FRC: Plan and Budget 2024-25
On 25 March 2024, the Financial Reporting Council (FRC) published its Plan and Budget for 2024-25, which, according to the FRC, aims for a year of consolidation and prioritisation. With no new statutory powers expected in 2024-25, despite the UK Government's continued commitment to the FRC transforming to the proposed Auditing, Reporting and Governance Authority (ARGA), the FRC will focus on its core purpose of promoting trust and confidence in audit, corporate reporting and governance.
The FRC intends to focus on the following areas in 2024-25:
- Embedding its growth duty into its decision-making processes wherever this is not clear;
- Finalising work associated with its review of the UK Corporate Governance Code and its associated guidance;
- Commencing a full review of the UK Stewardship Code;
- Building on improvements in audit quality where they have been achieved and supporting challenger and smaller audit firms to deliver better audit quality alongside their ambitions to scale in size and scope;
- Supporting the simplification and streamlining of corporate reporting by continuing the FRC’s close engagement with the Government on its review of non-financial reporting requirements;
- Making the UK’s sustainability reporting framework world-class through the FRC’s work with international standard setters and other regulators, and in its role as secretariat to the UK Sustainability Advisory Committee; and
- Continuing its actuarial work and engagement with all parts of the pensions system in support of reliable and consistent pension projections.
During 2024-25, the FRC intends to undertake a full review of its strategy and objectives, with a view to subsequently publishing a three-year strategy, supplemented each year with an annual plan and budget.
(FRC, Plan and Budget 2024-25, 25.03.2024)
Parliament: The Reporting on Payment Practices and Performance (Amendment) Regulations 2024 published
The Reporting on Payment Practices and Performance (Amendment) Regulations 2024 (2024 Regulations) were made on 25 March 2024, published on 25 March 2024 and come into force on 5 April 2024.
The 2024 Regulations amend the Reporting on Payment Practices and Performance Regulations 2017 (Principal Regulations) and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (the LLP Regulations) and follow a consultation on the Principal Regulations launched in January 2023.
The Principal Regulations and the LLP Regulations impose a requirement on large companies and limited liability partnerships (LLPs) to publish certain information twice per financial year about their practices, policies and performance in relation to paying suppliers. These Regulations extend the Principal Regulations and the LLP Regulations beyond their current sunset date of 6 April 2024 to 6 April 2031 and require additional information to be reported by qualifying companies and LLPs.
The 2024 Regulations amend the Schedule to the Principal Regulations which sets out the information that a qualifying company is required to publish in relation to each reporting period. They carry forward the existing reporting requirements. In addition, among other things, the 2024 Regulations do the following:
- Amend the Principal Regulations so that companies will also be required to report the proportion of invoices that are disputed which subsequently result in payments being made outside the agreed payment terms.
- Require businesses to report the monetary value of their invoices paid along with the existing requirement to report information on the volume of invoices.
- Businesses within scope will be required to report on the percentage of payments which were paid in 30 days or fewer, between 31 and 60 days, and in 61 days or longer, and the percentage of payments due within the reporting period which were not paid within agreed terms.
- Provide clearer instruction as to how payments should be reported when third party ‘supply chain’ finance provider is involved, amending the Principal Regulations to provide that, if the supplier receives the full amount due without having to pay a fee or having any amount deducted from the payment, the date the payment is considered made is the date on which the supplier received the payment from the supply chain finance provider. If the supplier does not receive the full amount or has to bear the cost of any fee for the supply chain finance, the date the payment is made is the date on which the supply chain finance provider received the payment from the qualifying business (discounting any delays outside of the qualifying company or LLP’s responsibility). In all other circumstances, the date the payment is made is the date when it is received by the supplier (discounting any delays outside of the qualifying company or LLP’s responsibility).
The Explanatory Memorandum states that the Government is publishing updated guidance for large businesses in scope of the duty on how to comply.
(The Reporting on Payment Practices and Performance (Amendment) Regulations 2024, 02.04.2024)
(The Reporting on Payment Practices and Performance (Amendment) Regulations 2024 - Explanatory Memorandum)
Parliament: The Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024 published
On 26 March 2024, the Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024 were published (FP Regulations), together with an Explanatory Memorandum. They were made on 26 March 2024 and come into force on 2 May 2024.
The FP Regulations allow the Registrar of Companies (Registrar) to impose a financial penalty on a person if satisfied beyond reasonable doubt that they have committed misconduct amounting to a relevant offence under the Companies Act 2006 (CA 2006).
Currently, the only civil penalty regime operated by Companies House is the late filing penalty regime, where a company automatically incurs a penalty for failing to file its accounts on time. This regime will remain unaffected by the FP Regulations.
