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Directors' Knowhow is a monthly article which highlights changes and updates of relevance to small and mid-size quoted companies.

QCA publications and policy updates


This section of the Directors’ Knowhow features all of the publications produced by the QCA and any relevant updates that have occurred over the last month.

Brydon Review report published


On 18 December 2019, Sir Donald Brydon submitted his report on the review into the quality and effectiveness of audit to the Secretary of State. Within the report, Sir Donald proposes a comprehensive set of measures aimed at improving both the perception and operation of audit in order to enhance confidence in business and better serve the needs of users and the wider public. In total, the final report makes 64 recommendations, including a new corporate auditing profession with a unifying purpose and set of principles.


Some of the key recommendations include:

  • A redefinition of audit and its purpose, providing greater clarity.
  • An obligation on auditors to inform and the need to be suspicious as well as sceptical.
  • The opportunity to extend auditing beyond just examining financial statements to reflect wider interests.
  • Clarification that auditors should endeavour to find corporate fraud and a requirement that they undertake education in forensic accounting and fraud detection.
  • Additional requirements on auditor transparency.
  • Mechanisms to encourage greater interaction for shareholders with the audit process.
  • New reporting requirements for directors about resilience, public interest and audit policy.
  • A responsibility for directors to explain the actions they have taken to prevent material fraud and to report on internal controls.

The QCA held a roundtable with Sir Donald Brydon in July and submitted a response to his consultation on the review into the quality and effectiveness of audit in the lead up to the report being published. We are encouraged to see that Sir Donald has maintained his commitment to ensuring a proportionate audit regime that does not “create new costs for business without justification”. In particular, we welcome his recommendation that “the Government, in determining the implementation of each recommendation should consider the case for certain recommendations applying initially to the audit of PIEs in the FTSE 350 index”. As well as this, Sir Donald stresses the importance of implementing the recommendations “in a proportionate way taking into account the size and complexity of companies”.


The QCA will continue to engage with Brydon, as well as the Government and the FRC during the implementation of the recommendations to ensure that small and mid-size companies are taken into account.


If you wish to read Sir Donald’s report, please click here.

AIM Good Governance Review


The QCA, in conjunction with UHY Hacker Young, has published a new report which reviewed good governance practice on AIM. In the report, the disclosures of 50 AIM companies were reviewed across five specific areas. This included:

  1. The strategic report;
  2. Stakeholder engagement;
  3. Board dynamics;
  4. Board expertise; and
  5. Succession planning.

Overall, the report saw an improvement in the level and quality of disclosures being communicated, with an increasing number of companies taking on board the suggestions made in the QCA Code. This is evidenced by an increasing trend amongst AIM companies to include a deadline for implementing a particular principle if they are not currently following it appropriately. This demonstrates a commitment amongst companies to follow the Code sufficiently. Many companies also now include a specific section on their website dedicated to corporate governance.


In addition to the analysis, the results are complemented by the feedback from a number of leading small and mid-cap fund managers. The fund managers provided their views on what they expect to see from the companies they invest in.


If you wish to read the AIM Good Governance Review, please do so here.

QCA Small and Mid-cap Sentiment Index


At the beginning of December, the QCA published its Small & Mid-Cap Sentiment Index, which shows near-record levels of negativity for the 8+ years that the index has been running.


Over 100 small and mid-size quoted companies and 39 advisory firms submitted their views on capital markets over October and November 2019. The results show that the likes of the additional regulatory burden borne by companies has contributed to the decline in companies being able to access capital through public equity.


The key findings include:

  • Economic outlook is uncertain – net optimism is at its lowest in over six years.
  • Business outlook is mixed – companies remain positive on their own prospects, but advisors net optimism is the lowest it has been since 2012.
  • Jobs are being created at a lower rate – expected employment growth is at the lowest level for years.
  • Raising capital is increasingly difficult – companies view raising capital via public equity as the hardest it has been since 2013.

If you wish to read the results of the Sentiment Index, you may do so here.

Reports, guides and regulation

This section features some of the key legislative/regulatory developments and changes, as well as any new reports or guidance issued by industry bodies or regulators, over the last month.

European Council reform for SME growth markets


The European Council has adopted a set of legislative reforms which form part of the progress made towards the capital markets union. The legislative reforms include:

  • The creation of a new category of benchmarks contributing to sustainable finance;
  • Transparency obligations for sustainable investments;
  • A new prudential framework for investment firms;
  • A harmonised framework for covered bonds;
  • Rules promoting access to SME growth markets.

