Independent review of the Modern Slavery Act – Government response
On July 9, 2019, the Government published its response (Response) to the final report (Report) of the independent review of the Modern Slavery Act 2015 (Act). The Report was laid in Parliament in May 2019 and provided evidence and recommendations on the following key areas of the Act:
- The Independent Anti-Slavery Commissioner (Commissioner)
- Transparency in supply chains.
- Independent child trafficking advocates.
- Legal application of the Act.
In the Response, the Government notes that it welcomes the Report and its recognition that the Act is world-leading, that it is grateful to the reviewers and expert advisers for their work, and that it accepts the majority of the recommendations made. The Response then goes on to set out the Government’s detailed response to the recommendations made in the Report.
In relation specifically to the topic of transparency of supply chains, the Government’s responses to the recommendations on this area (recommendations 15 - 35) include, amongst others, those summarised below.
The Government agrees with the recommendation that it should establish an internal list of companies falling within the scope of section 54 of the Act and notes that it has identified a list of approximately 17,000 UK organisations, which are likely to fall within the scope of the legislation. The Government has used this information to write directly to the CEOs of those organisations with clear information to support effective reporting. However, it notes that only individual commercial organisations will have the full data required to definitively determine whether or not they are caught and the Government therefore agrees that organisations themselves should retain ultimate responsibility for determining whether they are required to produce a modern slavery statement.
In relation to improving the quality of modern slavery statements, the Response notes that a number of recommendations in the Report relate to the provision of guidance. In response to these recommendations, the Government commits to revise the statutory guidance on transparency in supply chains in 2020 following the planned consultation (a copy of the consultation, Transparency in Supply Chains Consultation, which closes on 17 September 2019 (the Consultation), can be found here) and in line with any subsequent amendments to the legislation. Relevant stakeholders will be engaged with in relation to the development of this guidance including, in particular, the Commissioner. The recommendation in the Report that statutory guidance should be strengthened to include a template of the information organisations within the scope of section 54 of the Act are expected to provide is accepted by the Government, but the Response notes that (in recognition of the fact that organisations will need to retain flexibility to set their own priorities based on the specific risks faced by their businesses) the template will be non-exhaustive and will evolve over time to reflect emerging best practice. The template will be included in the revised statutory guidance which will be published in 2020.
In relation to the recommendations suggesting amendments to the Act requiring organisations to report against the six areas currently recommended in guidance issued under section 54(9) of the Act (Guidance) and to remove the ability for an organisation to state they have taken “no steps” to address their modern slavery risk, the Response notes that the Government recognises that strengthening the content requirements for reporting could improve the quality of statements produced. It intends to consult to gather further views on the impact of any such changes ahead of any amendment to the legislation. The consultation will consider how to retain enough flexibility to accommodate the diversity of organisations within the scope of the legislation as well as how best to ensure alignment of the UK’s legislation with the requirements of other jurisdictions (see above for a link to the Consultation).
The Government does not agree with the recommendation that organisations should designate a board member to be accountable for the production of their modern slavery statement as the board’s role in approving a modern slavery statement is a collective responsibility.
The Government accepts the recommendations that there should be a central, Government-run reporting service for modern slavery statements, that statements should be dated and clearly state over which 12-month period they apply, and that the website hosting the service should clearly outline the minimum statutory reporting requirements. The Response notes that, in June 2019, the Prime Minister announced that the Government would create a central register of modern slavery statements and that this service will be available to organisations free of charge. When creating the registry, the Government will take into account lessons learned from gender pay gap reporting.
Although the Report did not recommend establishing a single reporting deadline and suggested reporting deadlines should continue to be in line with the end of an organisation’s financial year, in the Response the Government notes that the lack of a single deadline makes it challenging to effectively drive and monitor compliance. The Government therefore intends to create a single reporting deadline. It will consult on this to gather further evidence on the potential impact, including understanding the practical and resource implications for businesses, and will seek views on a potential appropriate annual reporting deadline (see above for a link to the Consultation). The Government does not agree with the recommendation that the Companies Act 2006 (CA 2006) should be amended to include a requirement for companies to refer to their modern slavery statement in their annual reports and that section 54 of the Act should be amended to impose a similar duty on non-listed companies that meet the relevant size threshold but would not be captured by CA 2006 reporting requirements. Nor does it agree with the recommendation that failure to fulfil modern slavery statement reporting requirements or to act when instances of slavery are found should be an offence under the Company Directors Disqualification Act 1986. The Government has concerns that these recommendations might lead to an overly compliance driven approach and encourage statements which are high-level with limited disclosure about instances of or risks of modern slavery identified. It believes that the enhanced transparency delivered by the creation of a central Government-run service for reporting and a single reporting deadline will address the concerns underlying these recommendations, by making it much easier for stakeholders to effectively scrutinise statements and hold organisations to account for their actions.
The Government partially agrees with the recommendation that the Commissioner should monitor organisations’ compliance with section 54 of the Act. The Response notes that the Home Office has the power to issue guidance and take enforcement action against non-compliant organisations and, as such, is best placed to monitor compliance with the law. However, the creation of a centralised registry will facilitate increased scrutiny and comparison of statements by the Commissioner (as well as other stakeholders), and the Commission will continue to hold the Government to account for its activity to ensure compliance with section 54 of the Act.
