Legal development

Ashurst Governance and Compliance Update - Issue 26

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    Economic Crime and Corporate Transparency

    1. Government introduces more measures to tackle economic crime

    Narrative and Financial Reporting

    2. ESEF reporting: FRC Lab identifies more work to be done in review of early reports

    3. FRC Lab publishes report on Improving ESG data production

    4. Financial reporting update

    5. EU developments: Corporate Sustainability Reporting Directive

    Market Abuse Regulation

    6.  ESMA updates Q&As on the EU Market Abuse Regulation 


    7. Retained EU Law (Revocation and Reform) Bill introduced to Parliament

    Economic Crime and Corporate Transparency

    1. Government introduces more measures to tackle economic crime

    The Economic Crime and Corporate Transparency Bill 2022 has been published. This is the second stage in the government's programme to prevent the abuse of UK corporate entities and combat economic crime. By way of reminder, the first stage was largely completed with the implementation on 5 September 2022 of the Register of Overseas Entities as regards property ownership – for more on this aspect of the regime, in particular its impact on transactions involving real estate, please click here.

    Many of the proposals in the Bill were first signalled in the government's corporate transparency and reform White Paper issued earlier this year. For our briefing on the White Paper - click here.

    The proposals cover the following areas:

    Companies and Companies House (Part 1)

    There are significant reforms proposed to the role of Companies House including proposals affecting: company formation, company and business names, registered offices, registered email addresses, directors, persons with significant control (PSCs), accounts and reports, registers of members, confirmation statements, identity verification of directors and PSCs, delivery of documents and the inspection and sharing of information.

    The Registrar of Companies is to be given a new array of powers to prevent companies, limited liability partnerships and limited partnerships from being used to facilitate economic crimes such as fraud, money laundering and terrorist financing.

    The Registrar will have broad powers to actively check, remove or decline information submitted to, or already on, the companies register, with the objective of improving financial information on it so that it is more accurate and reliable. The Registrar will also have new investigation and enforcement powers, including the ability to share data proactively with law enforcement and other bodies where there is evidence of anomalous filings or suspicious behaviour.

    The Bill features identity verification measures for new and existing registered company directors, persons with significant control, and those delivering documents to the Registrar. There are also measures for enhancing the protection of personal information provided to Companies House to protect individuals from fraud and other crime.

    Limited Partnerships (Part 2)

    There are important reforms proposed to increase the transparency of limited partnerships (LPs) and prevent their abuse for the purposes of economic crime, including proposals affecting: LP registration, registered offices, registered email addresses, general partners and changes in partnerships, confirmation statements, accounts, the register of LPs, disclosure of information, dissolution of LPs, deregistration of LPs and delivery of documents.

    The reforms are designed to tackle the misuse of LPs, including Scottish LPs, while modernising the law governing them. There are measures to tighten LP registration to increase transparency and a requirement for LPs to maintain a connection to the UK. There are also new powers for the Registrar to deregister LPs which are dissolved, no longer carry on business, or where a court orders that it is in the public interest to do so.

    Register of Overseas Entities (Part 3)

    The Bill includes further information relating to the Register of Overseas Entities, particularly relating to false statement offences connected with information notices made under that regime.

    Cryptoassets (Part 4)

    The Bill gives new powers to law enforcement to seize and recover cryptoassets which are the proceeds of crime or associated with money laundering, fraud or other illicit activity. In particular, the Bill amends both criminal confiscation and civil recovery powers in the Proceeds of Crime Act 2002 to enable enforcement agencies to tackle criminal use of cryptoassets more effectively.

    Anti-money laundering powers (Part 5)

    There are new measures addressing money laundering and terrorist financing, as well as enabling businesses to share information more easily to prevent, detect or investigate economic crime.

    The Bill aims to strengthen anti-money laundering powers, enabling better information sharing on suspected money laundering, fraud and other economic crimes. This includes the disapplication of civil liability for breaches of confidentiality in certain situations where businesses share information to combat economic crimes. There are also new powers enabling proactive intelligence gathering by law enforcement agencies.

