Legal development

Ashurst Governance & Compliance Update - Issue 37

Ashurst Governance and Compliance Update - Issue 37

    Welcome to the thirty-seventh Ashurst Governance & Compliance (AGC) update, the aim of which is to keep you and your board on top of the latest developments. 

    Audit and Corporate Governance reform

    FRC consults on revisions to the UK Corporate Governance Code

    As part of the package of measures stemming from the government's reforms to Restore Trust in Audit and Corporate Governance, the Financial Reporting Council has published a 'targeted' consultation proposing amendments to the UK Corporate Governance Code. You can find our overview of the proposals here. Further, more detailed updates will follow. 

    The consultation is open until 13 September 2023 with the revised Code expected to apply to reporting periods beginning on or after 1 January 2025. 

    FRC publishes Minimum Standard for FTSE 350 Audit Committees

    Following its consultation, which we covered in AGC Update, Issue 29, the FRC has published 'Audit Committees and the External Audit: Minimum Standard' with few changes having been made to the consultation draft.

    By way of reminder, the consultation on the draft proposal was launched as a direct response to the government's reforms to Restore Trust in Audit and Corporate Governance, which expressed the intention to grant statutory powers to the FRC's proposed successor body, ARGA (the Audit, Reporting and Governance Authority), for mandating minimum standards for audit committees in their role on external audits.

    Therefore, according to the FRC, the primary objective of the Standard is to 'enhance performance and ensure a consistent approach across audit committees within the FTSE 350'. By setting out 'clear expectations and guidelines, the FRC aims to support the delivery of high-quality audits and reinforce public trust in the financial reporting process'. 

    The most significant changes made to the Standard from the consultation draft are in the section which deals with the audit committee's role in relation to oversight of the external audit and the auditor. This has been expanded to highlight the audit committee's responsibility for assessing the effectiveness of the audit process and the steps it should take in carrying out that assessment. 

    The Standard applies to audit committees of FTSE 350 companies and takes effect immediately. It will operate on a 'comply or explain' basis until ARGA has been created and legislation brought forward to mandate compliance. This voluntary adoption period is intended to allow audit committees time to 'familiarise themselves with the requirements and proactively enhance their practices'.

    The FRC has also stated that:

    • Other companies who aspire to join the FTSE 350 may wish to apply the Standard, to minimise disruption in the event of them succeeding in doing so.
    • Companies that are subject to mandatory tendering and rotation of audit firm appointments may also wish to apply the Standard, the provisions of which are examples of good governance.

    By way of reminder, the Standard contains sections dealing with:

    • The responsibilities of the Audit Committee, including managing non-audit relationships to ensure a fair choice of suitable external auditors at the next tender, reviewing the effectiveness of the external audit process and engaging with shareholders.
    • The role of the Audit Committee in the tender process and the manner in which such tenders should be conducted.
    • The role of the Audit Committee in relation to oversight of auditors and the audit itself, particularly the effectiveness of that process.
    • Audit Committee reporting responsibilities.

    Listing Regime Reform

    FCA consults on proposed rule changes

    As we trailed in AGC Update, Issue 36, the Financial Conduct Authority has published it's long awaited consultation on proposed changes to the Listing Regime. The proposals are contained in CP23/10 - Primary Markets Effectiveness Review: Feedback to DP22/2 and proposed equity listing rule reforms and build on the indications given by the FCA's Chief Executive, Nikhil Rathi which we covered in AGC Update, Issue 35.

    Central to the proposals is the replacement of the standard and premium listing segments  with a single listing category for commercial company issuers of equity shares. You can find a detailed overview of the proposed changes and their impact on existing listed companies in our article: UK Listing Reform: a New Chapter?

    Responses to the consultation should be submitted by 28 June 2023. As a follow-up to the preliminary proposals set out in CP 23/10, the FCA will issue another consultation covering further detail on the proposals in Autumn 2023.

    Prospectus Regime Reform

    FCA publishes Engagement Papers

    The FCA has also published a new webpage: New regime for public offers and admissions to trading. This sets out the FCA's role in establishing the regulatory framework for public offers and admissions to trading that will replace the existing prospectus regime and outlines the areas on which the FCA will engage and where it is likely to make future rules. 

