’s group are covered and whether they remain covered if they leave the group.

Please click on the link below to read more about this decision.

Ashurst and Practical Law Corporate Update Q3 2023 (20/10/23) Refer to article 1

Companies House

34. Register of overseas entities: guidance on filing annual update statement

Companies House published guidance on how to file the annual update statement required of an overseas entity and its beneficial owners or managing officers. It has also published guidance concerning the use of its enforcement powers in relation to the register of overseas entities.

Please click on the link below for further information.

AGC 38 (19/7/23) Refer to article 13

35. Register of overseas entities: updated guidance on registration and verification

The Department for Business & Trade published updated guidance for the registration of entities on the register of overseas entities. The updated guidance reflects changes on identifying foreign limited partners as beneficial owners and includes changes to rectification, dispositions, financial penalties and protected information. 

Please click on the link below for further information.

AGC 40 (1/8/23) Refer to article 1

36. Digitisation of shareholdings: Digitisation Taskforce interim report

The Digitisation Taskforce, which aims to implement the full digitisation of the UK shareholding framework by eliminating the use of paper share certificates and to overhaul the UK’s intermediated system of share ownership. has issued its interim report. 

Please click on the link below for further information.

Ashurst and Practical Law Corporate Update Q3 2023 (20/10/23) Refer to article 3

Other relevant Ashurst Q3 2023 Publications

Corporate

37. Ashurst and Practical Law Corporate Update Q3 2023 (20/10/23)

This briefing features articles written by Ashurst LLP and Practical Law Corporate in Q3 2023 and first published in the company law section of PLC Magazine, the leading monthly magazine for business lawyers advising companies active in the UK.

38. UK Public M&A Update Q3 2023 (11/10/23)

This edition features topical public M&A developments that have taken place in the third quarter of 2023. 

Debt Capital Markets

39. Ashurst Quarterly Debt Capital Markets Update Q3 2023 (11/10/23)

This edition summarises key developments in debt capital markets in the third quarter of 2023.

Employment

40. TUPE and share incentive plans – potential collateral damage for employers? (29/8/23)

This briefing addresses a common question asked on a transfer of employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) which is whether the new employer has to put in place employee share plans equivalent to those offered by the former employing entity.