Essential Corporate News – Week ending January 13, 2023

FCA: Streamlining our transparency rules on structured digital reporting of annual financial statements by companies – CP 23/2

On January 12, 2023 the Financial Conduct Authority (FCA) published Consultation Paper CP23/2 which sets out proposals to simplify the FCA’s current rules that require in-scope companies with securities admitted to UK regulated markets to prepare, publish and file with the FCA their annual financial report in an electronic format, and for the financial statement within it to be in a ‘structured digital format’. CP23/2 includes in Appendices the proposed amendments to the FCA’s Disclosure Guidance and Transparency Rules (the DTRs) and a new draft Technical Note to provide guidance for in-scope companies.

Proposed changes to the DTRs

DTR 4.1.14R and an existing regulatory technical standard (the Technical Standards) set out the current rules on the electronic format for annual financial reports, and the structured digital reporting of annual financial statements within them.

The FCA wants to move certain of the existing requirements currently set out in the Technical Standards to DTR 4.1, so that DTR 4.1 will include the following requirements:

• The obligation that all annual financial reports be prepared in the XHTML format.
• The obligation that consolidated annual financial statements that are prepared in accordance with IFRS be prepared and published in the tagged, structured digital format.
• The option for UK-incorporated preparers of solo-company financial statements to report them in the tagged, structured digital format where they are prepared in accordance with IFRS.
• Certain conditions on companies publishing other parts of the annual financial report in the tagged, structured digital format.

A new rule will be added that requires in-scope companies to use a "generally accepted taxonomy" to tag IFRS consolidated annual financial statements, A "generally accepted" taxonomy is a taxonomy that is generally used in the UK for disclosures in regulated markets, that is based on taxonomy standards published by the IFRS Foundation and is up to date. The proposed new Technical Note will provide guidance indicating the current generally accepted taxonomies.

Issuers will continue to be able to choose between the more recent versions of generally accepted taxonomies to tag their annual financial statements. Issuers can use the version of the European Single Electronic Format (ESEF) taxonomy that incorporates the IFRS Foundation’s latest taxonomy at the start of the financial year, or a version that was published subsequently if it is available before the reporting deadline, in line with standard regulatory practice in other jurisdictions and general corporate practice which uses IFRS Accounting Taxonomies that are up to date and aligned with the latest IFRS that companies use to prepare their annual financial statements. The FCA hopes this will enhance comparability of data disclosed by different companies (which should ultimately benefit the companies who report in this format) where they are take a consistent approach to tagging disclosures.

New Technical Note

The guidance in the Technical Note supplements DTR 4.1 on the preparation and publication of annual financial reports. The rules and guidance in DTR 4.1.14R to DTR 4.1.23G, and the guidance in the Technical Note, replace the UK version of the EU Transparency Directive’s regulatory technical standard for the ESEF. The purpose of the Technical Note is to guide in-scope companies in meeting their obligations to prepare annual financial statements in the tagged structured digital reporting format under DTR 4.1.16R to DTR 4.1.18R and to help companies who choose to prepare their annual financial statements in the structured digital reporting format under DTR 4.1.19R. It sets out the FCA’s approach to the “generally accepted taxonomy” and includes tables of generally accepted ESEF and UKSEF taxonomies that will be kept up to date as new taxonomies emerge.

Timing

Responses to the consultation are requested by February 24, 2023.

Subject to the feedback received, the FCA propose to revoke the Technical Standards, make the changes to the DTRs and issue the new Technical Note as soon as practicable in spring 2023.

The FCA is not proposing to introduce ‘transitional’ rules as it does not consider them necessary. For issuers who are still to publish their annual financial statements for financial years starting before  January 1, 2023, the FCA is not changing their ability to use any of the taxonomies specified in the Technical Standards or how they should apply the taxonomy. However, more flexibility is being offered in terms of their ability to use the ESEF 2022 taxonomy, including the UKSEF approach issued in October 2022 which can be used alongside the ESEF 2022 taxonomy. This is set out in the proposed new Technical Note.

The FCA points out to stakeholders that it is planning to update the National Storage Mechanism (NSM) in early 2023 to accept filings of annual financial reports, where the annual financial statements have been marked up using the ESEF 2022 taxonomy (including the latest UKSEF approach), for all companies who are still to report. Further information will be available on the section of the FCA’s website on Filing of Structured Annual Financial Reports.

(FCA, Streamlining our transparency rules on structured digital reporting of annual financial statements by companies – CP 23/2, 12.01.2023)

BEIS: Register of Overseas Entities – Updated Technical Guidance on registration and verification

On January 12, 2023 the Department for Business, Energy and Industrial Strategy (BEIS) published an updated version of its technical guidance for registration and verification in relation to the UK Register of Overseas Entities (ROE Register). This was last published in August 2022.

Updated information in the technical guidance includes the following:

• Overseas entities - these can include offices such as “Ambassadors” that are corporations sole and own UK land, land held by the Crown for an overseas territory, land held by a Commonwealth government, and land held by international organisations, depending on their legal position and structure.
• Governments and/or public authorities - the updated guidance notes that governments and/or public authorities that fulfil one or more of the conditions to be a registrable beneficial owner are required to register even if the land held is used for official purposes e.g., as an embassy or high commission.
• Trusts - further guidance is provided on the meaning of “significant influence or control” in the context of trusts that hold UK land (including arrangements, under the law of a country or territory outside of the UK, that are of similar character to a trust). The guidance looks at the role of trustees of such a trust as well as the role of individuals in relation to trusts. For example, an individual may have significant influence or control over the activities of a trust if they can add a person to, or remove a person from a class of beneficiaries, or direct investment decisions of the trust, including by being able to dispose of, advance, lend, invest, pay or apply trust property. In addition, a new section on the information required about trusts where a registrable beneficial owner meets the conditions of beneficial ownership by virtue of being a trustee, is included.
• Offences - there is more information on the offences committed under the Economic Crime (Transparency and Enforcement) Act 2022 in relation to information notices served in the process of identifying registrable beneficial owners and more generally, including for non-compliance with the Act’s requirements.
• Information to be submitted for registration - further guidance is provided on this, including in relation to governments and public authorities, with the guidance noting that where an overseas government owns land directly or in its own name, it may be both an overseas entity and the beneficial owner of the relevant land.
• Updating duty - a section on this has been included in the guidance.
• Protecting information - the updated guidance makes it clear that when looking to protect information about an individual from public inspection, simply living in a property which is also the registered service address of an overseas entity would not normally be considered grounds for protecting such information. Rather, the applicant must demonstrate that they are at risk specifically because they own the property via the overseas entity.
• Verification - this section of the guidance has been updated, partly to reflect The Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 S.I. 2022/725 which now set out the details of the verification system.

(BEIS, Register of Overseas Entities – Updated Technical Guidance on registration and verification, 12.01.2023)