HM Treasury: Dormant Assets Scheme – Participant Pack published

On 17 July 2024, the Government’s webpage on the expansion of the Dormant Assets Scheme was updated and a Participant Pack published which publicly traded companies can use as a starting point for participating in the UK Dormant Assets Scheme in respect of their securities.

The Dormant Assets Act 2022 (Commencement) Regulations 2022 brought into force on 6 June 2022 those provisions of the Dormant Assets Act 2022 that were not already in force. Among other things, those Regulations give effect to the provisions of the Dormant Assets Act 2022 that bring into the scope of the Dormant Assets Scheme the proceeds and distributions from dormant shares in public limited companies traded on a UK regulated market (such as the Main Market) or UK multilateral trading facility (such as AIM) and unclaimed proceeds from corporate actions if these remain unclaimed after 12 years.

Since such companies need to ensure that their articles of association permit and facilitate participation in the Dormant Assets Scheme (operated by Reclaim Fund Limited, a non-departmental public body of HM Treasury), the Participant Pack contains the following templates that prospective participating companies can use as a starting point and adopt or adapt, depending on their circumstances:

• Draft explanatory notes for inclusion in an AGM circular or circular to shareholders proposing possible changes to the company's articles of association to facilitate participation in the Dormant Assets Scheme, including a summary of how the regime to be adopted would operate; and
• Draft supplementary articles of association, providing a possible template for prospective participants to adapt and adopt to facilitate their participation in the Dormant Assets Scheme. These include draft articles covering “dormant shares”, unclaimed dividends and unclaimed corporate action proceeds.

This Participant Pack has been developed in conjunction with the Departments for Digital, Culture, Media & Sport and for Business and Trade, as well as Reclaim Fund Limited.

(HM Treasury, Dormant Assets Scheme – Participant Pack, 17.07.2024)

(HM Treasury, Government response to the consultation on expanding the Dormant Assets Scheme – webpage, 17.07.2024)

FRC: Significant updates to the UK Stewardship Code announced

On 22 July 2024, the Financial reporting Council (FRC) announced revisions to the UK Stewardship Code application/reporting process and five priority areas for the next stage of its review of the Stewardship Code. This follows extensive engagement with stakeholders during early 2024.

Priority areas for review of the Stewardship Code

The FRC plans to focus on five themes as it revises the Stewardship Code:

• Purpose – The FRC will consider all stakeholder views and set out its expectation of what defines effective stewardship, what this looks like in practice, and how reporting against the Stewardship Code can help to deliver this. An updated definition of stewardship will also be developed.
• Principles – The FRC is considering what reporting will be necessary to deliver on a renewed purpose of the Stewardship Code. Among other things, it will consider how the Principles can better reflect the wide range of assets in which signatories invest and it will look at ways to streamline the Principles and reporting expectations.
• Proxy Advisors – The FRC will carefully consider how the Service Providers Code might support greater transparency of their activities.
• Process – The FRC will take forward proposals to reduce the reporting burden currently associated with being a Stewardship Code signatory and ensure that information included in reports is useful and accessible to all underlying investors and other stakeholders.
• Positioning – The FRC is working closely with other regulators (including the Financial Conduct Authority) to support clarity in understanding the revised Stewardship Code and its successful implementation, and to avoid duplication for signatories.

Immediate interim reporting changes for Stewardship Code signatories

The FRC is also making five immediate changes to significantly reduce the reporting burden on existing signatories. These changes will:

• Remove the requirement to annually disclose all ‘Context’ reporting expectations, except for new reports or material changes to previous disclosures.
• Remove the requirement for existing Asset Owner and Asset Manager signatories to annually disclose against ’Activity‘ and ’Outcome‘ reporting expectations for some Stewardship Code Principles, except where there are material updates.
• Explicitly allow use of content from previous reporting and cross-referencing of such reports where there have been no material changes.
• Set clear expectations of what is considered an ‘outcome’ reporting expectation for stewardship purposes.
• Emphasise the ability to exercise reporting against Principle 10, collaborative engagement, and Principle 11 escalation, ‘where necessary’.

The FRC hopes this will provide clarity on areas signatories outlined as challenging to address, reduce the volume of reporting and provide flexibility for signatories in defining how they undertake stewardship.

These reporting changes to the Stewardship Code will apply for the next application window (31 October 2024) and the FRC will be writing to signatories individually to inform them of how these changes impact them. The FRC has published an FAQs document in relation to these changes.

Next steps

The FRC will launch a formal public consultation on the Stewardship Code later this year, but given the significance of these changes, the FRC will be hosting a further phase of focussed engagement with stakeholders throughout August and September 2024 on the five topics listed above.

(FRC, FRC announces significant update to the UK Stewardship Code, 22.07.2024)

King’s Speech 2024: Draft Audit and Corporate Governance Bill included

The King’s Speech was delivered on 17 July 2024 and it includes reference to a draft Audit Reform and Corporate Governance Bill being brought forward to “strengthen audit and corporate governance”.

The draft Bill has not yet been published but the Background Briefing Notes which accompanied the King’s Speech state, among other things, that it will replace the Financial Reporting Council with a new regulator, the Audit, Reporting and Governance Authority (ARGA). The Briefing Notes also state that ARGA will form a platform for other important changes, including the following:

• a wider remit, through extending Public Interest Entity (PIE) status to the largest private companies;
• removing unnecessary rules on smaller PIEs;
• powers to investigate and sanction all company directors for serious failures in relation to their financial reporting and audit responsibilities; and
• a regime to oversee the audit market, protect against conflicts of interest at audit firms, and build resilience in that market.

(Prime Minister’s Office, Background Briefing Notes to the King’s Speech 2024, 17.07.2024)