    To that end, the webpage contains links to various FCA Engagement Papers which represent the initial step in the FCA's wider engagement process. The Papers focus on:

    • Admission to trading on a regulated market (Engagement Paper 1)

      This paper seeks views on when a prospectus should be required for admission to regulated markets and when exemptions should apply; the required content of a prospectus for initial admissions; the format of a prospectus; and the responsibility for a prospectus and how it is approved.
    • Further issuances of equity on regulated markets (Engagement Paper 2)

      This paper seeks views on the extent to which the FCA should seek to reduce requirements for a prospectus for further issuances of securities; whether there should be a percentage threshold (that is, of existing issued share capital) for a requirement to publish a prospectus; and what document should be required where there is no prospectus requirement.
    • Protected forward-looking statements (PFLS) (Engagement Paper 3)

      This paper seeks views on how PFLS should be defined; the types of forward-looking statements that should be allowed to qualify as PFLS; whether the FCA should set certain minimum criteria / expectations for how PFLS are produced; and how PFLS should be presented or labelled within a prospectus.
    • Non-equity securities (Engagement Paper 4)

      This paper seeks views on areas where the current UK prospectus regime could be improved in the context of wholesale, debt capital markets.

    Responses to the issues raised in the Engagement Papers must be submitted by 29 September 2023. The FCA intends to progress to a more traditional consultation phase in 2024.

    Directors' Duties and Climate Change

    Court rejects ClientEarth's application to bring a derivative claim against the directors of Shell plc 

    The High Court has rejected ClientEarth's application for permission to bring a derivative claim against the directors of Shell plc under the Companies Act 2006. ClientEarth, which had acquired a small number of shares in Shell, had alleged a breach of directors' duties relating to Shell's climate change risk management strategy.

    Our six key takeaways from the High Court's approach to a claim against company directors for allegedly failing to discharge their duties in relation to climate change are:

    1. Decisions on a company's strategy are a matter for directors, not the court.
    2. Climate change risk must be considered by directors in context.
    3. Courts are reluctant to prefer the opinions of claimants to the judgement of directors.
    4. Injunctions and declarations affecting the board oversight of a company must be approached with caution.
    5. The bar for permission to bring a derivative action under the Companies Act 2006 is high.
    6. This may not be the end of the story…

    You can read a more detail review of our takeaways here.

    Item contributed by Tom Cummins, Partner in our Dispute Resolution team.

    Economic Crime and Transparency

    Register of Overseas Entities – new regulations facilitate keeping personal details off the register

    The Register of Overseas Entities (Definition of Foreign Limited Partner, Protection and Rectification) Regulations 2023 have been published and come into force on 1 June 2023. In effect, the Regulations make it easier to keep personal information of registrable beneficial owners of an overseas entity required to register in the Register of Overseas Entities from being accessible by the public.

    By way of reminder, non-UK entities which hold certain interests in land and property situated in the UK are required to register with Companies House and provide details of their beneficial owners. In certain circumstances, details of the relevant entity's managing officers and of any trusts within its ownership structure also need to be provided.

    In certain circumstances, a beneficial owner may apply to keep its information off the public register – prior to the Regulations, this was only possible if there was a serious risk of violence or intimidation to the owner. Among other things, the Regulations remove the need to show that the risk of harm to an individual arises from the entity's activities or an association between the overseas entity and the beneficial owner.

    The Regulations also facilitate the rectification of the register, for example if information on it is factually inaccurate.

    Narrative Financial Reporting

    Government launches non-financial reporting information review 

    The Department for Business and Trade, working with the FRC, has issued a call for evidence in relation to a review of the non-financial reporting requirements UK companies need to comply with to produce their annual report and to meet broader requirements that sit outside of the Companies Act 2006, such as gender pay and Modern Slavery Act reporting. The review will also consider if current company size thresholds (including for micro, small, medium and large entities and those in relation to companies on public markets) that determine certain non-financial reporting requirements (including governance reporting), and the preparation and filing of accounts with Companies House, remain fit for purpose.

    The review builds on the Smarter regulation to grow the economy policy paper which sets out how the government would improve regulation to reduce burdens and drive economic growth following the UK's departure from the EU.

    When assessing future reforms, the government will also consider how its proposals interact with its ambitions for the UK to become a centre for green finance.

    The call for evidence is the first stage of the review process and will close on 16 August 2023. The survey questions supporting the review can be found here. The government will use information gathered to develop detailed proposals for consultation in 2024. 

    Financial Reporting

    FRS 101 (Reduced Disclosure Framework) – FRC completes its annual review

    The FRC has completed its 2022/23 annual review of FRS 101 (Reduced Disclosure Framework). No amendments to the framework will be made as a result of the review.

    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.


    Stay ahead with our business insights, updates and podcasts

    Sign-up to select your areas of interest