Legal development

Ashurst Governance and Compliance Update - Issue 27

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    Economic Crime and Transparency reforms

    1. Economic Crime and Corporate Transparency Bill 2022

    Equity Capital Markets

    2.  Amendments to LSE Admission and Disclosure Standards published

    3.  AQSE amends its admission rules

    Directors' Duties

    4.  Supreme Court affirms and develops 'creditor duty'


    5. FRC report considers barriers to senior leadership for people from minority ethnic groups

    6. EU Council adopts Directive on gender balance


    7. ICGN considers how investors view board effectiveness in relation to sustainability factors


    8. FRC Lab publishes report on net zero disclosures

    9. TCFD publishes 2022 status report on TCFD-aligned disclosures

    10. QCA publishes ESG survey report

     Narrative Financial Reporting

    11. FRC publishes review of business combinations

    12. FRC Lab launches project on materiality in corporate reporting

     Small Business Regulation

    13. Government raises threshold for regulation of small businesses

    Economic Crime and Transparency reforms

    1. Economic Crime and Corporate Transparency Bill 2022 published

    As we reported in AGC update, Issue 26 the government has published the Economic Crime and Transparency Bill 2022 which has the stated objectives of:

    • preventing organised criminals, fraudsters, kleptocrats and terrorists from using companies and other corporate entities to abuse the UK’s open economy;
    • strengthening the UK’s broader response to economic crime; and
    • supporting enterprise by enabling Companies House to deliver a better service for over four million UK companies, and improving the reliability of its data to inform business transactions and lending decisions across the economy.

    According to the government, Part 1 of the Bill will deliver 'the biggest upgrade to Companies House since the UK first introduced a register of companies in 1844'. For more detail on those proposals, click here. The Bill has had its second reading in the House of Commons and has now been sent to a Public Bill Committee for line by line examination.

    To that end, the UK Parliament has published an invitation to submit written evidence on the Bill to that Committee. Submissions should be made as soon as possible - the Committee's first sitting took place on 25 October 2022 and it is scheduled to report by 24 November 2022.

    The Bill follows the Economic Crime (Transparency and Enforcement) Act 2022, which received Royal Assent on 15 March 2022. For further information on the Act, particularly the Register of Overseas Entities as regards property ownership, click here. The remaining provisions of the Act as regards the Register of Overseas Entities have now been brought into force through The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No.4) Regulations 2022. These implement those parts of the Act requiring registered entities to update their information at Companies House on an annual basis (or confirm that the information in relation to them is up to date). The information in the annual update or confirmation will need to have been independently verified before it is submitted.

    Equity Capital Markets

    2. Amendments to LSE Admission and Disclosure Standards published

    The London Stock Exchange has published Market Notice N19/22 which provides feedback on its consultation on the creation of London Stock Exchange’s Voluntary Carbon Market. The Notice also confirms the resulting changes to the Admission and Disclosure Standards. To that end, the LSE has published clean and blackline versions of the amended Standards.

    Initial changes proposed and taken forward included:

    • A new rule regarding the confidentiality of communications between the LSE and issuers (Rule 1.10).
    • Clarification that the LSE will continue to have jurisdiction over delisted issuers in relation to breaches of the Standards that occurred prior to delisting (Rule 1.11).
    • The expansion of the early notification process to cover all new securities, not just equity and depositary receipt securities, in addition to an increased early notification date for certain issuers to 30 business days, and for issuers of debt securities, five business days, prior to admission (Rule 2.16).

    In overview, amendments to the consultation of relevance to existing issuers include:

    • Clarification in Schedule 1 (Admission Procedures) that, on a formal application for admission to trading, written confirmation of the number of securities to be allotted or issued pursuant to the board resolution should be provided and must be received by the LSE no later than 4.00 pm on the business day before admission is expected to become effective, rather than at any time on the day before.
    • The extension of markets eligible for Shanghai-London Stock Connect to include qualifying issuers admitted to the Science and Technology Board of the Shanghai Stock Exchange, provisions to enable qualifying issuers admitted to either Shenzhen Stock Exchange's Main Board Market or its ChiNext Market to apply for admission to trading via Shenzhen-London Stock Connect and the removal of the minimum market capitalisation criteria for Shanghai-London Stock Connect and Shenzhen-London Stock Connect issuers.
    • Provisions to extend the Voluntary Carbon Market designation to relevant operating companies.

