EQ Monthly Bulletin - January 2025

In This Edition:

• Legislation.gov.uk
• Financial Conduct Authority
• Department for Business and Trade (DBT)
• Financial Reporting Council (FRC)
• ISS
• UK Government
• UK Sustainability Disclosure Technical Advisory Committee (TAC)

Legislation.gov.uk

The Amendment applies for financial year beginning on or after 1 January 2025.

The Regulations extend the existing regime by seven years, to 6 April 2031. It also introduces a wider reporting scope, while maintaining the current reporting requirements.  The additional reporting includes:

• The total value of invoices paid.
• The sum total of payments made within 30 days, between 31 and 60 days and over 60 days (in addition to the existing requirement to report on volumes of invoices paid in these timescales);
• The total value of payments not made within the payment period.
• The proportion of invoices that are disputed which subsequently result in payments being made outside the agreed payment terms; and
• Provisions have been added to clarify how to deal with payment arrangements that involve a finance provider.

The Regulations provide clearer instruction on how payments should be reported when a third party ‘supply chain’ finance provider is involved.  If the supplier receives the full amount owed without incurring any fees or deductions, the payment is considered made on the date when the supplier receives it from the supply chain finance provider. Alternatively, if the supplier does not receive the full amount or bears any supply chain finance fee, the payment is deemed made on the date the supply chain finance provider receives it from the qualifying business, accounting for any delays outside the responsibility of the qualifying company or LLP. In all other instances, the payment date is when the supplier receives it.

Companies are in scope of the reporting requirements if, on their last two balance sheet dates, they exceed two or all the following thresholds:

• £36m annual turnover
• £18m balance sheet total
• 250 employees

It applies regardless of whether the entity is public, private, or quoted.  This also means that if an overseas company has a subsidiary in the UK, that subsidiary may need to comply if it meets the criteria.

The guidance can be found via this link:Duty to report: guidance to reporting on payment practices and performance - GOV.UK

Financial Conduct Authority

UK Corporate Governance Code 2024

The quarterly consultation paper published by the FCA proposes several amendments to the UKLR and DTR to reflect the implementation of the UK Corporate Governance Code 2024.
Key proposals:

• Update to the Glossary to refer to the 2024 Code.
• Regarding statements required by the DTRs on adopting a going concern basis and corporate governance statements, remove references to preparing these statements in accordance with the FRC’s, acknowledging that this is not intended to be prescriptive.

There are also a few transitional provisions for companies in the commercial company’s category that has an accounting period beginning:

• Before 1 January 2025, it must apply the 2018 Code.
• On or after the FCA's proposed changes come into effect, it must apply the 2024 Code.
• On or after 1 January 2025, but before the FCA's proposed changes come into effect, it can apply the 2024 Code (except for Provision 29, where the Provision 29 of the 2018 Code would continue to be applicable), or it could continue to apply the 2018 Code.
• On or after the FCA's proposed changes come into effect but before 1 January 2026, it can continue to report against Provision 29 of the 2018 Code.

In relation to the DTR, for issuers with an accounting period beginning:

• Before 1 January 2025, references to the Code are to the 2018 Code.
• On or after 1 January 2025, but before the FCA's proposed changes come onto effect, references to the Code may be read as either the 2018 Code or the 2024 Code.
• On or after the date the FCA's proposed changes come onto effect, references to the Code are to the 2024 Code.

The consultation closes on 13 January 2025.

The full consultation document can be accessed via this link: CP24/26: Quarterly Consultation Paper No 46

National Storage Mechanism (NSM)

Following its consultation paper in August 2024, the FCA has published a policy statement on the requirements for submitting information the National Storage Mechanism (NSM).

The FCA is broadly making the changes it consulted on:

• To improve the NSM's functionality, the FCA is introducing more comprehensive metadata requirements by expanding the requirement for the filing of legal entity identifiers (LEIs) and updating the headline information that is used to categorise regulated information.
• To produce faster and standardised data exchange and processing, enabling the FCA to implement improved data quality controls, the FCA is introducing a requirement for all Primary Information Providers (PIPs) to use the same standard schema and Application Programming Interface (API) for submitting information to the NSM.

The FCA has also published an instrument to implement the new requirements, which will come into force on 3 November 2025. The FCA will provide more information in 2025 on what issuers and users of the NSM can expect to change because of the new rules.

The policy statement can be access via this link:PS24/19: Enhancing the National Storage Mechanism

The statutory instrument is available here: Microsoft Word - FCA_2024_49

Department for Business and Trade (DBT)

On 10 December 2024, the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 and its Explanatory Memorandum were laid before Parliament.  The Regulations will increase the turnover and balance sheet criteria for the purpose of reporting and audit requirements and removing some requirements from the Directors’ Report that are no longer considered relevant.

Raising the financial thresholds of the company size definitions.

