Essential Corporate News – Week ending 22 March 2024

DBT: Non-Financial reporting Review – Summary of responses to Call for Evidence

On 19 March 2024, the Department for Business & Trade (DBT) published a summary of the responses it has received to the Call for Evidence it launched in May 2023 as part of its review of the non-financial reporting requirements UK companies need to comply with to produce their annual report. As part of the review, the current company size thresholds (micro, small, medium and large) that determine certain non-financial reporting requirements, and the preparation and filing of accounts with Companies House, are also being considered to determine if they remain fit for purpose.

Main findings from the Call for Evidence

These are stated to be the following:

• Non-financial reporting (NFR) has value.A significant number of respondents (over 80% answering the relevant question) either strongly agreed or agreed that the non-financial information prepared by companies was useful. Reasons given included that it provided them with information which provided transparency and enabled a degree of accountability.
• Businesses consider NFR costs to be too high, but users, including investors,consider the cost to be worthwhile.
• NFR complexity is a problem. All respondent groups identified that current reporting thresholds, exemptions and exclusions are too complex and strongly agreed or agreed (58%) that thresholds would benefit from simplification. However, there were differences in views on what specific thresholds should be streamlined and how.
• The majority of respondents (59%) who answered the question thought that the micro-entity, small, medium-sized and large company reporting thresholds no longer remained appropriate. Where respondents expressed a view, raising financial thresholds at least by the level of inflation was a key theme.
• Respondents suggested that the Directors’ Report should be streamlined or abolished altogether, with some variance in views on whether to remove duplication or to abolish the Directors’ Report completely.
• The Government received feedback that the Directors’ Remuneration Report could be streamlined, although there were no specific suggestions on how this might best be achieved.
• Respondents expressed strong support for greater comparability in sustainability-related reporting and the UK’s pursuit of International Sustainability Standards Board (ISSB) standards as a solution to issues caused by reporting against a variety of standards

Next steps

With the summary of responses to the Call for Evidence, in a Ministerial Statement published on the same day, Kevin Hollinrake confirmed the following:

• As part of the next phase of the review, the Government intends to make legislative changes in summer 2024 that should directly benefit small and medium-sized companies in particular. The measures will include an approximate 50% uplift to the monetary thresholds that determine a company’s size to take account of inflation and to reduce burdens on smaller businesses.
• The Government will also remove several low-value, obsolete or overlapping requirements from the Directors’ Report, and from the Directors’ Remuneration Report and Policy; make it easier for companies to issue digital annual reports; and fix some technical issues in the audit regulatory framework that have been identified following the assimilation of EU law into UK law.
• The Government intends to consult later in 2024 on amending the definition of a medium-sized company for company reporting so that the threshold on the maximum number of employees to be classified as a medium-sized company is increased from 250 to 500. It will also consult on exempting medium-sized companies from having to produce a Strategic Report and on exempting smaller public interest entities from audit tendering and rotation requirements. 

(DBT, Non-Financial Reporting Review, Call for Evidence – Summary of responses, 19.03.2024)

FTSE Russell: Indicative impact to FTSE UK Index Series of proposed changes to listing regime

On 15 March 2024, FTSE Russell published a notice and document, including FAQs, in relation to the provisional changes to the FTSE UK Index ground rules as a result of the ongoing Financial Conduct Authority (FCA) review of the UK listing regime as set out in CP23/31 (see our briefing on CP23/31 here).

While noting that the FCA’s proposals are not final, so the FTSE Russell projections are also not final, FTSE Russell currently anticipates that the new Equity Shares (Commercial Companies) and the Closed Ended Investment Fund categories will become the eligible index universe for the FTSE UK Index Series, replacing the Premium Segment, shortly after the introduction of the new regime.

With Premium Segment listed companies expected to be automatically mapped to the new Equity Shares (Commercial Companies) and Closed Ended Investment Fund categories, and Standard Segment listed companies expected to be mapped to the Transition, International Secondary Listing, and Shell Companies’ categories, FTSE Russell notes that the immediate impact to the index composition is expected to be minimal on day one of the new regime. However, it also notes that after the introduction of the new regime, companies may decide to transfer to, or list on, the Equity Shares (Commercial Companies) category, which may result in them becoming eligible for the FTSE UK Index Series (at the following quarterly index review subject to satisfying all other inclusion criteria).

(FTSE Russell, FCA Primary Markets Effectiveness Review – Notice, 15.03.2024)

(FTSE Russell, Proposed changes to the UK listing regime – Indicative impact to the FTSE UK Index Series: Summary and FAQs, 15.03.2024)