Thank you for your interest in our updates on the latest regulatory developments. There are a number of issues of interest this month. Do, please, feel free to bring these to the attention of colleagues for whom they might also be relevant.
Peter Swabey FCG,
Policy & Research Director
1 FRC Discussion Paper on Opportunities for Digital Reporting
Of interest to all working in corporate governance
REQUEST FOR SUPPORT FROM MEMBERS
On 13 August, the Financial Reporting Council (FRC) released a discussion paper on “Opportunities for the Future of Digital Reporting.” The paper aims to gather feedback from stakeholders on the future of digital reporting in the UK, explores potential alternatives to the European Single Electronic Format (ESEF) for UK regulated markets and proposes changes to support regulatory disclosure initiatives. The paper also considers making digital tagging mandatory and examines the impact of full tagging requirements on companies and charities. Additionally, it discusses strategies to help stakeholders adapt to new digital reporting requirements.
The full proposal is currently open for consultation until 1 November. The Institute will be responding to the consultation. If you would be willing to help with the drafting of that response, please contact Valentina Dotto at policy@cgi.org.uk.
2 Research into board's people processes
Of interest to members involved in boards of large or regulated organisations
REQUEST FOR SUPPORT FROM MEMBERS
The Institute is collaborating with Loretto Leavy FCG and Professor Ruth Sealy of the University of Exeter Business School to understand board behavioural dynamics for large and regulated organisations (boards which would typically be required to have mandatory committees). The overall aim is to publish practical recommendations for boards which highlight the importance of behavioural dynamics in continually maintaining relationships and thereby maximising inclusion and effectiveness. The final output will be ‘how-to’ guidance detailing six process maps with three levels of maturity for contexts, procedure steps and outputs. These six process maps can be used to address behavioural dynamics.
The six process maps are:
- appointing
- inducting, training and developing
- evaluating and acting
- NED succession planning
- composing and designing
- reappointing.
Although we assume that there is little gap between reporting and the actions taken by boards, the University wants to validate its findings against real-life experiences. CGI invites members to participate in workshops to review each process map. Please join one or more of the workshops which will take place fortnightly on Wednesdays in October and November.
CGI is delighted to support this research which will provide a framework for maintaining relationships which can be used by boards and chairs to improve effectiveness and will provide additional practical how-to advice for company secretaries and governance professionals assisting boards. Please register or contact Loretto Leavy: L.Leavy@Exeter.ac.uk.
3 AI in governance
Of interest to all members
REQUEST FOR SUPPORT FROM MEMBERS
The Institute is currently conducting research into our members’ perceptions of AI. We invite you to participate in our survey by answering four short questions on: AI challenges for boards, concerns about data protection and privacy, where attention on AI should be focused and AI and transparency. Here is the link to the survey: AI regulation - where we are and where we're going | Governance and Compliance Magazine (govcompmag.com).
Also, if you wish to make other comments on AI usage and adoption, please contact Valentina Dotto at policy@cgi.org.uk.
4 Public Offers and Admissions of Trade Regulatory Regime
Of interest to all working in corporate governance
REQUEST FOR SUPPORT FROM MEMBERS
The Financial Conduct Authority (FCA) is currently consulting on the new Public Offers and Admissions to Trading Regulations (POATRs) regime. The consultation focuses on proposals for new rules that will replace the existing UK prospectus regime. The rules aim to make capital raising more efficient and effective for issuers, increase opportunities for investors, and strengthen the UK’s position as a global financial centre.
The full proposal is currently open for consultation until 18 October. The Institute will be responding to the consultation and if you would be willing to help with the drafting of that response, please contact Valentina Dotto at policy@cgi.org.uk.
5 Consultation on the Code of Fundraising Practice
Of interest to those working in charity governance
REQUEST FOR SUPPORT FROM MEMBERS
The Fundraising Regulator is consulting on a redraft of the Code of Fundraising Practice, to ensure the updated version of the Code is clear, effective and relevant. The Code underpins the system of voluntary self-regulation to which fundraising charities commit. It also provides a framework for assessing public complaints.
CGI will be responding to the consultation. If you have any comments which you would like to see included in our response, please contact Emily Ford at policy@cgi.org.uk.
6 Irish Corporate Governance Code
Of interest to those working in the Republic of Ireland
Euronext has published the Irish Corporate Governance Code, which will apply to financial years commencing on or after 1 January 2025.
To a large degree this reflects the UK Corporate Governance Code, but there are some differences which affected companies should note. A separate analysis of these differences is being prepared.