The Regulations increase the turnover and balance sheet total thresholds for determining a company's (and LLPs) size for reporting purposes by approximately 50% as follows:

• Micro-entities and micro-entity LLPs – turnover threshold is increased to not more than £1 million and balance sheet total to not more than £500,000.  
• Small companies and LLPs – turnover threshold is increased to not more than £15 million and balance sheet total to not more than £7.5 million.  
• Small company groups and LLPs – turnover threshold is increased to not more than £15 million net (or £18 million gross) and balance sheet total to not more than £7.5 million net (£9 million gross).
• Medium-sized companies and medium LLPs – turnover threshold is increased to not more than £ £54 million and balance sheet total to not more than £27 million.  
• Medium-sized groups and LLPs – turnover threshold is increased to not more than £54 million net (or £64 million gross) and balance sheet total to not more than £27 million net (or £32 million gross).

A transitional provision applies in respect of these amendments, so that when considering qualification as a particular company or LLP size by reference to a previous financial year, the amendments made by the Regulations are treated as having applied in those previous years. This is so that companies and LLPs can benefit from the new thresholds as soon as possible after the legislation comes into force.

Changes to the Directors’ Report

The Regulations remove the following reporting requirements in the Directors’ Report that duplicate, or have been superseded by, other reporting requirements, or that lead to low-value disclosures:

• Information about financial instruments (superseded by new requirements in international and UK accounting standards).
• Information about important events that have occurred since the end of the financial year (superseded by accounting standards, which require companies to disclose information about “post balance sheet events”). 
• Information about likely future developments (superseded by a requirement in the Strategic Report for companies to provide an annual “fair review” of their business and a “description of principal risks and uncertainties” facing the company).
• Information about research and development (R&D): This is provided under accounting standards and can be expected to feature in companies’ review of their business model under the Strategic Report. 
• Information on branches: Company branches that are subsidiaries of the company have their own separate legal personality and reporting obligations and information on a company’s operational footprint is contained in the annual review of its business in the Strategic Report. 
• Information about engagement with employees: The provisions overlap with material information about employee matters typically included in the Strategic Report.
• Information about engagement with customers and suppliers: This overlapped with the section 172 statement.
• Information relating to the employment of disabled people: This is addressed more effectively and to a greater extent in more recent anti-discrimination legislation. 
  The Regulations come into force on 6 April 2025 and will have effect in relation to financial years beginning on or after 6 April 2025.

The text of the Regulations can be accessed here: The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024

The Explanatory Memorandum can be accessed here: The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024

Financial Reporting Council (FRC)

The FRC has announced that it will take over the governance of the Wates Principles as Sir James Wates stepped down from his role as Chair of the Wates Principles Coalition Group from 31 December 2024.

The press release can be viewed here:FRC to lead governance of Wates Principles for Large Private Companies

ISS

ISS announced the updates to its 2025 Benchmark Proxy Voting Policies for the UK and Ireland on 17 December 2024, to be applied to shareholder meetings on or after 1 February 2025. 

The updates reflect several recent changes in regulations and guidelines, the policy changes are as follows: 

• Policy clarification regarding the FCA’s requirements in the UK Listing Rules for companies to report against targets related to board diversity, including gender and ethnic diversity.
• Policy updates to remove and replace references to “premium” and “standard” listings in line with the new listing categories under the UK listing regime.
• Policy updates regarding remuneration considering the updated Principles of Remuneration published by the Investment Association (IA) in October 2024 and the changes made in the 2024 UK Corporate Governance Code.
• Policy updates to adjust references to share dilution limits applicable to executive discretionary share schemes, acknowledging the updated IA Principles of Remuneration, and providing transparency on investors' expectations regarding best practices. 
• Policy updates to the remuneration applicable to smaller companies, which reflects the increased focus on pay resolutions in the revised QCA Corporate Governance Code, particularly the recommendation that remuneration policies and remuneration reports be presented for advisory shareholder vote.
• Policy updates to remove the reference regarding the Capital Requirements Directive limit ratio between variable and fixed remuneration considering the recent change in UK regulation and the fact that UK banks and investments firms are no longer subject to the variable-to-fixed remuneration cap.

The Voting Policies can be viewed here: EMEA-Policy-Updates.pdf

UK Government

The UK Government has responded to the House of Lords Select Committee’s October 2024 report – Modern Slavery: becoming world leading again.

The response indicated that many of the recommendations in the Select Committee’s report will be accepted in some form, it provides no formal detail on the timing or extent of any legislative reform.

The response can be viewed here: Government response to House of Lords Modern Slavery Act 2015 Committee report, 'The Modern Slavery Act 2015: becoming world-leading again' (accessible) - GOV.UK

UK Sustainability Disclosure Technical Advisory Committee (TAC)

On 18 December 2024, the UK Sustainability Disclosure Technical Advisory Committee (TAC) published its technical assessment and endorsement recommendations paper on the UK endorsement of the ISSB’s sustainability disclosure standards, IFRS S1 and S2, to create the UK SRS.

The Government will now consider the TAC’s recommendations, and an endorsement decision is expected in Q1 2025, along with a consultation on exposure drafts of the UK Sustainability Reporting Standards (UK SRS). Following endorsement and publication of the final UK SRS, the FCA can consult on reporting requirements for listed companies, and the Government is expected to consult on requirements for “economically significant” companies during 2025.

The technical assessment and recommendations paper can be accessed here: UK endorsement of IFRS S1 and IFRS S2