However, as part of the reforms made by the Economic Crime and Corporate Transparency Act 2023, the FP Regulations will enable the Registrar to impose a financial penalty directly, as an alternative to pursuing criminal prosecution through the courts. The Registrar will be able to impose a financial penalty on a person if satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to a relevant offence under the CA 2006 (as defined in section 1132A).
This financial penalty regime will sit alongside possible criminal sanctions, so that in all cases the Registrar will have the discretion to choose to pursue a financial penalty or pass to law enforcement to consider criminal sanction. The Explanatory Memorandum states that Companies House will publish guidance on their approach to enforcement and imposing financial penalties before they start issuing financial penalties, and that this guidance will be similar to guidance on the approach to enforcement of the Register of Overseas Entities.
The FP Regulations include provisions enabling the Registrar to serve warning notices and penalty notices, and to vary or revoke a penalty notice. A procedure for appeals against penalty notices is also set out.
(The Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024 –02.04.2024)
(The Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024 –Explanatory Memorandum, 02.04.2024)
Bank of England and FCA: Joint consultation on Digital Securities Sandbox
On 3 April 2024, the Bank of England (BoE) and the Financial Conduct Authority (FCA) published a joint consultation on their proposed approach to implementing and operating the Digital Securities Sandbox (DSS), an initiative run by the regulators that is intended to help facilitate the adoption of innovative technology in digital assets in the UK.
For further information, see our Regulation Tomorrow blog post here.
PIRC Shareowner Voting Guidelines 2024
In late March 2024, PIRC published its 2024 Shareowner Voting Guidelines. These set out PIRC’s views of corporate governance best practice and PIRC applies them to all listed companies (including companies incorporated outside the UK) that it covers on the UK market.
Key changes from PIRC’s 2023 Shareowner Voting Guidelines are summarised below.
Section 2: The board
Committee independence
PIRC notes the UK Corporate Governance Code requirement for the appointment of a nomination committee and states that it considers appointments of directors a key exercise of transparency. Shareholders should hold directors accountable for seeking most suitable candidates and retaining well performing directors. PIRC considers that all the members of the nomination committee should be independent and will recommend opposition for the re-election of a chief executive that sits on a nomination committee as a means to encourage a balanced and impartial appointment process.
Diversity
In their discussions about diversity at all levels, PIRC wants companies to acknowledge the Parker Review in particular, and PIRC refers to the March 2023 new targets launched by the Parker Review for December 2027. These require FTSE 350 companies to set a percentage target for senior management positions that will be occupied by ethnic minority executives in December 2027. As in 2023, PIRC will continue to recommend opposition to the re-election of the nomination committee chair in a FTSE 100 company (or the chair of the board in the absence of the former) for failing to meet the applicable targets from the Parker Report.
Section 4: Shareowner rights, capital stewardship and corporate actions
Right to attend meetings in person
PIRC continues to support the right for shareowners to attend company meetings in person. An addition to its guidance in this area is that PIRC will now recommend opposition of the election of the chair if a virtual-only meeting is held without sufficient justification. PIRC will treat this as an undue restriction of shareholders' rights to participate in meetings.
Section 8: Reporting on governance of environmental and social issues
Modern slavery statement compliance
A new section on modern slavery statements is included for the first time. PIRC states that, given the critical importance of transparency and accountability on such issues (including within supply chains), it considers that investors should hold companies responsible where their statement on modern slavery falls short of expected practice. As such, PIRC may recommend voting against the chair of the board where accountability at board level is unclear. Examples of such instances are:
- Lack of signature: If the modern slavery statement is not signed by a director, PIRC considers this could indicate a potential lack of high-level endorsement and oversight.
- Unclear or missing date: Absence of a clear date on the statement undermines the timeliness and relevance of the disclosed actions.
- Review process ambiguity: If the statement lacks clarity on the periodic review process or evidences no review, this suggests inadequate governance and risk management practices.
Additionally, if the statement was not made publicly available, or if it is inaccessible due to a broken link or other barriers (preventing stakeholders from evaluating the organisation's commitment to combating modern slavery), PIRC may recommend opposition also to the annual report and accounts.
PIRC states that the failure to properly disclose a modern slavery statement compromises the ability of investors to accurately assess the material financial risks associated with potential non-compliance with modern slavery legislation. Such omissions appear as red flags in terms of governance, corporate culture and ethical standards, potentially affecting the organisation's reputation and financial performance. It may also indicate failure to safeguard shareholder value by mitigating risks associated with modern slavery in the company’s supply chain.
Copies of the PIRC 2024 Shareowner Voting Guidelines can be purchased directly from PIRC.