Global | Publication | July 2016
There have already been a number of corporate governance developments this year, as well as developments in the narrative aspects of annual reports and accounts. This briefing summarises those developments and looks at some of the future developments in these areas that companies need to start preparing for.
UK Corporate Governance Code
For premium listed companies and other companies that have chosen to “comply or explain” against the UK Corporate Governance Code (Code), a revised version of the Code applies to accounting periods beginning on or after June 17, 2016. The Financial Reporting Council (FRC) consulted on changes to the Code back in 2014 and 2015, largely as a result of changes required to it by the EU Regulation regarding the statutory audit of public interest entities (EU Statutory Audit Regulation - Regulation EU/537/2014) and the EU Directive on the statutory audit of annual accounts and consolidated accounts (EU Statutory Audit Amending Directive - Directive 2014/56/EU). The EU Statutory Audit Regulation and the EU Statutory Audit Amending Directive both apply with effect from June 17, 2016.
The main changes between the new version of the Code and that published in 2014 for accounting periods beginning on or after October 1, 2014, are as follows:
It is worth noting that the FRC’s next review of the Code is planned for 2019 and it hopes to avoid further updates before then.
FRC’s Guidance on Audit Committees
At the same time as issuing the revised version of the Code, the FRC issued revised Auditing and Ethical Standards to support the work of auditors in delivering high quality audits, as well as an updated version of its Guidance on Audit Committees, last published in 2012 (Guidance).
The Guidance has been revised to take account of the changes to the Code and to the regulatory framework in light of the implementation in the UK of the EU Statutory Audit Regulation and the EU Statutory Audit Amending Directive, as well as developments such as the recommendations and Orders of the Competition and Markets Authority in relation to audit engagements.
The Guidance, which should be read in conjunction with Section C.3 (Accountability) of the Code, has been amended to reduce duplication with elements of the Code and changes include the following:
As a result of needing to reflect changes introduced by the EU Statutory Audit Amending Directive, the Financial Conduct Authority (FCA) has made a number of changes to DTR 7.1 concerning audit committees and the changes (in FCA Instrument 2016/40) apply to issuers with a financial year beginning on or after June 17, 2016.
As before, at least one member of the audit committee must have competence in accounting or auditing, or both, but now a majority of its members must be independent and the members of the audit committee as a whole must have competence relevant to the sector in which the company is operating. In addition, the chairman of the audit committee must be independent and be appointed by audit committee members or by the board of the company.
Additions have been made to DTR 7.1.3R which sets out the minimum duties of the audit committees, to reflect the amended scope of responsibilities under the EU Statutory Audit Amending Directive. For example, as well as continuing to monitor the financial reporting process, the audit committee must now submit recommendations or proposals to ensure its integrity of the financial reporting process. While monitoring the audit, the audit committee must take into account any findings and conclusions by the FRC resulting from inspections of previous audits. The audit committee must also inform the board of the outcome of the statutory audit and explain how it contributed to the integrity of financial reporting and the audit committee’s role in the process.
Given the new legislative framework applying to the statutory audit of public interest entities, as introduced by the EU Statutory Audit Regulation and the EU Statutory Audit Amending Directive, ecoDa (the European Confederation of Directors’ Associations) and PwC published guidance in June 2016 to help audit committees understand the practical implications of the new legislation and provide examples of good practice.
In considering the governance of audit committees, the guidance looks at the new requirements in relation to the competence of the audit committee as a whole and that of its members, focusing on sector competence and independence issues. It considers the new mandatory audit firm rotation requirements and their impact on multinational groups, as well as issues concerning the auditor’s independence. In this context it looks at the need for approval of non-audit services by the audit committee and at the impact of this on multinational groups, at the requirements concerning the allowance of certain tax and valuation services, at the fee cap on permissible non-audit services and at the cooling off period for key audit personnel joining the audited entity. It also considers the new audit report requirements and those concerning the additional report to be given to the audit committee of a public interest entity (PIE). Finally, it looks at the new obligation on national competent authorities to monitor developments in the PIE audit market and at sanctions for breaches of the new requirements.
In May 2016, the Financial Reporting Council (FRC) published a feedback statement summarising responses to its October 2015 discussion paper, “UK Board Succession Planning”. The discussion paper was published because board evaluations often highlight the quality of succession planning as an issue, and the FRC has been asked to promote good practice in this area to raise quality.