In relation to the recommendation that sanctions for non-compliance should be strengthened, the Government notes that the introduction of any new enforcement measures would need to be gradual and consistent with growing business awareness and that it would need to be ensured that any new enforcement sanctions are proportionate and support the overall aim that organisations take effective action to prevent and tackle modern slavery in their business and supply chains and report this activity in a transparent way. The Government wants to avoid any unintended consequences (such as creating an overly compliance driven approach which might dis-incentivise disclosure of risks identified) and will therefore consult to explore potential enforcement options and appropriate timeframes for enforcing compliance (see above for a link to the Consultation).
In response to the recommendation that the Government should set up an enforcement body to impose sanctions on organisations that do not comply with their reporting requirements, the Government commits to consulting to gather further evidence before making any legislative changes. The Response also notes that the Home Office is already working to tackle non-compliance, including through writing to the CEOs of the UK-based organisations that have been identified as falling within the scope of the Act to set clear expectations and provide guidance and by carrying out an audit of compliance.
The Report recommended that section 54 of the Act should be extended to the public sector. The Government agrees that certain public sector organisations should be required to produce annual statements. To ensure that its approach is proportionate, the Government will consult to gather further evidence from the public sector to identify the size and type of public sector organisations that should be brought into scope, as well as whether the duty on public sector organisations should mirror the duty on commercial organisations, ahead of any amendment to primary legislation. The consultation will also gather evidence to inform the most appropriate approval processes for these organisations given the differences between public and private sector governance (see above for a link to the Consultation).
(UK Government response to the independent review of the Modern Slavery Act 2015, 09.07.19)
DExEU: Draft European Union (Withdrawal) Act 2018 (Consequential Modifications and Repeals) (EU Exit) Regulations 2019
On July 2, 2019 the Department for Exiting the European Union (DExEU) published the Draft European Union (Withdrawal) Act 2018 (Consequential Modifications and Repeals) (EU Exit) Regulations 2019(Draft Regulations) along with an explanatory memorandum for sifting by the Sifting Committees under the European Union (Withdrawal) Act 2018 (EUWA).
The purpose of this instrument is to ensure that the UK statute book works coherently and effectively following the UK’s withdrawal from the EU. It clarifies how certain terms, including EU-related definitions, should be interpreted in domestic legislation on or after exit day. This instrument also clarifies how non-ambulatory cross-references to EU legislation should be read where such references relate to a time before exit day.
Amongst other things, the Draft Regulations have the following interpretative or consequential effects arising from the EUWA and its subordinate legislation:
- The Draft Regulations amend the Interpretation Act 1978 to make it clear that the new definition of ‘enactment’ applies to any statutory reference to ‘enactment’, including retained direct EU legislation, and including those references found in subordinate legislation made prior to the Interpretation Act 1978.
- The Draft Regulations also make technical repeals to redundant provisions within primary legislation arising from the EUWA. These are primarily repeals of amending provisions, in particular relating to the European Communities Act 1972, where the EUWA has already provided for the repeal of the amended provisions. The purpose of the repeals in these Draft Regulations is to tidy up the statute book and they will have no substantive effect. This includes, amongst others, provisions in the Criminal Justice Act 2003, Constitutional Reform Act 2005, Wales Act 2017 and the Legislative and Regulatory Reform Act 2006. (Draft Regulation 3).
The Draft Regulations also amend the European Union (Withdrawal) Act 2018 (Consequential Modifications and Repeals and Revocations) (EU Exit) Regulations 2019 in relation to the interpretation of non-ambulatory references. Non-ambulatory references are references to an EU instrument in the form it was in when the reference was made (regardless of whether the EU instrument has been subsequently amended). The Draft Regulations state that following the UK’s exit from the EU, up-to-date non-ambulatory cross-references to EU legislation should be read as references to the retained version of that legislation (Draft Regulation 2(2)).
Draft Regulation 4 clarifies what happens in certain cases where these references relate to a time before exit day - for example, where provisions of an enforcement regime apply and refer to an EU Regulation. After exit day, as a result of the EUWA, the enforcement regime would apply and refer to the post-exit retained version of the EU Regulation. However, if a court were applying that regime and reference to a breach of the EU Regulation before exit day, then this instrument ensures that the application of the regime and reference would be to the pre-exit EU law version of the regulation as it was at the time of the breach, in order to ensure that there is no inadvertent retrospective change to any rules that were in place.
These Draft Regulations come into force on exit day and are drafted on the basis of a "no-deal" scenario.
(Draft European Union (Withdrawal) Act 2018 (Consequential Modifications and Repeals) (EU Exit) Regulations 2019, 02.07.19)
(Draft European Union (Withdrawal) Act 2018 (Consequential Modifications and Repeals) (EU Exit) Regulations 2019 – explanatory memorandum, 02.07.19)
FRC: New research from Cranfield University indicates that more needs to be done to promote diversity across all levels of FTSE 100 companies
On July 11, 2019, the FRC announced that it is supporting a new research report produced by Cranfield University called the Female FTSE Board Report (Research) which has found that many FTSE 100 companies are implementing a tick box attitude to diversity.