    More information about the Bill is available in the government's Explanatory Notes and Factsheets. We will issue further updates as the Bill makes its way through the Parliamentary process.

    Narrative and Financial Reporting

    2. ESEF reporting: FRC Lab identifies more work to be done in review of early reports

    The FRC Lab has published a report that identifies lessons learnt from the first year of mandatory structured digital reporting under the TD ESEF regulation. The Lab reviewed 50 structured reports from across the UK and Europe which were either voluntary filings or originated from EU countries where the requirements have already come into force.

    Key messages from the Lab were that:

    • The majority of reports fell short of the quality expected for companies’ official filings. More than 70 per cent of the files contained tagging errors, more than half had issues limiting their usability and more than 25 per cent had design issues.
    • Although many issues were identified during the review, almost all issues could be solved with appropriate care and attention. The Lab believes that a focus on quality is crucial for a successful roll-out of structured reporting.
    • The Lab identified practice tips across three broad areas: process, usability & appearance and tagging – a summary of these can be found on page 4 of the report.
    • The Lab notes that the issues identified are clearly visible to users and, therefore, may negatively affect a company's reputation and the willingness of stakeholders to use digital information.

    The report highlights forthcoming changes to timetables and tagging requirements and contains a list of questions for boards and companies to consider in relation to the implementation process, governance and usability and appearance of tagged reports.

    As for next steps, the Lab states that it will continue to support companies in their implementation of the requirements and will also work with the FCA to monitor the quality and usability of filings. It will also consider producing further guidance and is planning to host a webinar later in the year.

    Note that the FRC is also currently consulting on its 2023 Taxonomy suite, which includes changes in relation to reporting Alternative Performance Measures and on diversity and inclusion in light of the FCA's new rules on the subject. It intends to release a final version of the suite in October 2022.

    In the same vein, the FRC and FCA are hosting a webinar: Year one TCFD-aligned disclosures: UK regulators' perspectives on lessons learned and better practice. This will take place on Friday, 7 October 2022 between 3.00pm and 4.30pm. To register, click here. The FRC is also holding an in-person event: The Wates Principles – Next steps in good practice and reporting on 25 October 2022 between 4.00pm and 6.00pm. To register, click here.

    3. FRC Lab publishes report on Improving ESG data production

    The FRC Lab has published a report on Improving ESG data production. Its aim is to help companies collect and use ESG data in decision-making more effectively. The report, which is based on interviews and roundtables held with a range of organisations including listed and large private companies, follows the Lab's 2021 ESG Statement of Intent, which highlighted that the systems to produce ESG data are significantly less mature than those for financial information.

    The report sets out the three key elements of ESG data production: motivation, method and meaning. It then outlines some suggested positive actions to address the challenges involved in obtaining relevant data as well providing suggestions for how boards can optimise how ESG data is collected and applied – it does this in part through a twelve step approach to the task as follows:


    1. Perform a materiality assessment to understand what ESG topics and data points are relevant to the company: a) Identify both current and future drivers for ESG data; b) Engage internal stakeholders across all levels to understand what is needed operationally and strategically, and identify what is already collected and what is missing; c) Engage with key investors and other stakeholders to understand what data is important to them; and d) Review regulation and framework requirements.

    2. Collaborate with peers through industry bodies to identify sector relevant metrics, methods and sources.

    3. Identify and encourage internal champions who can raise awareness.


    4. Identify who are the data producers and owners across the company for different data sets, and the coordinators, reporters and validators for a joined-up approach.

    5. Identify the internal and external sources for the data and set out the methodology and frequency for gathering the data.

    6. Whether a manual or automated system, engage with finance and internal audit teams to apply controls over the data, including evidence trails, reviews and sign-offs.