Areas explored in the discussion paper and feedback statement include:
The FRC is currently undertaking a “Culture Project” aimed at understanding how boards can shape, embed and assess culture, with the aim of identifying and promoting best practice. As part of that, and in light of the responses to the discussion paper on succession planning, the FRC is to consider providing guidance to nomination committees as part of the revision of its 2011 Guidance on Board Effectiveness. In addition, the FRC announced in the feedback statement that it will be reviewing and analysing nomination committee disclosures (including board evaluation reporting by the FTSE 350), and will comment on its findings in its 2016 “Developments in corporate governance and stewardship” report to be published in due course.
The focus on nomination committees has continued, with Institute of Chartered Secretaries and Administrators’ (ICSA) Governance Institute and EY also issuing a report in May 2016, “The Nomination Committee – Coming Out of the Shadows”. The report followed a series of discussions with mainly FTSE 350 board chairs, nomination committee chairs and members and company secretaries, and the purpose of the report is to help improve the effectiveness of nomination committees and succession planning.
The report looks at the role of the nomination committee, its membership and its reporting, and then focuses on three main themes:
The report concludes with a set of 12 questions for boards and their nomination committees to consider.
New board review
In February 2016, Sir Philip Hampton, currently chair of GlaxoSmithKline, was appointed chair and Dame Helen Alexander, currently chair of UBM, was appointed deputy chair of a new board review to continue the work of Lord Davies’ “Women on Boards Review”. The new board review will continue to champion work to improve the representation of women on FTSE 350 boards and consider options for building the talent pipeline, focussing on improving the representation of women in the executive layer of FTSE 350 companies. In July 2016 it was announced that the review would look to raise the target of women on FTSE 350 boards to 33 per cent by 2020 and it is expected that findings will be presented to the Government by the end of 2016.
Results of EHRC inquiry into FTSE 350 appointments
Since then, in March 2016, the Equality and Human Rights Commission (EHRC) published “An inquiry into fairness, transparency and diversity in FTSE 350 board appointments”. This report sets out the results of the inquiry launched by the EHRC back in 2014 into how FTSE 350 companies and research firms recruit and select board directors. The aim of the inquiry was to determine whether recruitment and selection practices are transparent, fair and result in selection on merit, and to identify areas where companies and search firms can make improvements to support more diverse appointments to company boards.
The report sets out a number of recommendations concerning board evaluations, diversity policies and targets, role descriptions, the search process, the selection of candidates, the role of the nomination committee and means of improving diversity in the talent pipeline and candidate pool. The EHRC has also produced a short six–step practical guide for companies to help them improve board diversity, both when making an appointment and in respect of on-going action that can be taken to increase diversity across the entire workforce, particularly to ensure a pipeline of diverse talent for future board appointments.
Report into gender imbalance in financial services firms
At the same time as the EHRC published the results of its inquiry, HM Treasury published a report it had commissioned by the CEO of Virgin Money, Jayne-Anne Gadhia, addressing the gender imbalance in senior positions in financial services companies. The Gadhia review had been asked to consider the representation of senior management roles in financial services firms as part of the Government’s commitment to tackle gender equality in the workplace.
The Gadhia review makes three over-arching recommendations to achieve a balanced workforce. These are as follows:
While the recommendations in the Gadhia report are voluntary, they do form part of a voluntary charter that HM Treasury has launched and which it hopes financial services organisations will sign to signify their commitment to take on board the recommendations. In July 2016 HM Treasury published a list of 72 financial services firms that have signed up to its Women in Finance Charter.
Executive remuneration
In April 2016, the Executive Remuneration Working Group set up by the Investment Association in autumn 2015, published an interim report on executive remuneration structures and practices. The Working Group was set up following concerns that the current structures of executive pay, and in particular their complexity, are inhibiting executive directors from acting in the best long-term interests of their companies and investors.
The interim report sets out specific concerns where the Working Group seeks further input. These are as follows:
The Working Group is seeking views on some of the alternative structures which could be adopted and the parameters which would need to be established when moving from the current system to a more company-specific approach. In due course, following roundtable discussions with a wide range of stakeholder groups, the Working Group will publish its final report. The Investment Association will review that final report and decide whether or not to adopt its recommendations in its Principles of Remuneration which were last revised in November 2015.
In addition, in July 2016, the Investment Association published an updated version of its Principles of Remuneration, last published in November 2015. The only change made to the Principles concerns the timing of awards under long-term incentive schemes and the change has been made as a result of the implementation of the EU Market Abuse Regulation (Regulation EU596/2016). The Principles state that the rules of the scheme should provide that share or option awards should normally be granted within a 42 day period immediately following the end of the closed period under the Market Abuse Regulation (the previous requirement was that they be granted within 42 days following publication of the company’s results).