The Research shows that while the percentage of women on FTSE 100 boards has risen to 32 per cent (an all-time high) and is now on track to reach 33 per cent by 2020, more needs to be done to promote diversity across all levels. The Research has also found that women serve shorter tenures than men (on average, female non-executive directors serve 3.8 years – with men serving 5 years) and are less likely to get promoted into senior roles, while just 11 per cent of women on boards are from Black, Asian or other Minority Ethnic backgrounds.
Key findings of the Research include:
- FTSE 100: the percentage of women on boards has increased from 29 per cent to 32 per cent, with 292 women holding 339 directorships. The percentage of female non-executive directors (NEDs) is at an all-time high of 38.9 per cent, but the percentage of female executives is worryingly low at 10.9 per cent.
- FTSE 250: The percentage of female directors has risen from 23.7 per cent to 27.3 per cent, while the number of all-male boards has dropped to three. The percentage of female NEDs is 32.8 per cent, but the percentage of female executive directors (EDs) is low at 8.4 per cent
- On the FTSE 100, 48 companies have reached the target of 33 per cent women on their boards. Kingfisher and Rightmove both have 50 per cent female representation at board level, and Schroders is the most improved company in the top 10, with 45 per cent women on its board, up from 27 per cent in 2018.
- On the FTSE 250, 88 companies have reached the target of 33 per cent women on their boards, up from 59 last year.
- The average tenure for female executive directors on FTSE boards is 3.3 years – half that of their male counterparts, who, on average, serve 6.6 years. The gap is slightly less at NED level, with the average tenure being 5 years for men and 3.8 years for women. Just 16 per cent of women have been in an NED role for more than six years, raising the question of if they are choosing to leave or being pushed off the board.
Wider diversity characteristics on the FTSE 100
- Only 11 per cent of the women have a degree from Oxford or Cambridge. 76 per cent have an undergraduate degree, and 35 per cent of those also have a postgraduate degree.
- 13 per cent of women directors hold a recognised financial qualification, something often associated with the criteria for a NED appointment. 22 per cent hold an MBA degree, in which finance is a core subject.
- There is a high degree of financial literacy as 55 per cent have held financial roles across finance, auditing, investment, treasury and banking.
- The majority of female directors are British (55 per cent), with the remainder coming from 18 countries across the world.
- Only 11 per cent are from Black or Ethnic Minority backgrounds.
- The average age of female directors is 57.3, approximately two years younger than male directors, whose average age is 59.2. The gap is slightly larger for NEDs – 57.9 for women and 61.5 for men.
(Cranfield University - Female FTSE Board Report – Moving Beyond the Numbers)
(Cranfield University Press Release – Tick box attitude to women on ftse100 boards must-stop)
(FRC Press Release – More needs to be done to promote diversity)
FCA: Prospectus regulation - update on Knowledge Base materials
On July 5, 2019 the Financial Conduct Authority (FCA) published an update in relation to the application of FCA Knowledge Base materials, such as technical notes and procedural notes, under the Prospectus Regulation the majority of provisions of which come into effect on July 21, 2019.
The FCA’s current Knowledge Base materials are based on the provisions of UK national law implementing the old Prospectus Directive and the FCA notes that, at present, the guidance provided by the current materials should be applied to prospectuses and other listing documents drawn up under the Prospectus Regulation to the extent they are compatible with the Prospectus Regulation. The FCA will publish revised materials to reflect the requirements of the Prospectus Regulation in Autumn 2019.
(FCA: Prospectus regulation - update on Knowledge Base materials, 05.07.19)
FCA: Prospectus Regulation - new issuer data submission requirements delayed
On July 5, 2019 the Financial Conduct Authority (FCA) announced plans to delay putting in place changes to its Electronic Submission System (ESS) that will be necessary for it to report to the European Securities and Markets Authority (ESMA) on its prospectus review activities as required by the Prospectus Regulation.
When the Prospectus Regulation comes into full effect, the FCA will be required to report data to ESMA on prospectus review activities. In January 2019, (CP19/6), the FCA consulted on proposed new rules that require issuers to provide the FCA with the data that it is required to send to ESMA, and published near final rules in May 2019 (PS19/12).
ESMA has since advised EU authorities that it does not require the full data set to be submitted at present pending system changes that are unlikely to be completed until mid-2020.In light of this, the FCA has decided to delay changes to its ESS portal which would enable it to collect the data. The FCA will only be making limited changes to the ESS portal for July 21, 2019, which is when the majority of the provisions of the Prospectus Regulation come into effect, and has advised that issuers and those advising them should continue to use existing processes.
(FCA: New Prospectus Regulation - new issuer data submission requirements delayed, 05.07.19)
FRC: Delay in publication of the revised UK Stewardship Code
The Financial Reporting Council (FRC) has updated its UK Stewardship Code homepage to include an anticipated date of October 2019 for publication of the revised Stewardship Code rather than the previously projected date of July 16, 2019.
(FRC: Delay in publication of the revised UK Stewardship Code, 09.07.19)