    The amended Standards are already in force, other than the changes to the early notification period which take effect on 10 November.

    3. AQSE amends its admission rules

    Aquis Stock Exchange has published its response, together with a summary of the feedback received in relation to its consultation on proposed changes to the rules governing admission to both the Access and Apex segments of the AQSE Growth Market. It has also published final versions of its Access Rulebook and Apex Rulebook marked-up to show the changes made. The amended rules and new guidance are now in force.

    Directors' Duties

    4. Supreme Court affirms and develops 'creditor duty'

    In BTI 2014 LLC v Sequana SA and others [2022] UKSC 25, the Supreme Court delivered its long-awaited decision on the existence and extent of the common law duty of directors as regards a company's creditors, known as the 'creditor duty'. The creditor duty concerns the duty of directors to consider and give appropriate weight to the interests of creditors where a company is facing insolvency.

    The Supreme Court not only confirmed the common law creditor duty of directors but also clarified the nature of it and the time at which it arises. For our detailed overview of the judgment and its application in practice, click here.


    5. FRC report considers barriers to senior leadership for people from minority ethnic groups

    The Financial Reporting Council has published a report: Navigating barriers to senior leadership for people from minority ethnic groups. The research which underpins the report was conducted by Cranfield University and Delta Alpha Psi Services on behalf of the FRC.

    The research was commissioned to develop a greater understanding of the barriers preventing individuals from minority ethnic groups from progressing to the boards of significant FTSE companies, with the intention of identifying good practice and assessing its effectiveness in increasing the ethnic diversity of those boards, so ensuring a sustainable pipeline of talent from a range of ethnic backgrounds.

    The report presents findings from two data sets: (i) interviews and focus groups with 54 people in a range of senior positions in FTSE 350 companies, including chairs and non-executive directors, as well as executive search consultants; and (ii) a review of annual reports from 25 FTSE 100 companies and 38 FTSE 250 companies to assess the breadth and depth of initiatives in place to diversify senior leadership, highlighting differences between the two groups where relevant.

    In response to the findings of the research, the report also identifies certain best practice guidelines.

    Recommendations from interviews and focus groups include:

    • Be transparent: there should be greater transparency in decision-making and promotion processes. Companies should review all recruitment processes and policies to ensure transparency in decision-making involving selection, promotion and performance reviews, especially at middle management to senior levels.
    • Embed data and build in accountability: while companies employ a wide range of initiatives and practices to diversify their executive pipeline across ethnicity, gender and other underrepresented groups, there is insufficient monitoring, measurement and accountability built in. The FRC believes there should be much greater emphasis on data analytics.
    • Boost trust: the research indicates that the Black Lives Matter movement prompted many organisations to review their approach to inclusion, especially regarding race and ethnicity. The momentum created by these initiatives needs to be sustained. Trust should be nurtured and boosted within organisations and between individuals.

    Recommendations from the review of annual reports include:

    • Targeted programmes: reporting on targeted programmes should be linked to specific diversity objectives, with expected outcomes.
    • Reporting on D&I governance: reporting on D&I governance should provide information on the structure, composition and specific function of D&I focused committees and taskforces and should explain how they will provide the data required to understand their effectiveness in diversifying senior leadership and the best design and approach to achieve this.
    • Race action plan: specific objectives and the rationale for the race action plan – and an evaluation of actions and initiatives already conducted as part of the plan – could be included in the annual report to assess effectiveness of such interventions.
    • Public objectives: reporting could be enhanced by clearly outlining the initiatives or measures being taken as part of a broader strategy to meet stated D&I objectives.
    • Board level responses in the FTSE 350: FTSE 350 companies should analyse data on the diversity and demographic makeup of their boards. This analysis should be used to justify positive action recruitment, so increasing ethnic minority representation at board level.
    • Data collection: companies should report on the design and approach of data collection campaigns to share good practice and support other organisations in capturing this information. Reporting could be improved by providing parameters for taking action on findings, such as underrepresentation in specific areas or levels of the business, or reporting on the actions and initiatives that the company intends to take should they capture sufficient diversity data or measure suboptimal levels of diversity.
    • Other initiatives: the quality of reporting would be enhanced by describing the process by which other initiatives, such as training, can support the company to meet specific diversity objectives.

    6. EU Council adopts Directive on gender balance

    The Council of the EU has announced that it has adopted the final text of a Directive intended to promote more balanced representation on the boards of listed companies. The Directive, which will have to be transposed into national law in each Member State, requires that at least 40 per cent of non-executive director positions in listed companies should be held by members of the underrepresented sex by June 2026. If a Member State chooses to apply the new rules to both executive and non-executive directors, the target would be 33 per cent of all director positions by June 2026.

    The core of the Directive stipulates that listed companies which do not achieve the objectives will need to adjust their selection processes. They will have to put in place 'fair and transparent' selection and appointment procedures, based on a comparative assessment of the different candidates on the basis of clear and neutrally formulated criteria. When companies have to choose between equally qualified candidates, they should give priority to the candidate of the underrepresented sex.

    A Member State which has either come close to achieving these objectives or put in place equally effective legislation before the Directive enters into force may suspend the Directive’s requirements relating to the appointment or selection process.

    In-scope companies will be required to disclose information about the gender representation on their boards and the measures they are taking to achieve the 33 per cent or 40 per cent objectives. In turn, Member States must publish a list of the companies that have achieved the Directive’s objectives, also on an annual basis.

    Member States have two years following the entry into force of the Directive to adopt the required national measures. The Directive will enter into force on the 20th day following its publication in the Official Journal of the European Union. As things stand, the Directive still needs to be adopted by the European Parliament. Note that the Directive will not apply to UK incorporated companies unless they have securities listed on a relevant EU market.

    By way of reminder, the Financial Conduct Authority's 'new' rules as regards diversity targets and reporting are in force and are of application to reporting periods of in-scope companies which begin on or after 1 April 2022. For more detail on the UK's regime, please read AGC update, Issue 18.

    Sustainability governance

    7. ICGN considers how investors view board effectiveness in relation to sustainability factors

    The International Corporate Governance Network has published a 'Viewpoint' which focuses on: 'The Governance of sustainability: An investor view of board effectiveness'. This considers the investor view of the board's role in the creation and oversight of the company's sustainability journey in meeting rising global investor expectations.

    In particular, the paper sets out the key areas which investors consider when determining how a board is handling its obligation to address sustainability for investors and relevant stakeholders. These include:

    • Board diversity
    • Board evaluations
    • Board skill set
    • A strong chair and senior independent director
    • Board committee involvement
    • Board commitment to disclosure
    • Board training programmes
    • Evaluation of the CEO

    The paper includes a list of engagement questions which investors might consider asking of company boards with regards to the governance of sustainability. During this AGM season, clients have informed us that most meetings with institutional investors involved questioning on sustainability-related issues; thus the ICGN's questions might serve as a useful reference point when preparing for such meetings.

    Finally, the paper concludes with an overview of 'good practices related to board effectiveness' gleaned from disclosed reports and public filings.


    8. FRC Lab publishes report on net zero disclosures

    The FRC Lab has published a report intended to assist companies preparing disclosures on net zero or carbon neutrality and other greenhouse gas (GHG) emission reduction commitments. In preparing the report, the Lab sought to understand:

    • how investors use disclosures on net zero or other GHG reduction commitments;
    • investor perspectives on current reporting, including good practice and areas for improvement; and
    • reporting on challenges and successes for companies in relation to these types of commitments.