Also, in July 2016 the Quoted Companies Alliance (QCA) published its revised Remuneration Committee Guide for Small and Mid-Size Quoted Companies. The Guide (copies of which are available from the QCA), prepared to assist remuneration committee members of small and mid-size quoted companies in setting pay for executive directors and senior management in a fair and reasonable manner, was last published in 2012, and it has been revised and updated to address new remuneration regulations and developments in governance behaviour and best practice. Key changes include:
Review of the Pre-Emption Group’s Statement of Principles
In May 2016, the Pre-Emption Group published a monitoring report which looks at the implementation of the updated Statement of Principles in relation to pre-emption rights, published by the Pre-Emption Group in March 2015.
While research shows that generally the Statement of Principles was adhered to in 2015, in light of investor representatives’ views on best practice, the Pre-Emption Group has published two template resolutions with the monitoring report. These provide for the authority to disapply pre-emption rights in relation to the additional five per cent now permitted under the Statement of Principles, to be included in a separate resolution which specifically references use in connection with an acquisition or specified capital investment, as envisaged by the Statement of Principles. The template also sets out the disclosures investors expect to see when such an authority is sought. The monitoring report notes that in 2016 the Pre-Emption Group will be looking for continued improvement in disclosure of the intended and actual disapplication of pre-emption rights and for all companies to engage with their shareholders and adhere to the letter and spirit of the Statement of Principles.
Board oversight of profit expectations and dividend policy
The Investment Association wrote to the chairs of FTSE companies in May 2016, expressing its concerns over a number of instances where companies have made significant changes to their profit expectations and/or have reduced the company’s dividend policy following the appointment of new management. This has often resulted from the value of assets being written down and future profit expectations being scaled back significantly within a few months of the appointment of new management.
The letter points out that investors believe these actions highlight insufficient oversight on the part of independent directors and the audit committee. It reminds directors that they should be assessing the likely future profitability of the business and the valuation of its assets on an ongoing basis. If the prospects of the business are presented as being fundamentally different following the appointment of new management, resulting in a revaluation of assets and a cut in the dividend, then this raises questions about the board’s oversight of the previous management and why these issues were not addressed earlier. The letter points out that investors will hold independent directors to account when there is a significant revaluation of assets, profit forecasts and dividend policy following the appointment of new management and IVIS will highlight on an “Amber Top” the re-election of non-executive directors of any companies where the situation arises following the appointment of new management. This policy comes into effect for AGMs after August 1, 2016.
Updated Investment Association share capital management guidelines
In July 2016, the Investment Association published an updated version of its share capital management guidelines, last published in July 2014.
In terms of changes to the previous version, the guidelines note that Investment Association members support the Pre-Emption Group’s template resolutions for the disapplication of pre-emption rights (see further above) and will expect companies seeking an aggregate ten per cent disapplication authority to follow the model resolutions. They have asked the Institutional Voting Information Service (IVIS) to amber top any company seeking a ten per cent disapplication authority which does not use the two separate template resolutions from August 1, 2016, and to red top any company which does not use such resolutions from January 1, 2017.
Investment Association’s Productivity Action Plan
In March 2016, the Investment Association published an Action Plan, outlining how the investment industry can play a role in improving productivity in the UK with long-term investment.
The Action Plan sets out five investor productivity principles and 12 recommendations and associated actions relating to those principles. The principles are as follows:
The Action Plan’s success will be clearly measured every six months and the Investment Association will formally update the Chancellor of the Exchequer on its progress on the first and third anniversaries of the Plan’s publication outlining progress and development.
At a time when many companies are contemplating the preparation of their first slavery and human trafficking statement to meet the requirements of section 54 Modern Slavery Act 2015, the Equality and Human Rights Commission (EHRC) has published a short five-step guide for company boards to help directors understand what they need to do to “know” and “show” that their company respects human rights in practice. The five steps should help directors satisfy themselves that their company identifies, mitigates and reports on the human rights impact of the company’s activities and the guide also provides advice on how boards can meet the UN Guiding Principles on Business and Human Rights, the global standard, which outline the role of business and governments in respecting human rights.
