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.
QCA Sentiment Survey results
At the end of last month, we published the first part of the results of our Small and Mid-cap Sentiment Survey for H1 of 2022, which we produced in conjunction with YouGov. The results included sentiment towards key indicators, such as economic and business outlook, and access to capital.
The second part of the results of the survey will be released shortly. This part of the survey takes a deeper dive into Non-Executive Directors, and asks key topical questions around their availability, levels of expertise and remuneration.
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.
The Queen’s Speech 2022
On 10 May, the Queen’s Speech was delivered by Prince Charles, which set out the Government’s legislative plans for the current parliamentary session. There were several important announcements in relation to the financial services sector and the UK’s markets, including the:
- Economic Crime and Corporate Transparency;
- Financial Services and Markets Bill;
- Brexit Freedom Bill; and
- Draft Audit Reform Bill.
We have provided a breakdown of each Bill below.
Economic Crime and Corporate Transparency Bill
The Economic Crime and Corporate Transparency Bill will aim to support enterprise by enabling Companies House to deliver a better service for many more companies, maintaining swift and low-cost routes for company creation, and improving the collection of data to inform business transactions.
The main components of the Bill include:
- Broadening the Registrar of Companies’ powers so that they become a more active gatekeeper over company creation and custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the Company Register;
- Introducing identity verification for people who manage, own and control companies and other UK registered entities;
- Providing Companies House with more effective investigation and enforcement powers and introducing better cross-checking of data with other public and private sector bodies;
- Tackling the abuse of limited partnerships by strengthening transparency requirements and enabling them to be properly wound up; and
- Enabling businesses in the financial sector to share information more effectively to prevent and detect economic crime.
Financial Services and Markets Bill
The Financial Services and Markets Bill will aim to enhance the UK’s position as a global leader in financial services. This will include taking advantage of the legislative freedoms following Brexit to alter our approach to financial services regulation to best suit the interests of the UK. The Government will seek to cut red tape to the financial sector to make it more attractive to invest and do business.
The main elements of the Bill include:
- Revoking retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK;
- Updating the objectives of the financial services regulators to ensure a greater focus on growth and international competitiveness (this follows on from HM Treasury’s Future Regulatory Framework Review); and
- Reforming the rules that regulate the UK’s capital markets to promote investment.
Brexit Freedoms Bill
The Brexit Freedoms Bill will seek to end the dominance of European law and look at the opportunities presented by Brexit to ensure that regulation better fits the needs of the UK with the overall goal of enabling economic growth. The Bill will modernise the UK’s approach to regulation and ensure that retained EU law can be amended, repealed and replaced without undue delay. It is stated that the Government will aim to cut £1 billion of burdensome EU red tape for businesses.
The main elements of the Bill include:
- Creating new powers to strengthen the ability to amend, repeal or replace the large amounts of retained EU law by reducing the need to always use primary legislation to do so;
- Removing the supremacy of retained EU law as it still applies in the UK; and
- Clarifying the status of retained EU law in UK domestic law to reflect the fact that much of it became law without going through full democratic scrutiny in the UK Parliament.
Draft Audit Reform Bill
The Draft Audit and Reform Bill follows on from the Department for Business, Energy and Industrial Strategy’s (BEIS’s) consultation last year: “Restoring trust in audit and corporate governance”. The Government intends to introduce the Bill in order to strengthen the UK’s position as a global leader in corporate governance by improving confidence in the market.
The main elements of the Bill are:
- Establishing a new statutory regulator, the Audit, Reporting and Governance Authority;
- Introducing new measures such as managed shared audit in which challenger firms undertake a share of the work on large-scale audits;
- Bringing the largest private companies in scope of the definition of public interest entities (PIEs);
- Giving the new regulator powers to enforce directors’ financial reporting duties, to supervise corporate reporting, and to oversee and regulate the accountancy and actuarial professions; and
- Reforming the regulation of Insolvency Practitioners to give greater confidence to creditors and strengthening corporate governance of firms in or approaching insolvency.
There is currently no mention of extending the scope of the definition of PIEs to include more quoted companies. The QCA responded to the consultation with concerns about the original proposals expanding the scope of the definition to all Main Market companies and AIM-quoted companies with a market capitalisation above £200 million. We hope that the Government has taken our views, and the views of our membership, on board.
To view the full Briefing Note from the Queen’s Speech, please click here.
FRC Lab insight on supply chain disclosure
The FRC’s Financial Reporting Lab (the Lab) has published their first insight into current market issues regarding supply chain disclosures. The Lab explores questions for companies about supply chain risks and associated reporting.
The Lab has stated that clear and concise disclosures on supply chains are key for investors, who are likely to look for information that helps them understand:
- The context of the supply chain. This means the size and scope, the nature and resilience of the businesses’ supply chain, the extent to which sustainable procurement practices are embedded, and the impact on current and future operations, reputation, and brand; and
- The impact of supply chain uncertainties, risks and opportunities on long-term value creation and the actions management are taking to address these.