    The report notes that investors use disclosures on net zero for a range of reasons:

    • understanding corporate alignment with their own investment values;
    • comparing companies and their strategies and plans;
    • assessing the credibility of plans and performance against commitments;
    • understanding and comparing the GHG footprint of portfolios;
    • understanding what governance is in place in relation to the issue and assessing management incentives; and
    • making decisions, such as whether to invest, divest, or provide finance.

    During discussions with investors and companies, the Lab identified three elements that investors want to understand from net zero disclosures:

    • Commitments: the level of ambition, scope, nature and timing of the commitment, and what is included and excluded.
    • Impacts: how the commitment impacts strategy and business model, including information on transition plans, assumptions, uncertainties, and risks and opportunities.
    • Performance: how performance is being measured in the short, medium, and long term. How high-quality data and accountability will be ensured, and actions management is taking in response to changes.

    The Lab believes that these elements are part of an iterative process, where company and investor understanding is developing and evolving. The report highlights investor needs at each stage and identifies questions and disclosures to consider based on whether a company's disclosures were:

    • foundational – providing a basic understanding of the commitment, including high-level targets, timelines and impacts; or
    • advanced – providing updates on progress, refinements of goals, and more detailed information on impact and accountability.

    The report sets out suggested elements to consider when preparing disclosures and highlights issues which may arise, examples from practice and practical questions for preparers to consider, as well as tips from companies. It is supplemented with a separate example bank which sets out detailed examples of current good practice.

    For the FRC's summary of the findings of the report, click here.

    9. TCFD publishes 2022 status report on TCFD-aligned disclosures

    The Task Force on Climate-related Financial Disclosures has published its 2022 Status Report. The report sets out findings from a review of developments and progress in the reporting of climate-related financial risk information in the five years since the Task Force first published its Recommendations.

    Key take-aways and findings from the Report are:

    • The percentage of companies disclosing TCFD-aligned information continues to grow. For fiscal year 2021 reporting, 80 per cent of companies disclosed in line with 1 of the 11 recommended disclosures. Only 4 per cent disclosed in line with all of the 11 recommended disclosures. Only 40 per cent disclosed in line with at least 5 recommended disclosures.
    • Over 60 per cent of asset managers and over 75 per cent of asset owners surveyed currently report climate-related information to their clients and beneficiaries.
    • Nearly 50 per cent of asset managers and 75 per cent of asset owners reported information aligned with at least five of the 11 recommended disclosures. Only 9 per cent of asset managers and 36 per cent of asset owners report on 10 recommended disclosures. None reported on all 11 recommended disclosures.
    • 70 per cent of companies implementing the TCFD recommendations disclosed climate-related information in financial filings or annual reports.
    • 95 per cent of survey respondents saw an increase in the availability of climate-related financial disclosures. 88 per cent of respondents cited improvements in the quality of disclosures.
    • 90 per cent of investors and other users incorporate climate-related financial disclosures in financial decision-making. 66 per cent of these indicated such disclosures factor into the way they price financial assets.

    The Task Force remains concerned that not enough companies are disclosing useful climate-related financial information, which may hinder investors, lenders, and insurance underwriters' efforts to address and price climate-related risks.

    10. QCA publishes ESG survey report

    The Quoted Companies Alliance has published a report of the results of a recent ESG-focused survey which examined the experiences of small and mid-sized quoted companies in this area.

    The first part of the report provides an overview of the general attitudes towards, and knowledge of, ESG for small and mid-caps. The second part then looks at how companies have approached ESG strategies and policies, the benefits and the costs that this implies, followed by a section on the disclosure-making process and a further section on the use of external service providers. The fifth section of the report looks at whether ESG considerations have had a positive or negative impact on small and mid-caps.