Of particular interest to small and mid-size quoted companies are the reforms to the SME growth markets. The Council adopted a new framework to help small and medium businesses access new sources of funding. This relates specifically to access to SME growth markets, which are dedicated to smaller issuers. The proposal contains amendments to the Market Abuse Regulation and the Prospectus Regulation. These potential amendments make the obligations and requirements placed on SME growth market issuers more proportionate and less burdensome.


If you wish to view the Council’s proposed legislative reforms, you may do so here.


If you wish to view the text relating to the SME growth markets specifically, you may do so here.

European Commission Green Deal


The European Commission has put forward its European Green Deal which outlines its objectives to become the world’s first climate-neutral continent by 2050. The European Green Deal includes a package of measures that should enable European citizens and businesses to benefit from the sustainable green transition.


Included within the European Green Deal is a roadmap which outlines the key actions the European Commission will seek to take and the deadline to do so by. These actions range from cutting emissions, investing in research and innovation and preserving Europe’s natural environment.

FCA update to SM&CR regime


On 9 December, the FCA published a press release announcing the extension of the Senior Managers and Certification Regime (SM&CR) to 47,000 firms. This forms part of the FCA’s attempts to create a culture across the financial services sector where individuals take accountability for their own actions and competence.


The SM&CR regimes sets a new standard for personal conduct by:

  • Ensuring senior managers are accountable for conduct in their areas of responsibility;
  • Ensuring a minimum standard of behaviour for everybody working in the sector through the FCA’s 5 Conduct Rules; and
  • Enhancing professionalism in the industry by requiring firms to certify that their staff are fit and proper.


The extension of the regime means that solo-regulated firms need to ensure that:

  • All relevant staff are trained on the Conduct Rules and how they apply to their roles;
  • All staff in certified roles are fit and proper to perform that role and are issued with a certificate; and
  • They submit data to us for the directory of key people working in financial services.

Risk Coalition principles for risk committees

Following a consultation period, the Risk Coalition published its principles-based guidance for board risk committees and risk functions in the financial services sector early in December. The final guidance emphasises its focus on accountability and sets out that it is intended to be used by organisations on an apply or explain basis.


The guidance is split into two parts: board risk committee principles and guidance and risk function principles. In terms of board risk committees, the final guidance maintains the eight board risk committee principles with an overarching emphasis on board accountability. As for the risk function, the final guidance keeps the nine proposed risk function principles.


If you wish to view the principles and guidance, you may do so here.

ESMA update to Q&A on Prospectus Regulation


On 4 December, ESMA updated its Q&A’s in relation to the Prospectus Regulation. The updates provide clarification on the following issues in relation to the Prospectus Regulation. This includes:

  • The inclusion of pro-forma summaries in base prospectuses; and
  • The application of prospectus disclosure annexes where securities do not fall neatly within a specific disclosure regime.

To view the Q&A, please click here.

ESMA update to Q&A on CSDR


Early in December, ESMA updated its Q&A in relation to the implementation of the Central Securities Depositories Regulation (CSDR). The latest Q&A provides clarification on the application of requirements related to the CSD functionality.


To view the Q&A, please click here.

ESMA update to Q&A on the Benchmarks Regulation


On 3 December, ESMA issued an update to its Q&A on the European Benchmarks Regulation. The updates have been made following the publication in the Official Journal of the European Union Regulation as regards the EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks.


If you wish to view the Q&A, you may do so here.

CDSB framework


The Climate Disclosure Standards Board have published a consultation on their framework for reporting environmental and climate change information. The framework has been produced in order to align the disclosure of environmental information in mainstream reporting.


The main objectives of the CDSB framework are to:

  • Encourage the standardisation of environmental information reporting;
  • Helping organisations prepare and present environmental information;
  • Add value to the organisations existing report;
  • Enable and encourage investor decision-making to activities that support environmental protection;
  • Support compliance with regulatory requirements; and
  • Support assurance activities by providing reporting requirements and guiding principles.

The framework also sets out seven guiding principles which are designed to ensure that environmental information in mainstream reports is useful to investors, is correct and complete. The guiding principles are to be applied in preparing and presenting the environmental information in accordance with the reporting requirements in the CDSB framework.


To view the framework, please click here.

FRC corporate reporting and audit quality


The FRC has announced its areas of focus for thematic review for its 2020/21 corporate reporting and audit quality review programme. The FRC’s Corporate Reporting Review team will conduct its reviews of corporate reporting through four thematic reviews. This includes:

  • IFRS 16: review of disclosures in the first year of implementation;
  • Cash flows and liquidity disclosures;
  • IFRS 15; and
  • The effects of the decision to leave the EU on companies’ disclosures.