The five steps are as follows:
The Institute of Chartered Secretaries and Administrators’ (ICSA) Governance Institute published a consultation paper in May 2016 seeking views on the practice of minuting meetings. Responses to the consultation will help ICSA produce revised guidance on good practice that reflects the reality of modern market practice on a cross-sectoral basis. Questions in the consultation paper include questions about the legal and regulatory framework applying to minutes, responsibility for their production, questions about the drafting of the minutes, dealing with issues such as the level of detail and conflicts of interest, editing minutes, access to minutes and retention of the company secretary’s notes of meetings.
The Financial Reporting Council (FRC) published a discussion paper in June 2015, “Improving the quality of reporting by smaller listed and AIM quoted companies”, which looked at the reasons for poorer quality reporting by some such companies and put forward proposals to help improve the quality of their reporting. In June 2016, the FRC published an update which includes feedback to the discussion paper and an update on decisions and progress in the three areas of reporting requirements and practices, audit practices and company governance and resources.
In relation to reporting requirements and practices:
In relation to audit practices:
In relation to company governance and resources:
In June 2016 the Financial Reporting Council’s Financial Reporting Lab (Lab) published a call for participation in its next project, Digital Future: Data, which will look at how the use of technology to communicate corporate reporting to the investment community might evolve. This follows on from its 2015 report, Digital Present, which considered investors’ views on the current state of digital reporting by companies.
The new project will investigate how technology trends might drive future change in corporate reporting and provide opportunities for improvements in the access to, and analysis of, corporate reporting data. It will also look at how transformation of reporting formats, potentially driven by regulatory change (such as the expected implementation of a European Single Electronic Format for corporate reporting by 2020), might be optimised for investors and companies.
The Lab is interested in hearing from any individuals within companies or investment organisations, particularly any companies rethinking the use of technology to deliver their corporate reporting and from those within investment organisations who are responsible for data use and strategy. It is also asking those interested in the topic to participate in an online survey it has set up.
The Lab will undertake work on Digital Future: Data in 2016 and intends to publish its initial output before the end of 2016.
There is increasing focus, both at institutional investor and governmental levels, on environmental reporting and climate-related financial disclosures.
In January 2016, the Climate Disclosure Standards Board published a review of FTSE 350 companies’ environmental reporting and greenhouse gas emission disclosures in their annual report. As well as proposing steps that can be taken by regulators to enhance the disclosure environment, the report makes the following observations about corporate environmental reporting:
In March 2016, a Task Force set up by the Financial Stability Board at the request of the G20 to provide a set of recommendations on the disclosure of financial risks arising from climate change, published a Phase I report. This considers current voluntary and mandatory frameworks/guidelines for climate-related disclosures and it identifies a number of fundamental principles for effective financial disclosure. The plan is for the Task Force to continue to discuss the issues with stakeholders and then publish a Phase II report by December 2016, with a finalised report expected to be published in February 2017. Points to be covered by the Phase II report will include potential gaps in disclosures and specific recommendations for voluntary disclosure principles and practices that promote the consistency, comparability, reliability, clarity and efficiency of climate-related disclosures. While the Task Force is focussing primarily on developing recommendations for listed companies and key financial entities, the recommendations should have broader application.
A further development in this area is that a number of institutional investors, including the Local Authority Pension Fund Forum, Royal London Asset Management and the Church of England’s Church Commissioners and Pensions Board, published a position paper in May 2016 calling for the disconnect between existing company reporting rules and a lack of disclosure of climate risks to be addressed. In the position paper, the investors call on all companies to assess and report any material climate-related risks within their annual report, noting that, at the very least, for companies where the risks are potentially material, disclosure should include a discussion of future risks and uncertainties facing the business and how the board is managing them.
New frameworks for the regulation of auditors, for mandatory rotation and retendering of audit engagements and other matters relating to statutory audits, came into effect in June 2016 as a result of the UK’s implementation of the EU Statutory Audit Amending Directive and the EU Statutory Audit Regulation. These new frameworks are set out in the Statutory Auditors and Third Country Auditors Regulations 2016 (2016 Regulations) which came into force on June 17, 2016.
As well as making changes to audit reporting requirements, the 2016 Regulations include the following provisions:
The Financial Reporting Council (FRC), in May 2016, published a set of frequently asked questions to help directors when they are considering the Guidelines on Alternative Performance Measures published by the European Securities and Markets Authority (ESMA) in October 2015 (ESMA Guidelines).
The ESMA Guidelines set out the principles listed entities should follow from July 3, 2016 when presenting alternative performance measures (APM) in prospectuses and regulated information other than financial statements, with the aim of promoting the usefulness and transparency of APMs in such publications. APMs are financial measures which have not been drawn directly from the financial statements, so they include measures such as EBITDA (earnings before interest, taxation, depreciation and amortisation), free cash flows and other adjusted operating measures.
