Thera Prins
UK Shareholder Services
The Institute of Directors' voluntary Code of Conduct, Companies House's updated financial penalty guidelines, the Taskforce on Nature-related Financial Disclosures' draft guidance on nature transition plans, and secondary legislation related to the Economic Crime and Corporate Transparency Act are discussed.
Additionally, HM Treasury's plans to proceed with PISCES and the FRC's proposed updates to the UK Stewardship Code are highlighted. Our response to the consultation will be presented at the AGM event on January 28, 2025. We hope to see you there!
For now, have a restful festive break and we will see you in the New Year.
Institute of Directors
The Institute of Directors has published it’s voluntary Code of Conduct for directors, to support decision making and help directors to build and maintain public trust.
The Code is aimed at directors in private, public and not-for-profit sectors and organisations of all sizes. A kitemark to signify commitment has been developed for those organisations who voluntarily adopt the Code.
The Code is structured around six principles of director conduct:
- Leading by example
- Integrity
- Transparency
- Accountability
- Fairness
- Responsible business
The Institute of Directors is intending to develop guidance on the Code which will describe how it can be applied in a variety of real-life scenarios.
The voluntary Code of Conduct can be accessed here: IoD Code of Conduct for Directors
Companies House
Companies House has updated its guidance on its approach to financial penalties, including how it will calculate penalties, the penalty amounts, and the process involved.
Guidance can be accessed via the Companies House website:Late filing penalties - GOV.UK
Taskforce on Nature-related Financial Disclosures (TNFD)
The Taskforce on Nature-related Financial Disclosures has published a discussion paper with draft guidance on developing and disclosing a nature transition plan.
The draft guidance includes:
- A definition of a nature transition plan and an overview of related initiatives.
- Guidance on what a nature transition plan should include, how it should be presented and how it should be disclosed.
- Areas of further work needed on development and assessment of these plans.
The deadline for feedback is 1 February 2025.
The discussion paper can be accessed via the following link: Discussion paper on nature transition plans – TNFD
Legislation.gov.uk
Several pieces of secondary legislation have been published by gov.uk to enact provisions of the Economic Crime and Corporate Transparency Act. They are:
- 31 October 2024 – Revised draft of the Companies and Limited Liability Partnerships (Protection and Disclosure of Information and Consequential Amendments) Regulations 2024 – these regulations widen the range of circumstances in which an individual can apply to the Registrar to protect their usual residential address, as well as applying new provisions to LLPs.
This draft pushes commencement date for this provision of the Act from 30 September 2024 to 27 January 2025.
The draft regulations can be accessed here: The Companies and Limited Liability Partnerships (Protection and Disclosure of Information and Consequential Amendments) Regulations 2024
- 1 November 2024 – Limited Liability Partnerships (Application of Company Law) (No.2) Regulations 2024. These regulations ensure that the relevant reforms to company law also apply to the law governing Limited Liability Partnerships.
In particular, these Regulations:- Provide an additional administrative power to remove an LLP from the register.
- Enable the Registrar to impose a financial penalty on a person directly, as an alternative to pursuing criminal prosecution if satisfied beyond reasonable doubt that the person has engaged in conduct amounting to a relevant LLP-related offence.
The Regulations will come into force on the day that Section 70 (Registrar’s power to strike off companies registered on a false basis) regulation comes into force.
The draft regulations can be accessed here: The Limited Liability Partnerships (Application of Company Law) Regulations 2024
- 6 November 2024 – Economic Crime and Corporate Transparency Act 2023 (Commencement No.3) Regulations. These regulations bring into force certain provision, in particular the provisions relating to the failure to prevent fraud offence. This will come into force on 1 September 2025.
The draft regulations can be accessed here: The Economic Crime and Corporate Transparency Act 2023 (Commencement No. 3) Regulations 2024
Home Office
The Home Office has published this to provide guidance on the Failure to Prevent Fraud offence, which will come into effect on 1 September 2025 as part of the Economic Crime and Corporate Transparency Act 2023.
The guidance details what constitutes “reasonable fraud prevention procedures” and stresses that reasonable fraud prevention procedures are to be proportionate to the fraud risk.
The guidance details six principles that should inform these procedures:
- Top level commitment: the importance of senior management demonstrating a clear commitment to preventing fraud.
- Risk assessments: companies must carry out risk assessments to understand where fraud could occur.
- Proportionate risk-based prevention procedures: proportionate to the size, complexity and nature of the company.
- Due diligence: companies must undertake appropriate due diligence on third-party relationships.
