FCA: Enhancing the National Storage Mechanism – CP24/17

On 9 August 2024, the Financial Conduct Authority (FCA) published a consultation paper (CP24/17) on its proposals to enhance the National Storage Mechanism (NSM), the FCA's free-to-use online archive of company information. The consultation is part of a broader initiative to improve the NSM's functionality and make it a facility more akin to the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system in importance and impact. 

Changes to NSM’s metadata requirements proposed

The FCA proposes to introduce more comprehensive metadata requirements for 'regulated information', which is information disclosed by regulated market issuers in accordance with the Disclosure Guidance and Transparency Rules (DTRs), Listing Rules, and parts of the Market Abuse Regulation (MAR).  Metadata is the data that describes and categorises the information filed with the NSM, such as the issuer name, a headline code or categorisation, and a classification. The FCA has identified deficiencies in the current metadata that make it difficult for NSM users to find information.

The proposed changes to the metadata requirements include:

• Expanding the requirement in DTR 6.2.2A R(1) to provide the FCA with the legal entity identifier (LEI) of the issuer concerned to also include the name and LEI of the person filing the regulated information (if different), and the name and LEI (if available) of any related issuers that are the subject of the disclosure.
• Requiring issuers and persons subject to DTR 6.2.2 R to maintain an LEI with a registration status of 'issued' as per the Global Legal Entity Identifier Foundation (GLEIF).
• Making the LEI filing requirements for related issuers optional for funds reporting net asset values.
• Removing the requirement to notify the FCA of the classifications relevant to the regulated information using the classes and sub-classes in DTR 6 Annex 1 R, which are not widely used or useful, and deleting DTR 6 Annex 1 R among other things.
• Updating the headline codes and categories in DTR 8 Annex 2 R to provide more tailored and clear options for categorising regulated information.
• Requiring all submissions to the NSM in accordance with DTR 6.2.2 R to include the relevant headline codes and categories from DTR 8 Annex 2 R.
• Requiring regulated information to be communicated to Primary Information Providers (PIPs) in a way that clearly identifies the relevant names, LEIs, and headline information.

The FCA expects these changes to improve the quality and completeness of the metadata and make it easier for NSM users to locate relevant information.

New requirements for PIPs

The FCA also proposes to require all PIPs to use the same standard schema and Application Programming Interface (API) for submitting information to the NSM.  PIPs, firms approved by the FCA to disseminate regulated information on behalf of issuers and file it with the NSM, currently use different data schema and methods of data exchange with the FCA, which require bespoke technical solutions for each PIP.

The FCA considers that standardising the data format and transmission method based around an API will have several benefits, such as:

• Enabling the FCA to implement improved data quality controls to ensure that submissions to the NSM comply with its rules.
• Producing faster and more standardised data exchange and processing.
• Providing more clarity to PIPs and prospective PIPs on the FCA's expectations for filing disclosures and fostering competition between PIPs.
• Reducing the risk of system incompatibilities that could cause delays in issuers meeting filing obligations and users of the NSM being able to access information.

The FCA will provide guidance on how to comply with the data transmission requirements in a technical note, which will set out the details of the API, the standardised schema, and the data quality standards.

The FCA also proposes to amend the list of regulatory bodies in DTR 8 Annex 1 R, which are exempt from being charged by PIPs for the dissemination of regulated information. The FCA intends to remove some regulatory bodies that no longer exist and add some that are relevant.

Next steps

The FCA invites comments on its proposals by 27 September 2024. The FCA plans to publish its final rules by the end of 2024 and implement them in the second half of 2025.

(FCA, Enhancing the National Storage Mechanism – CP24/17, 09.08.2024)

FRC: Review of reporting against the Wates Principles

On 12 August 2024, the Financial Reporting Council (FRC) published a report setting out the results of a research project it had commissioned to assess the quality and extent of corporate governance reporting by large private companies that apply the 2018 Wates Corporate Governance Principles for Large Private Companies (Wates Principles).