7 Companies House stakeholder newsletter – September 2024
Of interest to those responsible for corporate filings
There are some important issues covered in the latest stakeholder newsletter from Companies House:
- A new blog on Authorised Corporate Service Providers (ACSPs): what do you need to know?
- An update on the new powers being implemented by Companies House with new non-compliance penalties
- Companies House will join the GOV.UK One Login programme.
The main takeaway from the ACSP blog is that, in the future, all third-party providers will need to register their business as an ACSP before they can file information and carry out identity verification checks on their clients. To register, the business will need to be covered by anti-money laundering regulations. The blog explains the standards that an organisation must meet to become an ACSP and more about the registration process as an ACSP.
On 4 September, Companies House announced that it will be joining the GOV.UK One Login system, which allows users to access a range of central government services using just one account, one username and one password. This means they will not need to provide their information multiple times. There will be a phased transition to the new model, beginning with an invited group of users but, once it is complete, all users will need to use the new login process and will be able to use GOV.UK One Login to verify their identity directly with Companies House.
Companies House will be letting us know more details as the implementation date approaches. In the meantime, there is new guidance on Companies House approach to financial penalties and Companies House enforcement policy.
You can keep up to date with the reforms under the Economic Crime and Corporate Transparency Act (2023) and what it means for you on the Companies House dedicated website.
8 Companies House communication to formation agents
Of interest to those forming companies
Companies House has asked us to share the following with members.
“From 4 March 2024, Companies House has introduced a new condition for administrative restoration under the Economic Crime and Corporate Transparency Act 2023. The new condition states that the applicant, and anyone who was a director of the company before it was struck off and dissolved and, if restored, would be the director immediately after its restoration, must pay any outstanding fines or financial penalties imposed on them in respect of an offence under the Companies Acts relating to the company.
This is in addition to the existing condition that any outstanding penalties for failing to file accounts have been paid.
When submitting an application for administrative restoration, the applicant must include one of the following statements in a cover letter:
Either:
- None of the directors had any fines issued by a court relating to the company before it was struck off the register.
Or:
- All fines issued by a court relating to the company before it was struck off the register have been paid.
If applicants provide false information, they may be prosecuted.”
9 FRC publishes Annual Review of Corporate Reporting
Of interest to all members in the corporate sector
The FRC has published its Annual Review of Corporate Reporting, which sets out the findings of its monitoring of UK companies’ annual reports and its expectations for next year’s reporting cycle. Key findings include:
• Quality of reporting in the FTSE 350 has been maintained
• Some evidence of the gap between FTSE 350 and other companies widening
• An increased number of restatements in relation to impairment of assets and cash flow statements
• Climate-related reporting is being managed better
• Provisions and contingencies fell out of the ‘top ten’ areas of concern for the first time in over five years.
Companies are encouraged to “consider whether the annual report and accounts, taken as a whole, tells a consistent and coherent story” and to “focus on providing material disclosures that are clear, concise, and company-specific” for their 2024/25 reports.
Note that this is not the same as the FRC’s annual review of corporate governance reporting, despite the similarity of title. We expect to see the latter published in the next month or so.
10 Artificial Intelligence Act
Of interest to all members
The European Union's AI Act became law on 1 August 2024 and will take effect on 2 August 2026. This makes the EU the first to regulate AI, setting a global standard that others may follow. While countries like the United States are still in the early stages of AI regulation, they can learn from the EU’s approach. The Act is intended to encourage responsible AI development and ensure the safe use of advanced systems. However, it could also slow down AI innovation in Europe and push businesses to avoid the region. Whether the EU and other governments can create flexible rules that regulate AI without hindering its growth remains uncertain.
11 UK government AI action plan
Of interest to all members
The new science secretary, Peter Kyle, has commissioned an AI Opportunities Action Plan to identify how AI "can drive economic growth and deliver better outcomes for people across the country".
The plan explores how AI can boost the UK’s economy and improve services for people nationwide. The plan will focus on building a globally competitive AI sector, using AI to drive growth and productivity, and enhancing how citizens interact with the government through AI technology. It will also address key factors for AI adoption, such as data, infrastructure, public procurement, and regulatory updates. Matt Clifford, Chair of ARIA and organiser of the previous Bletchley Park AI Safety Summit, will lead the development of this Action Plan.
12 Charity Commission: Updated guidance on financial difficulties and on decision-making
Of interest to those working in charity governance
The Charity Commission has recently refreshed its guidance about financial difficulties and its guidance about decision-making. For both areas, the legal requirements remain the same, but the guidance has been restructured to make it easier for trustees and governance professionals to find the information they need.