- Communications (including training): regular training to be provided to all employees to raise fraud risk awareness.
- Monitoring and review: monitor fraud risk prevention measures regularly to ensure they are effective.
The full guidance can be accessed here: Guidance to organisations on the offence of failure to prevent fraud
Financial Reporting Council
UK Stewardship Code.
The FRC has launched a consultation with significant updates proposed to the UK Stewardship Code. The aims of the consultation are to streamline reporting requirements and reduce burdens for signatories, whilst ensuring there is a clearer purpose of the Code and the outcomes it intends to deliver.
This consultation proposes:
- Purpose: Revising the definition of stewardship.
- Process: Streamlining the reporting process.
- Principles: Restructuring the principles.
- Positioning: Allowing signatories to reference publicly available external information as part of their reporting.
The consultation closes on 19 February 2025.
The consultation can be accessed via this link: Stewardship Code Consultation
UK Corporate Governance Code
The FRC has published its annual review of corporate governance reporting against the UK Corporate Governance Code, highlighting examples of good reporting and areas for improvement.
Issues arising from the review:
- Fewer companies disclosed non-compliance with Code requirements. The approach to reporting non-compliance and providing explanations was found to be inconsistent and unclear.
- More thorough reporting and better signposting concerning corporate culture and more transparency and rigour in reporting on culture assessment and monitoring is encouraged.
- Companies are encouraged to disclose information about the time commitments of their directors.
- Early adoption of the Audit Committees and the External Audit: Minimum Standard is encouraged. Companies can support Audit Committees by making their responsibility for following the Standard explicit in terms of reference.
- Reporting on the effectiveness of internal controls remains at an early stage.
- The rationale behind key decision on remuneration must be clear and understandable.
The report can be accessed via this link: Review of Corporate Governance Reporting: Review of Corporate Governance Reporting
IFRS Foundation
The IFRS Foundation’s report includes information on alignment of disclosures with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.
The report examines disclosures made by public companies in five regions over eight industries.
Key findings include:
- Companies using ISSB Standards provide the information covered by the TCFD recommendations.
- In the 2023 fiscal year, 82% of the companies disclosed information in line with at least one of the 11 TCFD recommended disclosures, 44% of companies with at least five of the recommendations and approximately 2-3% reported in line with all 11 recommendations.
- Between October 2023 and March 2024, more than 1,000 companies referenced ISSB in their reports.
- Most asset managers and asset owners who responded to the survey questions want or expect portfolio companies to transition to making disclosures prepared using ISSB standards.
- As companies take steps to transition to using disclosures prepared using ISSB standards, they should also prepare to provide sustainability-related financial information simultaneously with the financial statements as part of their general-purpose financial reports.
- Few companies are disclosing climate-related financial information that covers the company’s governance, strategy, risk management, and metrics and targets.
The full report can be accessed here: Progress on Corporate Climate-related Disclosures—2024 Report
Glass Lewis
Glass Lewis has published its Proxy Voting Guidelines, applying to shareholder meetings held after 1 January 2025.
Amendments to the 2024 guidelines include:
- Director tenure. Glass Lewis will now consider the rationale for extending the tenure of a board chair beyond 9 years on a case-by-case basis.
- Gender diversity. Recommending against re-electing the chair of the nomination committee at main market boards where that board has not appointed at least two gender diverse directors.
- Ethnic diversity. Recommending against re-electing the chair of the nomination committee at FTSE 350 boards where that board has not appointed at least one ethnically diverse director.
- Board oversight of AI. Requiring boards to be aware of, and take steps to mitigate, material risks arising from their use or development of AI. Voting against re-electing directors who fail to manage this risk may be recommended.
- Pension contributions. Recommending against the relevant remuneration proposal where executive pension contribution rates exceed those applying to the majority of the workforce.
- Hybrid incentive plans. Companies will be expected to provide certain explanations and confirmations where a hybrid plan is proposed.
- Dilution limits. Potential dilution of over 5% over a ten-year period in relation to executive (discretionary) schemes will no longer lead to a recommendation to oppose equity awards.
- Multi-class share structures. If a multi-class share structure in connection with an IPO, spin-off or direct listing is adopted within the past year, and a share class with superior rights is unlisted, the policy recommends a vote against the chair of the governance committee or a representative of the major shareholder up for election if certain criteria are not met.
- Special purpose acquisition vehicles (SPACs). The policy will defer to management and the board when a SPAC seeks a reasonable business combination deadline extension. Clarifications have been included regarding the role of a SPAC executive.