Questions considered by the FRC include the following:
Both the FRC and the Financial Conduct Authority (FCA) have responsibility for monitoring compliance with the ESMA Guidelines. So far as the FRC is concerned, it will consider them when reviewing company reports and accounts in assessing whether they are fair, balanced and comprehensive. In addition, the FRC’s Corporate Reporting Review Team will extend its reviews of reports and accounts to consider whether strategic reports are consistent with the ESMA Guidelines. Where there are material inconsistencies, these will be brought to the attention of the relevant company. Material inconsistencies with the ESMA Guidelines will also be taken into account when deciding whether a strategic report is fair, balanced and comprehensive, as required by the Companies Act 2006 and, as a consequence, whether enforcement action is required.
In April 2016, the Financial Reporting Council (FRC) published guidance on going concern for directors of companies that do not apply the UK Corporate Governance Code (Code). “Guidance on the going concern basis of accounting and reporting on solvency and liquidity risks” is a simplified version of the guidance published for companies that do comply or explain against the Code in 2014.
The new guidance is designed to be a proportionate and practical guide for directors of non-Code companies. It encourages them to take a broader view, over the longer term, of the risks and uncertainties that go beyond the specific requirements in accounting standards. It also acknowledges that the risk management and control processes companies have in place will depend on the size, complexity and circumstances of the company. The guidance summarises the legal, accounting and other regulatory requirements and then highlights principles for best practice to help with the practical application of the requirements. It also includes key focus areas for directors to consider when assessing the appropriateness of the going concern basis of accounting and liquidity risks facing the company, as well as providing practical examples with illustrations.
In April 2016, the UK’s first Extractive Industries Transparency Initiative (EITI) report was published, providing detailed information about the revenues received by UK Government agencies from extractives companies in 2014 for a range of payments included within the scope of the EITI. The report shows a breakdown of the sums between the oil and gas and mining and quarrying sectors, between the different payment types and between the Government agencies that received those payments.
Also in April 2016, the International Association of Oil and Gas Producers (IOGP) published guidance on the Reports on Payments to Governments Regulations 2014 as amended (the 2014 Regulations were amended by the Reports on Repayments to Governments (amendment) Regulations 2015). The Regulations require certain entities active in the extractives industry or logging of primary forests to disclose material payments made to governments in the countries in which they operate in a separate report, on an annual basis. This guidance has been developed by the IOGP to help companies meet the requirements of the Regulations. Areas covered by the guidance include determining which entities are under an obligation to prepare and deliver a report, whether a consolidated report can be prepared for a group, the reporting requirements for entities that are subject to equivalent disclosure regimes, business activities within the scope of the Regulations, the types of payment to be included in the report and how payments should be attributed to projects. The IOGP plans to update its guidance after two reporting cycles to take account of the experience of its member companies in meeting the Regulations’ requirements.
In its 2015/16 Corporate Governance Policy and Voting Guidelines, the Pensions and Lifetime Savings Association emphasised that corporate reporting should enable investors to understand how companies are maximising the long-term value of their human capital, namely their workforce, and a recent report has examined the standard of human capital reporting among FTSE 100 companies.
The Valuing Your Talent Partnership published a report in May 2016, “Reporting human capital – Illustrating your company’s true value”, having carried out a content analysis of key human capital terms in 2013 and 2015 annual reports. Analysis of the BBC website, the Financial Times and The Economist was also conducted to compare and contrast companies’ annual reports with media outputs to determine whether the companies concerned were reporting human capital issues accurately, particularly those relating to poor people management practices, negative employee relations incidents or inadequate training and development provisions.
The report found that both the quantity and quality of human capital reporting has increased across FTSE 100 companies between 2013 and 2015, with notable rises in reporting on ethics, diversity and human rights in particular. However, not all organisations have been transparent about workforce issues in their annual reports, with three companies having workplace strikes but of those, only two were fully reported in the relevant annual report and the third company made no mention of the strike at all. There were also four cases of employees being involved with insider trading reported by the media outlets, but none were reported in the relevant annual reports. The report recommends that companies continue to focus on the reporting of human capital issues, but adopt broadly consistent terminology to describe the human capital items so that universal comparisons are easier. However, this does not mean that companies should adopt a boilerplate approach to human capital reporting.