The guidance on financial difficulties includes advice on actions trustees can take to improve their financial governance, protect against financial difficulties, and understand what to do if a charity is insolvent or at risk of insolvency. In the guidance on decision-making, which sets out seven principles for effective decisions, there is now more emphasis on the collective responsibility of trustees, and advice on properly documenting decisions.
The Charity Commission is currently updating its suite of guidance with the overall aim of making it more accessible, and CGI has been invited to review many of these updates.
13 IFRS guidance on voluntary application of ISSB Standards
Of interest to those involved in sustainability and ESG reporting
The IFRS Foundation has published Voluntarily applying ISSB Standards – A guide for preparers to support companies which have chosen to apply IFRS S1 and IFRS S2 voluntarily, whilst regulatory requirements continue to be developed across many jurisdictions. The guide aims to support companies to communicate their progress on sustainability and climate-related issues to investors. The UK is one of several countries around the world which is taking steps to adopt and implement the ISSB’s standards.
14 NGA: School and Trust Annual Governance Survey
Of interest to those working in the education sector
The National Governance Association (NGA) has published its annual survey into governance in schools and academy trusts. Unsurprisingly, the report highlights that budget shortfalls have had a negative impact on many schools and trusts, which has been compounded by schools “increasingly acting as social safety nets for pupils and families”.
15 Further reading
And finally, some articles that passed across my desk and struck me as being of interest to members:
AI Safety: The Role of the Board in Assessing and Managing AI Risk: Skadden Arps Slate Meagher & Flom LLP published an interesting article on this issue. Minerva Analytics also published a blog Shareholders Call for Board Oversight of Artificial Intelligence which touches on investor expectations.
Artificial intelligence and the challenge for global governance: This interesting paper, written and published by Chatham House, advocates the creation of a ‘British AI Corporation,’ modelled after the BBC, to drive the responsible development of AI in the UK. By establishing this organisation, the UK could set ethical standards, encourage innovation, and ensure AI technologies are developed with the public interest in mind.
Charity Commission issues warning and guidance to local authority charity trustees: Brabners have published a helpful article on the Official Warning issued by the Charity Commission to Calderdale Metropolitan Borough Council for failing to manage 13 charities properly, marking the first instance of such action against a local authority, and also covering the guidance that the Commission has since published.
Directors’ duties and conflicts of interest: An interesting and insightful article from DLA Piper, The Good, the Bad and the Uncooperative Director, offers a general overview of conflicts of interest for UK directors, but also examines what a company can do where a conflicted director is not necessarily “good” or “bad,” but is “uncooperative”. Not that any of us know any of those!
The Economic Crime and Corporate Transparency Act 2023 – An update for corporate pension trustees: Burges Salmon has published an interesting blog on the implications of the Economic Crime and Corporate Transparency Act 2023 for corporate trustees of occupational pension schemes.
Governing AI for humanity: interim report from the Advisory body on Artificial Intelligence: This interim report written and published by the UN is an interesting read, offering insights on managing AI in ways that benefit society. It outlines the need for global cooperation to ensure AI is developed and used ethically, with a focus on human rights, fairness, and accountability. The report highlights the importance of international standards to prevent misuse, address biases, and safeguard privacy. It also stresses the need for inclusive policies that consider the impacts of AI on vulnerable populations.
Navigating a new era for the non-executive director: This is an interesting report from Norman Broadbent in collaboration with BDO. It provides valuable insights for non-executive directors (NEDs) adapting to evolving corporate governance challenges. It highlights the changing responsibilities of NEDs in areas like sustainability, technology, and risk management, emphasising the need for a more proactive and strategic approach. The presentation also explores the increasing importance of understanding emerging technologies, including AI, and the role of NEDs in fostering ethical leadership and long-term value creation.
Register of members: Squire Patton Boggs has published an interesting article on the Validity of Appointments and Reliability of UK Companies House Register following the Court of Appeal decision in the case of JDK Construction Limited that the register is what matters, regardless of whether it is incorrect or even, as in this case, where it is alleged that there was forgery/fraud in signing the stock transfer form.
On the subject of further reading, it would be remiss of me not to mention the CGIUKI blogs published in September:
4 September - Why are annual reports so long and what can we do about it?
13 September - Thinking about a career in governance?
17 September - Getting ready for your next role in governance
19 September - Understanding our members: key insights from the 2024 member survey
25 September - Director induction – what governance professionals need to know
