Essential Corporate News – Week ending 4 August 2023

FCA: Handbook Notice No 111 – Changes to DTRs and guidance on publishing annual report in electronic format and digital tagging

On 28 July 2023 the Financial Conduct Authority (FCA) published its latest Handbook Notice. This includes a summary of the responses it received to Consultation Paper 23/2 published in January 2023 “Streamlining our transparency rules on structured digital reporting of annual financial statements by companies”  and the steps the FCA is taking in light of those responses.

Background

In CP23/2, the FCA consulted on changes to streamline its existing rules that require in-scope companies with securities admitted to trading on UK regulated markets to prepare, publish and file with the FCA their annual financial report in an electronic format, and for the financial statements within it to be in a structured, digitally tagged format. The FCA also proposed a new framework to enable it to align quickly with updated taxonomies that in-scope companies use to tag their financial statements, and to provide more flexibility for future taxonomy developments.

In light of the above, the FCA proposed the following:

• Deletion of a regulatory technical standard relating to the electronic reporting format for annual financial reports (the Technical Standard);
• relocating the substantive requirements directly into DTR 4.1 of the Disclosure Guidance and Transparency Rules (DTRs), while removing some unnecessary provisions and making some other minor changes and clarifications; and 
• proposing new guidance in a Technical Note on the FCA’s website to indicate what the FCA considers to be the ‘generally accepted taxonomies’ that issuers can use to meet its requirements, to replace the current list of ‘permitted taxonomies’ in the Technical Standard.

Response following consultation

The FCA is proceeding broadly as consulted on with some minor adjustments to the DTRs and Technical Note.

• The FCA has made some minor clarificatory changes to DTR 4.1.22R(2), Table 2 in DTR 4 Annex I and DTR 6.2.11G(4) in response to the feedback.
• The FCA has clarified in DTR 4.1.22R(2) that, where an issuer digitally tags its own IFRS annual financial statements in the annual financial report using a generally accepted taxonomy, it may tag other parts of the annual financial report using any taxonomy specific to those parts.
• The FCA has removed the references to financial years starting before 1 January 2022 in DTR 4 Annex I because the deadline for publication of these financials has already passed (but the old rules in the revoked Technical Standard remain available to view on the FCA’s website).
• The FCA is reinstating the original drafting of DTR 4.4.8R(1) as it agrees with feedback that the changes it proposed are unnecessary and could be misinterpreted as extending the FCA’s digital reporting obligations to certain overseas issuers who currently benefit from an FCA exemption from DTR 4.1.
• In the Technical Note, ESMA’s Final Report has been deleted as the source for the ESEF 2022 taxonomy and replaced with the relevant EU amending regulation.

The relevant changes are set out in Technical Standards (Electronic Reporting Format) Instrument 2023 and Disclosure Guidance and Transparency Rules Sourcebook (Electronic Reporting Format) Instrument 2023 which came into force on 28 July 2023.

Timing of new rules

The final rules apply to financial years starting on or after 1 January 2022 and the new Technical Note (Structured digital reporting for annual financial reports – Primary Market / TN / 507.1) is in the FCA’s online Knowledge Base.  This supplements DTR 4.1 on the preparation and publication of annual financial reports.

The FCA’s webpage, Company annual financial reporting in electronic format, has also been updated accordingly.

(FCA, Handbook Notice No 111, 28.07.2023)

DBT: UK Sustainability Disclosure Standards - Guidance

On 2 August 2023 the Department for Business and Trade (DBT) published information on a webpage about the UK Government’s framework to create UK Sustainability Disclosure Standards (UK SDS).

UK SDS will set out corporate disclosures on the sustainability-related risks and opportunities that companies face. They will form the basis of any future requirements in UK legislation or regulation for companies to report on risks and opportunities relating to sustainability matters, including risks and opportunities arising from climate change.

UK SDS will be published by the DBT and be based on the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB). The ISSB launched its first two Standards and associated guidance, IFRS S1 and IFRS S2, in June 2023 (see further here). The Secretary of State for Business and Trade will consider the endorsement of the IFRS Sustainability Disclosure Standards, to create UK SDS, by July 2024 and it is stated that UK endorsed standards will only divert from the global baseline if absolutely necessary for UK specific matters.

By using the IFRS Sustainability Disclosure Standards as a baseline, the aim is for the information companies disclose under UK SDS to be globally comparable and decision-useful for investors, with the disclosures required by these standards helping investors compare information between companies, in turn aiding decision making, supporting the efficient allocation of capital, and the smooth running of the UK’s capital markets.

(DBT, UK Sustainability Disclosure Standards – Guidance, 02.08.2023)

ISSB: International Standard on Sustainability Assurance 5000

On 2 August 2023 the International Auditing and Assurance Standards Board (IAASB) issued its proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, for consultation.

This proposed International Standard on Sustainability Assurance aims to serve as a comprehensive, stand-alone standard suitable for any sustainability assurance engagements. It will apply to sustainability information reported across any sustainability topic and prepared under multiple frameworks, including the recently released IFRS Sustainability Disclosure Standards S1 and S2 (see further here).

Comments are requested by 1 December 2023. The final standard will be issued before the end of 2024.

(ISSB, International Standard on Sustainability Assurance 5000, 02.08.2023)