The EU Non-Financial Reporting Directive (Directive 2014/95/EU) came into force on December 6, 2014, and needs to be transposed into UK law by December 6, 2016, with a view to the resulting UK regulations applying to reporting years beginning on or after January 1, 2017.
The aim of the Directive is to raise the standards of non-financial reporting and diversity disclosures in annual reports. It applies to large public-interest entities with 500 or more employees and these are listed companies (but not AIM companies) banks, building societies and insurance companies. In broad terms, it requires companies within its scope to include in a management report (this will be the strategic report for UK companies) a non-financial statement containing information to the extent necessary for an understanding of its development, performance, position and the impact of its activity relating to, at a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters. Aspects to be covered include:
In many respects the framework set out in the Directive is broadly similar to that in the Companies Act 2006, but there are some differences and the Government published a consultation paper in February 2016, seeking views on how to implement the EU requirements. The Directive includes an option for member states to allow companies either to include the new disclosures in their strategic report or to prepare a separate report of non-financial information. The consultation paper sought views as to whether or not the Government should take advantage of this option, since it is aware that there is sometimes pressure to prepare and publish non-financial information to the same deadline as financial statements.
At the same time, the Government sought views and suggestions for improving the regulatory framework more widely. For example, it asked whether companies should be permitted to provide their separate non-financial statement electronically on the company’s website rather than in printed form and in the context of the gender reporting requirements in the strategic report of listed companies, as currently set out in the Companies Act 2006, views were sought as to how the definition of “senior manager” could be improved to reflect better the intention of the particular requirement.
The consultation closed in April 2016 and the results of that consultation and draft regulations are now awaited. However, in July 2016 the Financial Conduct Authority, in its Quarterly Consultation No.13, proposed, among other things, a new DTR 7.28A, to implement the Directive’s requirement for companies to disclose their diversity policy in their corporate governance statement. As well as a description of the diversity policy, the Directive requires the corporate governance statement to include the policy’s objectives, how it has been implemented and the results in the reporting period. If the company does not apply a diversity policy, the corporate governance statement must include an explanation as to why that is the case. Certain companies (for example, those which qualify as small or medium companies under DTR 1B1.7R) will not be subject to this requirement, but those to which it applies will need to comply with the requirement for financial years beginning on or after January 1, 2017.
In February 2016, the Government Equalities Office published draft regulations for consultation, The Equality Act 2010 (Gender Pay Gap Information) Regulations 2016. These followed a consultation in 2015 on, among other things, how best to increase transparency around gender pay differences.
The draft regulations are proposed to apply to employers with 250 or more relevant employees, being persons who ordinarily work in Great Britain and whose contract is governed by UK legislation. To enable employers to have time to introduce new systems and processes to analyse their gender pay gaps, they will have 18 months after commencement of the regulations to publish the required information for the first time and must then publish it annually thereafter.
Overall mean and median gender pay gaps will have to be published using data from a specific pay period every April, and the difference between mean bonus payments paid to men and women will also need to be published, together with a report on the number of men and women in each quartile of the employer’s pay distribution.
The information must be published by employers in English on their searchable UK website that employees and the public can access, as well as on a Government-sponsored website, and be retained there for three years. It must also be accompanied by a written statement confirming the accuracy of the information that is signed by a director in the case of a company, and by certain specified persons where the employer is not a company.
When the draft regulations were published, the Government suggested that, subject to Parliamentary approval, the regulations could come into effect on October 1, 2016. However, the results of the consultation on the draft regulations have not yet been published and that implementation date now looks less certain.
Section 54 of the Modern Slavery Act 2015 requires companies with financial years ending on or after March 31, 2016, that carry on a business in the UK supplying goods or services and which have an annual turnover of £36 million or more to make an annual human trafficking and slavery statement. The statement must set out the steps taken by the company during the financial year to ensure that there is no modern slavery in its own business and its supply chains, and the Home Office publication “Transparency and Supply Chains etc – A Practical Guide” published in October 2015 provides useful guidance on the contents of the required statement.
Section 54 requires the statement to be published on the company’s website (with a link to it in a prominent place on that website’s homepage) but the Modern Slavery (Transparency in Supply Chains) Bill currently before the House of Lords proposes a number of amendments to Section 54, including that the statement appear in the company’s annual report and accounts. The Bill also proposes that the Secretary of State should publish a list of all commercial organisations required to publish a slavery and human trafficking statement, with the list being published in a place and format that is easily accessible and with the commercial organisations in the list being categorised by sector.
The Bill has had a first reading and a second reading has been scheduled.
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