The FRC Lab has published a report on digital security risk disclosure to assist companies in improving the revelation of digital security strategies, risks and governance. The report notes that digital security risk is increasingly becoming fundamental for an investor's understanding of a business due to the continued digitisation of the economy. However, the FRC's research showed that disclosures are not meeting investor needs effectively, and companies need to improve to address this. Companies can improve disclosures by focusing on aspects of strategy, governance, risk and events. The report notes that while FTSE350 companies reported one digital-related stake, the disclosures being made do not meet investor needs and are often boilerplate and overly static. Suggestions to improve disclosures include explaining how digital security and strategy are important to the company's current and future business model, strategy and environment. And also the identification of the current and future digital security, strategy risks, and opportunities faced by the company. In assessing which disclosures to provide materiality for, the company and potential sensitivity of the information should be considered.
The report includes practical examples of developing practice and some questions to be considered by boards and audit committees to ascertain if this area's disclosure will meet investor needs.
Read more: Digital Security Risk Disclosure
The UK Jurisdiction Taskforce has announced its intention to issue a Legal Statement on Digital Securities and has published a consultation paper to ensure that the final statement addresses the issues about which key stakeholders are most concerned. The report proposes to clarify how English law applies to issuing and transferring equity and debt securities on blockchain and distributed ledger technology (DLT) systems and intends to issue the statement to provide clarity to the market about the types of digital security models that are feasible under English law. The broad question the Taskforce intends to address through the statement is whether English private law supports issuing and transferring equity and debt securities using blockchain or DLT.
Ancillary questions that the consultation paper indicates may be addressed in the statement include whether a blockchain or DLT-based system can be used as a register of digital securities and needs to comply with the requirements of the Uncertificated Securities Regulations 2001. And whether a blockchain or DLT-based system can serve as a register of members or debenture holders to comply with sections 113 and 743 of the Companies Act 2006. The consultation closes on 23 September with the intention that the Legal Statement will be issued in December 2022.