    7. Assess which data should be subject to internal and external assurance.

    8. Document responsibilities and processes for knowledge retention.

    9. Share lessons learnt with teams and subsidiaries where approaches may be historically different.


    10. Consider training and education for the board and across the company on why ESG data is needed and how it can be used for effective strategic decision-making.

    11. Do not treat ESG data just as part of an annual reporting cycle; integrate it in regular processes and embed it in the company’s culture to understand: a) company performance and impact; b) risks and opportunities; c) progress against commitments; and d) what action (including strategic change, capital allocation and incentivisation) is necessary.

    12. Review whether existing data and data quality is supporting strategic decision-making and whether investment in systems and resource is needed.

    The Lab will now move on to the next stage of its ESG data project, which will explore how companies communicate and distribute data to the market and how investors, regulators and other stakeholders use that data.

    4. Financial reporting update

    The FRC has recently published:

    • A thematic review of deferred tax assets. This considers the basis of recognition of, and disclosure in relation to, deferred tax assets in light of the effect of Covid-19 on companies' profitability. It follows the FRC's previous tax-related thematic reviews published in 2016.

      The FRC states that companies should recognise deferred tax assets only to the extent their recoverability is probable. The FRC did not identify any obvious issues with over-recognition in this area, although in some cases it was difficult to make a full assessment due to the lack of informative disclosure.

      The review found several instances of good practice across most individual aspects of deferred tax asset disclosure. However, the FRC believes there is scope for improvement in certain areas which are set out in the review.

      To encourage improvement in the general quality of company disclosures, the review also includes examples of good practice where companies have provided informative, transparent disclosures in relation to deferred tax assets.
    • A thematic review on earnings per share. This review considers the requirement for companies with listed ordinary shares to report earnings per share in accordance with IAS 33 in their interim and annual reports.

      The FRC’s review identifies how companies can improve their disclosure of EPS and highlights the more common errors found in EPS calculations, and reminds companies of certain key requirements.

    5. EU developments: Corporate Sustainability Reporting Directive

    The European Council and European Parliament have reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD) aimed at enhancing corporate sustainability reporting requirements under the Non-Financial Reporting Directive (2014/95/EU) (NFRD).


    If adopted, the new sustainability reporting requirements will apply to:

    • large EU undertakings, being those which meet at least two of the following criteria:
      • a balance sheet total of €20m;
      • net turnover of €40m; or
      • an average number of employees during the financial year of 250;
    • non-EU companies which generate a net annual turnover of more than €150m in the EU market and which have at least one subsidiary or branch in the EU; and
    • small and medium-sized enterprises (SMEs) listed on regulated markets (excluding SMEs with securities listed on SME growth markets or multilateral trading facilities).

    Large undertakings are also responsible for assessing the information at the level of their subsidiaries.

    Implementation and application

    The text of the CSRD is subject to approval by the Council and EU Parliament. It will enter into force 20 days after its publication in the EU Official Journal and its provisions will have to be transposed into Member States’ national legislation within 18 months.

    The intention is for application of the CSRD to apply in three stages, from:

    • 1 January 2024 for companies already subject to the NFRD;
    • 1 January 2025 for large companies not currently subject to the NFRD; and
    • 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings.
    Reporting requirements

    Companies within the scope of the CSRD will be required to report on a wide variety of sustainability issues relating to environmental matters (such as climate change and pollution), social matters (such as working conditions and human rights) and governance matters (such as the role of the company's administrative, management and supervisory bodies with regard to sustainability matters).

    In addition, in scope companies will be required to publish the information in a clearly identifiable dedicated section of the company's management report and in an electronic reporting format (including tagging the sustainability information).

    Further, the report will need to be produced in line with mandatory EU sustainability reporting standards (ESRS). The European Financial Reporting Advisory Group, which is responsible for establishing ESRS, has published a consultation on the draft ESRS. Importantly, to ensure compliance with ESRS, reporting of all 'in scope' companies must be certified by an accredited independent auditor or certifier.


