Essential Corporate News: Week ending April 22, 2022

FCA: Diversity and inclusion on company boards and executive management – Policy Statement 22/3

On April 20, 2022 the Financial Conduct Authority (FCA) published Policy Statement 22/3 (PS22/3) which sets out its final rules requiring listed companies to report information and disclose against targets on the representation of women and ethnic minorities on their boards and executive management. This follows a consultation launched in July 2021 in CP21/24.

The changes are being made via the Listing Rules and Disclosure Guidance and Transparency Rules (Diversity and Inclusion) Instrument 2022 which came into force on April 20, 2022. The following are key points to note in relation to the new reporting requirements:

In scope companies

The new Listing Rule requirements are set out in Chapters 9, 14 and 15 and a change is being made to DTR 7.2.8AR. The companies in scope of the new Listing Rules are UK and overseas issuers with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA’s Official List, including closed-ended investment funds and sovereign controlled companies, but excluding open-ended investment companies and ‘shell companies’ as defined in LR 5.6.5AR. The rules will not apply to issuers of listed debt and debt-like securities, securitised derivatives or miscellaneous securities. DTR 7.2.8AR applies to certain UK issuers with securities admitted to UK regulated markets and, through the Listing Rules, to certain overseas listed companies, subject to existing exemptions for small and medium companies (see DTR 1B.1.7R).

New board diversity targets

New Listing Rules (LR 9.8.6R(9) and LR 14.3.33R(1)) require, as an ongoing listing obligation, in scope issuers to include a statement in their annual financial report setting out whether they have met the following board diversity targets on a ‘comply or explain’ basis, as at a chosen reference date within their accounting period and, if they have not met the targets, why not:

• At least 40% of the board are women.
• At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) or Chief Financial Officer (CFO)) is a woman.
• At least one member of the board is from a minority ethnic background (which is defined by reference to categories recommended by the Office for National Statistics (ONS)) excluding those listed, by the ONS, as coming from a White ethnic background).

Issuers will also have to set out in their statement:

• the reference date used, and where this is different from the reference date used in respect of the previous accounting period, an explanation of why; and
• any changes to the board that have occurred between the reference date and the date on which the annual financial report is approved that have affected the company’s ability to meet one or more of the targets.

Numerical data on sex or gender identity and ethnic diversity of board, senior board positions and executive management to be disclosed

With the annual narrative comply or explain disclosure, LR 9.8.6R (10) and LR 14.3.33R (2) require in-scope companies to publish numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions (Chair, CEO, SID and CFO) and executive management in a table.

Data must be reported in a standardised table format (as at the reference date selected for the purposes of the comply or explain disclosure), although there is flexibility in the format of the prescribed table for reporting on sex or gender identity, so that companies can reflect their approach to data collection.

Approach to collecting data to be explained

Issuers are also required to explain their approach to collecting the data. The FCA has included guidance (in LR 9.8.6IG and LR 14.3.36G) on its expectations of what this explanation should cover, as well as its expectation that companies take a consistent approach to data collection, both across the individuals being reported on, and for reporting against the targets and numerical disclosures.

Adjustments have been made for issuers with board members or executive management situated overseas. In those cases, where local law prevents the collection and / or publication of relevant data, a company may instead explain the extent to which it is unable to make the numerical disclosures and complete the tables. In addition, closed-ended investment funds and sovereign controlled companies will be permitted to adjust their disclosures on senior board positions and their numerical data disclosures if these disclosures are inapplicable to the fund, provided they set out the reasons why the disclosures are inapplicable.

Additional information that could be provided in annual report

The FCA also includes guidance (in LR 9.8.6JG and LR 14.3.37G) to the effect that in-scope companies may, in addition to the disclosure requirements described above, wish to include the following in their annual financial report to provide further context:

• A brief summary of any key policies, procedures and processes, and any wider context that the company considers contributes to improving the diversity of its board and executive management.
• Any mitigating factors or circumstances which make achieving diversity on its board more challenging (for example, the size of the board or the country where its main operations are located).
• Any risks it foresees in being able to meet or continue to meet the board diversity targets in the next accounting period, or any plans to improve the diversity of its board.

DTR 7.2.8AR and corporate governance statement

DTR 7.2.8AR, which requires in-scope companies to disclose in their corporate governance statement the diversity policy applied to their board, or to explain where no such diversity policy is applied, has also been changed. The reporting requirements have been expanded to cover the diversity policies of the audit, nomination and remuneration board committees and to indicate that reporting on board and board committee diversity policies could consider wider diversity characteristics such as ethnicity, sexual orientation, disability and socio-economic backgrounds.

Timing of implementation of new requirements

The new rules will apply to accounting periods starting on or after April 1, 2022 so the new disclosures will start to appear in annual financial reports published from around Q2 2023 onwards. However, the FCA is encouraging companies whose financial years began from January 1, 2022 to consider reporting on the targets and making numerical disclosures in relation to their current accounting period on a voluntary basis.

(FCA, Diversity and inclusion on company boards and executive management – Policy Statement 22/3, 20.04.2022)

BEIS: Corporate re-domiciliation consultation – Summary of responses

On April 12, 2022 the Department for Business, Energy and Industrial Strategy (BEIS) published a document summarising responses to the consultation it launched in October 2021 on the introduction of a corporate re-domiciliation regime in the UK. Following the closing of the consultation, the Government intends to introduce such a regime, making it possible for companies to move their domicile to and relocate to the UK by enabling the re-domiciliation of companies.

Summary of views

Overall, respondents were broadly supportive of the proposal to introduce a corporate re-domiciliation regime, noting that existing routes to relocate companies are cumbersome and costly. Some respondents thought that further detail on the design of the regime would be helpful as whilst the consultation offered a high-level overview of the proposed regime design, there was limited detail on how it would work in practice and this impacted the responses that could be given. Respondents agreed that a re-domiciliation regime should be flexible but recognised the need to balance simplicity of design with sufficient rigour and appropriate checks. More generally, respondents sought clarity around the process and how the regime would work in practice. Predictability and certainty were highlighted as desirable characteristics of any UK regime.

The majority of respondents supported a two-way regime, permitting both inward and outward re-domiciliation. There was a variety of views as to whether the existing arrangements (which prevent UK companies from transferring their place of incorporation between nations) would have an impact on overseas companies’ decisions to re-domicile to the UK. Most respondents agreed that intra-UK re-domiciliation was not likely to have a significant impact on a company’s decision to re-domicile, but some considered this approach to be inconsistent with the proposal to allow overseas companies a choice of where to incorporate within the UK.

There was general support for re-domiciled companies to be treated the same as UK incorporated companies for tax purposes. Respondents want a UK re-domiciliation regime that is simple and consistent with existing tax regimes but did not favour a new category or distinct tax treatment for re-domiciled businesses. Most agreed that the attraction of a UK re-domiciliation regime will be significantly influenced by the tax rates in the UK compared to other jurisdictions with re-domiciliation regimes.

The document provides a summary of the responses to each of the questions raised in the consultation document.

Next steps

The Government intends to introduce a re-domiciliation regime but since this was a consultation exploring the principles and feasibility of a UK re-domiciliation regime and it represented the early stages of the policy development process, BEIS, in partnership with HM Treasury and HMRC, will now refine this policy, engaging publicly as appropriate. The policy will require legislation to be enacted but more detailed analysis and engagement is needed first. The Government intends to continue to develop these proposals taking full account of the responses to the consultation, including further formal consultation as appropriate.

(BEIS, Corporate re-domiciliation consultation – Summary of responses, 12.04.2022)

(BEIS, Corporate re-domiciliation – Consultation outcome, 12.04.2022)