The guidelines also clarify existing policies relating to virtual shareholder meetings, restricted share plans, annual bonus deferrals, salaries, remuneration committee engagement, the overall approach to executive remuneration, proxy voting results and conflicts of interest.
The Voting Guidelines can be accessed via this link: 2025 UK Benchmark Policy Guidelines.pdf
HM Treasury
Private Intermittent Securities and Capital Exchange System (PISCES)
HM Treasury has confirmed its plans to proceed with the Private Intermittent Securities and Capital Exchange System (PISCES). This follows the consultation published on 6 March 2024.
After considering the consultation feedback, PISCES will include the following key features:
- Secondary market. PISCES will operate as a secondary market, facilitating the trading of existing shares in intermittent trading windows (for example, ad hoc, quarterly, biannually, or yearly). Only shares in companies whose shares are not admitted to trading on a public market (in the UK or abroad) can be traded on PISCES. This includes UK private and public limited companies (PLCs) and overseas companies.
- Investors eligible to trade on PISCES. Only institutional investors, employees of participating companies (or companies in the immediate corporate group of participant companies, where their employment is connected to the participant company’s business) and investors who can meet the definition of high net-worth individuals and self-certified or certified sophisticated investors under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, will be able to buy shares on PISCES. The government also intends to allow for shares to be purchased through bare trustees, nominees, or custodians.
- Market abuse regime. PISCES will not include a public market style market abuse regime, and the FCA will instead be given rule-making powers to create a new and bespoke disclosure regime. Under this regime, disclosures and pre- and post-trade transparency must be shared with all investors participating in a PISCES trading event but will not be required to be made public.
HM Treasury has also published a draft statutory instrument and accompanying policy note illustrating how the government intends to legislate to set up the PISCES sandbox. Technical comments on the draft regulations are welcomed by 9 January 2025.
The draft statutory instrument can be viewed here: The Financial Services and Markets Act 2023 (Private Intermittent Securities and Capital Exchange System Sandbox) Regulations 2025
Subject to the technical feedback received on the draft regulations, HM Treasury intends to introduce the PISCES legislation by May 2025. The FCA will also publish a consultation on its proposed rules for PISCES in due course and, once the rules are finalised, the PISCES sandbox will open for applications.
The full government response can be viewed here: PISCES_consultation_response_November_2024_vf.pdf
Financial Services and Markets Act 2000 (FSMA)
In its formal response, HM Treasury confirms that it will proceed with its proposals to bring the provisions of ESG ratings within the scope of the Financial Services and Markets Act 2000 (FSMA).
This will cover ratings produced in the UK and ratings produced overseas and made available to UK users by way of a business relationship.
It is intended to bring a statutory instrument before parliament early in 2025. Following this, the FCA will consult on policy proposals for the ESG ratings regime. HM Treasury envisages that the overall process of designing, developing, and commencing an ESG ratings regime will take approximately four years.
The consultation response can be viewed here: UK Government consultation response on a future regulatory regime for Environmental Social and Governance ratings providers.pdf
The Takeover Panel
The Takeover Panel has published a response statement to the consultation on the Takeover Code, confirming that it has narrowed the scope to the rules that govern takeover bids in the UK.
Under the new regime, the Takeover Code will apply to companies that fall into two separate categories:
- Companies registered in the UK, Channel Islands, or the Isle of Man where those companies’ shares are publicly traded on a UK regulated market, a UK multilateral trading facility (such as AIM) or a stock exchange in the Channel Islands or Isle of Man.
- Private companies that were UK-quoted sometime within the previous two years.
The Response Statement can be accessed here: RS 2024_1 - Companies to which the Takeover Code applies
The changes to the Takeover Code come into effect from 3 February 2025
Pre-Emption Group
The Pre-Emption Group has published a report on the use of its statement of principles, the second to be published since the principles were revised in 2022.
The report reviews the implementation of the principles by FTSE 350 companies for AGMs held from 1 August 2023 to 31 July 2024.
Key findings are:
- An increase (61% compared to 55.7% in the prior year) in the number of companies seeking enhanced disapplication authority.
- 64% of companies tabling a resolution seeking authority requested it for a specified capital investment.
- A decrease in the number of companies tabling a resolution including the outdated limit on issuing non-pre-emptively.
- Nearly all resolutions for disapplication authority were passed with more than 75% approval.
Twelve companies did not follow the PEG principles.
The report can be accessed here: Annual Monitoring Report
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