    In line with the NFRD, the text of the CSRD requires Member States to provide for penalties for infringements of the reporting duties when implementing the CSRD into domestic law, but goes further in requiring the imposition of the following sanctions:

    • a public statement outlining the nature of the violation and indicating the responsible person/entity;
    • a cease-and-desist order against the responsible person/entity; and
    • administrative pecuniary sanctions.

    The CSRD continues the trend towards expanding the scope of sustainability reporting. For those interested in the other recently proposed EU legislation, please read our updates on EU proposed Directive on Corporate Sustainability Due Diligence and Draft EU Directive on sustainability-related Due Diligence Obligations of Companies.

    Market Abuse Regulation

    6. ESMA updates Q&As on the EU Market Abuse Regulation

    The European Securities and Markets Authority has published an updated version of its Q&A on the EU Market Abuse Regulation. ESMA has added two Q&A which provide clarification on (1) financial guidance and disclosure of inside information and (2) market analysts' expectations and the identification of inside information.

    Financial guidance and disclosure of inside information

    The first Q&A addresses whether an issuer should generally consider the first financial guidance for a given financial year to be inside information (bearing in mind that this forms part of financial reports prepared under the EU Transparency Directive and national legislation, which do not require or anticipate premature disclosure). ESMA states that a piece of inside information under EU MAR (Article 7) can be identified while preparing financial guidance, a half-yearly report or yearly report. In that case, that piece of inside information must be immediately published unless delayed disclosure under Article 17 of EU MAR is permissible, irrespective of the date of publication of the financial guidance, the half-yearly report or the yearly report as determined by the relevant national legislation. In our view, this reinforces current market practice in the UK.

    It is worth highlighting the recent FCA Final Notice involving Sir Christopher Gent in this context. In the Final Notice, the FCA noted that in relation to the obligation under Article 17 of EU MAR, a short delay is acceptable between the information coming into existence and an announcement having to be released to enable announcement preparations to be made and for underlying circumstances to be clarified. For our overview of the FCA's decision, please read Ashurst Governance & Compliance update, Issue 25.

    Market analysts' expectations and the identification of inside information

    The second Q&A addresses whether an issuer can take into consideration market analysts' expectations (consensus) when considering whether an event or items in a financial report or the first financial guidance for a given financial year may constitute inside information.

    ESMA notes that all available information has to be considered by issuers to determine whether a piece of information may constitute inside information in accordance with Article 7 of EU MAR. This also includes the consensus of market analysts' expectations. In particular, ESMA states that it understands that the consensus of market analysts' expectations may impact market expectation and would be part of the investment decision (described in Article 7(4) of EU MAR).

    ESMA also highlights that delayed disclosure of inside information is likely to mislead the public "where the inside information is in contrast with the market's expectations, where such expectations are based on signals that the issuer has previously sent to the market, such as interviews, roadshows or any other type of communication organised by the issuer or with its approval".

    Again, we believe this as an explanation of current market practice and interpretation in the UK.

    ESMA Q&A post-Brexit

    By way of reminder of the FCA's approach to post-Brexit non-legislative EU material, including ESMA Q&A documents, the FCA has stated that it may consider such material, including where pre-Brexit material is updated. The FCA has also stated that where it considers it appropriate to do so, it will set out its expectations as to how such material should be treated.


    7. Retained EU Law (Revocation and Reform) Bill introduced to Parliament

    The Retained EU Law (Revocation and Reform) Bill 2022-23 has been introduced to the House of Commons. This Bill makes provision for significant changes to the current status and operation of retained EU law, including through amendments to the European Union (Withdrawal) Act 2018. It includes provisions to revoke EU-derived subordinate legislation and retained direct EU legislation at the end of 2023, but also includes a power to preserve specified instruments or provisions, and a power to extend the revocation date of specified instruments or a specified description of legislation to 23 June 2026 at the latest.

    We will provide further substantive updates as and when the practical implications of the legislation become clear.

    If you would like to receive future Ashurst Governance and Compliance updates, please contact our Data Compliance Team on

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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