In addition to the above, the Corporate Reporting Review team will also contribute to a planned FRC-wide project focussing on climate change, whereby they will review relevant disclosures in companies’ annual reports.


The FRC’s Audit Quality Review team has set out its areas for review, these are as follows:

  • Going concern and the viability statement;
  • Other information in the Annual Report;
  • Long-term contracts;
  • The impairment of non-financial assets;
  • Fraud risk; and
  • Application of new accounting standards (IFRS 15 & 16).

Articles, news and speeches


This section features relevant news, articles and publications for small and mid-size quoted companies that has been published in the last month.

FRC Lab Q4 newsletter


The FRC’s Financial Reporting Lab has published its newsletter for the last quarter of 2019. In the newsletter, they explain that they have released two calls for participants for their future projects. These are: Disclosure of business models, strategy and the longer-term and Digital Future: Video, Augmented Reality and Virtual Reality.


If you wish to read the newsletter, please click here.

British Academy Principles for Purposeful Business

In conducting their research into the future of the corporation, the British Academy have published their report on Principles for Purposeful Business. The report determines that the purpose of a company is to solve the problems of people and the planet profitably, rather than profit from causing problems. In their report, they propose eight principles for business leaders and policymakers that set out the features of an operating environment that will enable the delivery of purposes.

The eight principles are as follows:

  • Corporate law – directors should state their purposes and demonstrate commitment to them.
  • Regulation – should expect particularly high duties of engagement, loyalty and care on the part of directors of companies to public interests where they perform important public functions.
  • Ownership – should recognise obligations of shareholders and engage them in supporting corporate purposes as well as in their rights to derive financial benefit.
  • Corporate governance – should align managerial interests with companies’ purposes and establish accountability to a range of stakeholders through appropriate board structures.
  • Measurement – should recognise impacts and investment by companies in their workers, societies and natural assets.
  • Performance – should be measured against fulfilment of corporate purposes and profits measured net of the costs of achieving them.
  • Corporate financing – should be of a form and duration that allows companies to fund more engaged and long-term investment in their purposes.
  • Corporate investment – should be made in partnership with private, public and not-for-profit organisations that contribute towards the fulfilment of corporate purposes.

If you wish to read the report, please click here.

Surveys and questionnaires

This section features surveys or questionnaires submitted by industry bodies or regulators that are relevant to small and mid-size quoted companies. 

Survey for companies on the challenges of being listed


Oxera are currently conducting a survey on behalf of DG Financial Stability, Financial Services and Capital Markets Union at the European Commission. The survey will analyse the design and functioning of primary equity markets in the EU. In particular, the survey will look at the challenges faced by companies of being listed.


The survey is seeking the views from key financial decision-makers within companies of the decision relating to acquiring a listing.


Should you wish to take the survey, you may do so here.



This section provides an update of any recently submitted QCA consultation responses, as well as the consultation responses the QCA is currently drafting.

QCA policy consultation responses


The QCA’s Legal Expert Group, Primary Markets Expert Group and Secondary Markets Expert Group contributed to the response to the ESMA’s consultation on the provisions of the Market Abuse Regulation.


To view the response, please click here.


Additionally, the QCA is currently seeking member input on the following consultation(s):

  • EIOPA: Opinion on the 2020 review of Solvency II
  • LSE: Consultation on market structure and trading hours

If you have any comments you wish to contribute on either of these consultations, please get in touch with Jack Marshall, Policy Adviser,

QCA engagement


The Best Practice Principles Group (BPPG) recently published their new and updated Best Practice Principles for Shareholder Voting Research & Analysis.


The BPPG was formed to represent the proxy advisor community and promote a greater understanding of the corporate governance research and support services provided by the likes of ISS and Glass Lewis.


The updates have been made to align the principles with the latest updated stewardship codes around the world, the revised Shareholder Rights Directive (SRD II), and to reflect the feedback from investors, issuers and other stakeholders who contributed to the BPPG's 2017 public consultation. You can read more on the changes to the principles here


The QCA's Corporate Governance Expert Group recently engaged with members of the BPPG from Minerva, Glass Lewis and ISS in November. We also intend to submit an application to become a member of the Oversight Committee of the BPPG in order to ensure that smaller issuers are represented and to make sure that the system becomes more open and transparent for smaller issuers.


We understand that proxy advisers are a continuing concern to some of our members and would like to hear your thoughts and concerns on their activities and whether we can do anything further to support you. 


If you would like to raise anything with us, please contact Anthony Robinson or Jack Marshall in our Policy Team.


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