    The QCA's survey consisted of 17 questions relating to attitudes and strategies, data collection and reporting, the use of external service providers and the impact that ESG has had. The purpose of the survey was to establish a more comprehensive view of QCA members’ perspectives on ESG and the possible role the QCA might play in assisting members with their ESG-related disclosures and initiatives.

    Key findings of the survey include:

    • Seven in 10 respondents have a very positive attitude towards ESG and six in 10 consider themselves and their company to be moderately informed in terms of ESG.
    • Just under two-thirds of respondents indicated that they have a clear and formal ESG strategy and/or policy and just over two-thirds would describe their company’s ESG adoption and practices as 'somewhat developed'.
    • 77 per cent think that governance is the easiest pillar of ESG to address and make disclosures on, while over half of respondents think that environment is the hardest pillar.
    • 60 per cent are following an environmental framework and 75 per cent are measuring their carbon footprint.
    • Nearly nine in 10 respondents are addressing the social aspect of ESG and 60 per cent are collecting data and using guides/tools/research to help inform the social pillar.
    • 58 per cent use external service providers and the services they use include consultancy, data collection, reporting, and audit/assurance.
    • 47 per cent consider ESG considerations had a 'somewhat positive' impact on their overall business.
    • 8 in 10 respondents believe that the QCA could develop good practice examples and guidance in the future to assist members in addressing ESG-related matters. 60 per cent indicated that they would welcome ESG training and workshops and 58 per cent sought additional guidance following up on the QCA Practical Guide to ESG.
    Narrative Financial Reporting

    11. FRC publishes review of business combinations

    The Financial Reporting Council has published a thematic review of company accounting and reporting for business combinations. The review considers the requirements of IFRS 3 together with the disclosure requirements in the Companies Act 2006 and the FCA's Disclosure Guidance and Transparency Rules that could apply in such circumstances.

    The FRC undertook the review given that business combinations tend to be significant but infrequent transactions that give rise to issues outside the routine work of the accounting function of an organisation. As such, these transactions can have a significant impact on a company’s operations and financial performance and therefore often require thorough discussion within the management commentary of an annual report as well as having a widespread impact on the financial statements themselves.

    The review looked at the annual reports of a number of companies of various sizes across various industries which had recently completed a business combination. It provides examples of better reporting and highlights areas for improvement. In particular, the FRC believes this aspect of reporting could be improved by:

    • Ensuring that there is clear and consistent explanation of the reason for and the impact of the business combination throughout the annual report, allowing the reader to understand ‘the full story’ of the acquisition.
    • Including clear and informative disclosures around matters such as fair value adjustments made to assets and liabilities acquired, factors giving rise to goodwill, the impact on tax balances, contingent consideration, related cash flows and any significant judgements and estimates made in accounting for the acquisition.
    • Avoiding any boiler plate wording - narrative should always reflect the company’s particular circumstances.

    12. FRC Lab launches project on materiality in corporate reporting

    The FRC Lab has issued a call for participants in a project which seeks to understand how companies develop, assess and use materiality in their reporting and to consider how enhancements to disclosure about materiality processes might assist investors. The project is expected to cover both financial and non-financial reporting and its scope will be determined in conjunction with participants. The Lab expects to publish its findings in 2023.

    Small Business Regulation

    13. Government raises threshold for regulation of small businesses

    The government has announced plans to widen the exemptions for small businesses from certain new and reviewed regulations and reporting requirements.

    Previously, the government’s assumption when developing policy had been that businesses with less than 50 employees should be exempt from certain regulations. This threshold has now been revised and set so that it applies to businesses with less than 500 employees. The announcement indicates that this is not a blanket exemption, and it can be overridden in appropriate cases.

    The revised threshold is now of application to all new regulations under development as well as those under current and future review, including retained EU laws. The government also plans to consider potentially extending the threshold to businesses with 1,000 employees once the impact of the current extension is known and understood.

    Whether this policy change survives the recent change of administration remains to be seen.

    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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