The Lab sets out some key questions that companies could consider in preparing their disclosures in relation to the following topics:
- Access to raw materials and goods – where investors want to understand more about disruptions and delays to supply chains and the impacts of this on their investments.
- Digital security, outsourcing and weaknesses in infrastructure – investors want to understand more about the digital infrastructure of the companies they invest in, including on the reliability and connectivity of hosted website to cloud-based systems.
- Legal, ethical and reputational considerations – geopolitical instability, conflict, as well as changes in consumer and stakeholder values are areas that investors are increasingly concerned about given their potential impact on business models and strategies.
To view the paper, please click here.
Green Finance Strategy
In May, HM Treasury issued an update to its Green Finance Strategy. The Green Finance Strategy was first published in 2019, and set out a comprehensive approach to greening the financial system by mobilising finance for clean growth. The updated Green Finance Strategy will take stock of progress so far and will set out how the UK can better ensure the financial services industry is supporting the UK’s energy security, climate and environmental objectives.
The updates primarily consider four key objectives:
- Capturing the opportunity of green finance;
- Mobilising finance for the UK’s energy security, climate and environmental objectives;
- Greening the financial system; and
- Leading internationally.
The Government is currently consulting on the update to the Strategy and is expected to publish the final update later in 2022.
To view the updated Green Finance Strategy, please click here.
FCA Market Watch 69
On 17 May, the FCA published the 69th edition of its Market Watch newsletter. The Market Watch newsletter contains information on market conduct and transaction reporting issues.
This edition of the newsletter has a focus on arrangements for market abuse surveillance, which draws on the FCA’s recent engagements with small and mid-sized firms. The FCA reminds firms that they must have effective arrangements, systems and procedures in place to detect and report suspicious activity, which should be appropriate and proportionate to the scale, size and nature of their business activities.
The key parts of the newsletter include:
- Market abuse risk assessments – the FCA states that the most effective methodologies for detecting market abuse risks are those assessments that involve consideration of the different types of market abuse and how they apply across different areas of the business and asset classes.
- Order and trade surveillance – the FCA notes that, through its interactions with firms, surveillance arrangements have improved across industry.
- Policies and procedures – the FCA has seen a variety of approaches where firms have established policies and procedures for monitoring market abuse.
- Outsourcing – the FCA states that they found that there is a limited understanding or oversight of the surveillance taking place, and reminds firms that the responsibility lies with the entity subject to UK MAR.
- Front office – the FCA states that firms should consider whether their market abuse training is effective and tailored to the associated risks.
To view the full newsletter, please click here.
Surveys, projects and questionnaires
This section features surveys or questionnaires submitted by industry bodies or regulators that are relevant to small and mid-size quoted companies.
QCA ESG Directory
The QCA is currently seeking to develop a directory of ESG service providers to help our companies as they progress their ESG-related initiatives and disclosures. The directory will be exclusively for QCA members and will contain information about service providers that could help you and your company. The directory will include a range of providers offering different services, including consultancy, data management, reporting, assurance, verification, research, and others.
We would be very interested in hearing from QCA members who have already utilised service providers and would recommend their services. If this is you, please get in touch with Jack (email@example.com)and Viola (firstname.lastname@example.org).
This section provides an update of any recently submitted QCA consultation responses, as well as the consultation responses the QCA is currently drafting.
Policy consultations seeking views:
The QCA is seeking views from members on the following consultations:
- ISSB: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (Deadline: 29 July 2022)
The International Sustainability Standards Board (ISSB), which was established at COP26, has published a consultation setting out general sustainability-related disclosure requirements. The proposals build upon the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and incorporate industry-based disclosure requirements derived from SASB Standards.
The proposals set out requirements for the disclosure of material information about a company’s sustainability-related risks and opportunities that are necessary for investors. The proposals include requirements and guidance to support the disclosure of material information about significant sustainability-related risks and opportunities.
- ISSB: IFRS S2 Climate-related Disclosures (Deadline: 29 July 2022)
The International Sustainability Standards Board (ISSB), which was established at COP26, has published a consultation setting out specifying climate-related disclosure requirements. The proposals build upon the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and incorporate industry-based disclosure requirements derived from SASB Standards.
The proposals from the ISSB set out the specific requirements for the identification, measurement and disclosure of climate-related financial information. The proposals would require a company to provide information in line with the TCFD on governance, strategy, risk management and metrics and targets to enable users to develop a greater understanding of the companies climate-related risks and opportunities.
If you have any comments you wish to contribute to the above consultation(s), please get in touch with Jack Marshall, Senior Policy Adviser, email@example.com.
This section provides information on any upcoming policy-related events the QCA may be holding or other relevant events that members may be interested in as well as a summary of recent events.