The Companies (Miscellaneous Reporting) Regulations 2018 (the Regulations), require large private companies that satisfy certain criteria to report on their corporate governance arrangements and the Wates Principles were developed as a corporate governance code such companies can choose to adopt and report against.

The research project looked at 2021/22 corporate governance statements and found that the Wates Principles continue to be the most widely adopted corporate governance code by large private companies, with just over 30% of those in scope of the Regulations adopting them. However, it also found that the quality of disclosures remains similar to the first year of reporting (as set out in 2019/2020 corporate governance statements), with some areas showing slight improvements and others needing further enhancement. The report aims to demonstrate where companies may be able to improve reporting to offer additional insight or clarity on their governance procedures.

The report identifies the following key areas where companies can improve their reporting against the Wates Principles:

• Principle One - Purpose and Leadership: The report notes that companies find reporting on company purpose and other elements of this Principle challenging and companies often follow the form but not the substance of the Principle. Companies should focus more on outcomes-based reporting to improve reporting on culture and values and explain how they balance short-term goals with long-term visions. A statement from the Chair which pulls together and demonstrates how the board brings different pieces of the governance structure together in making decisions would be a useful way to connect a company’s strategy and governance.
• Principle Two - Board Composition: Companies should provide more information about the profiles of board members and about their independence and diversity (going beyond gender and ethnicity). Information about board evaluations, particularly on the outcomes of that evaluation, is found to be useful, as is information on board attendance, training and committee participation.
• Principle Three - Director Responsibilities: Companies are encouraged to consider whether to have board committees since they can support more effective processes. There should be more transparency around board members and their roles to improve reporting on responsibilities. Where subsidiaries are in-scope of the Regulations, greater disclosures around subsidiary boards and the demarcation of responsibilities and accountability between the parent’s and the subsidiaries’ boards should be disclosed.Companies should also include individual committee reports and an introductory letter from the committee chair in their annual reports.
• Principle Four - Risk and Opportunities: Companies should broaden their discussion of opportunities (noting that they tend to engage more in discussing risk than opportunities) and provide more details on the processes they have in place to identify and pursue them.
• Principle Five - Remuneration: Companies should disclose more information about the rationale and philosophy behind their remuneration policies and structures, and how they align with their company's purpose, values, strategy, and performance.Companies should also disclose more information when discussing directors’ remuneration in light of workforce pay.
• Principle Six - Stakeholder Engagement: Companies should take a broader view of their stakeholders and consider the impacts of their operations on the communities in which they operate.Companies should also report on the outcomes of their stakeholder engagement and give specific examples of how stakeholder views are considered in their board decision making, so providing specific examples of actions they have taken as a result of issues raised by a stakeholder group and explain whether this action has had the desired impact.

The FRC encourages companies to consider the research project's findings and suggestions carefully and to use the Wates Principles as a tool for improving their governance practices and reporting.  The FRC also intends to use the research project's insights to guide its future work on enhancing corporate governance among large private companies and beyond.

(FRC, Review of reporting against the Wates Principles, 12.08.2024)

Companies House Business Plan 2024 to 2025

On 12 August 2024, Companies House published its corporate business plan for April 2024 to March 2025. The key development in this period will be further implementation of the Economic Crime and Corporate Transparency Act 2023 (ECCTA) and implementing the necessary changes to the systems and processes at Companies House.

Key plans to be delivered by March 2025

Companies House plans to deliver the following by March 2025:

• Continue the cleaning up of existing information on the registers by identifying and removing information that is incorrect or misleading.
• Require companies to provide a registered email address and an appropriate registered office address. Companies House will proactively use its new powers under ECCTA to ensure companies on the register have a legitimate address, in particular taking action against identity and address theft, and eradicating the use of Royal Mail PO Boxes and equivalent services as a registered office address by the end of March 2025.
• Use its new and enhanced powers to query and reject false, misleading or suspicious information sent to Companies House and to annotate information on the register (at individual and corporate level).
• Expedite the striking off process where Companies House has evidence of fraudulent information.
• Establish a registration process for third party agents to become authorised corporate service providers (ACSPs), who will be subject to ongoing compliance, monitoring and enforcement, and linking with anti-money laundering supervisors and the wider economic crime eco-system.
• Introduce the technical capability to verify an individual's identity by the end of March 2025, which will help prepare for the anticipated transition process (for a phased roll out from Spring 2025) whereby all new and existing company directors and persons of significant control will be required to verify their identity either directly through Companies House or through ACSPs.
• Begin to develop the changes needed to impose limits on the use of corporate directors, subject to certain exemptions, as set out under the Small Business Enterprise and Employment Act 2015.
• Develop processes that enable the suppression of personal information from the register, including suppression of the company’s registered office address, if it is a person’s residential address. Changes that allow people who are personally at risk, rather than at risk due to the activities of the company, to apply for protection of their information will also be introduced.
• Work with the Insolvency Service to identify and take action in prosecution cases.
• Develop services that will enable the wide-ranging limited partnerships reforms, which will bring legal requirements for limited partnerships in line with the requirements for limited companies, including the need for identity verification, increased transparency of data and new powers to remove dormant partnerships.
• Scrutinise the information on the Register of Overseas Entities and work proactively with overseas company registers and UK Land Registry to identify those that have failed to comply with their obligations.
• Develop a strategic intelligence assessment, followed by a control strategy and series of action plans, to identify and act upon the priority areas for action in the fight against economic crime, in collaboration with law enforcement and intelligence agencies.

(Companies House, Business Plan 2024 to 2025, 12.08.2024)

FRC: Opportunities for future UK digital reporting – Discussion Paper

On 13 August 2024, the Financial Reporting Council (FRC) published a Discussion Paper which looks at the future of digital reporting in the UK. The Discussion Paper aims to help shape the future of digital reporting in the UK, ensuring it meets the needs of all users while promoting transparency, comparability, and efficiency in corporate reporting.

Background and purpose of the Discussion Paper

The FRC is seeking feedback from a wide range of stakeholders on various topics related to the use of XBRL taxonomies and structured digital formats for corporate reporting.  This is in light of the potential modifications that could be made to the current digital reporting requirements in the FCA’s Disclosure Guidance and Transparency Rules (DTRs) for listed companies post Brexit, given the possibility of diverging from European reporting requirements, as well as the power provided to Companies House by the Economic Crime and Corporate Transparency Act 2023 (ECCTA) to mandate digital filing of company accounts via its Registrar’s Rules. As a result, the FRC and other regulators are considering significant and substantial changes regarding their digital filing requirements. 

The FRC aims to use the feedback from the Discussion Paper to, among other things, inform its future strategy and work plan for the development and maintenance of UK taxonomies.  The Discussion Paper does not propose any specific decisions or policy changes at this stage, but rather invites views on the technical and practical aspects of digital reporting in the UK.

Structured digital reporting post Brexit

This section of the Discussion Paper is relevant for companies with securities admitted to UK-regulated markets who are required to prepare, publish and file their annual financial reports with the financial statements in a structured digital format under the DTRs.  These requirements originated in the EU's European Single Electronic Framework (ESEF) legislation, which uses the IFRS Foundation's taxonomy as the basis for the ESEF taxonomy.

The FCA is keen to explore whether the FRC should offer an alternative taxonomy to ESEF, either by using the IFRS Foundation's taxonomy directly or issuing a UK version of it, or whether issuers would prefer to use the FRC's existing UK-IFRS taxonomy.  The FCA is also interested in whether there are any potential changes or extensions to the current digital reporting format or filing requirements that could be made to better suit the UK markets, such as the approach to detailed tagging of notes, extensions and anchors, and the tagging of other information within or beyond the annual report.

Assurance of UK Single Electronic Framework (UKSEF) tagging

The Discussion Paper considers whether there is a need for an assurance regime over the digital tagging of the financial statements that are published under the DTRs or filed with Companies House.

Currently, there is no requirement to provide assurance over digital tagging in the UK, unlike in the EU, but issuers can seek voluntary independent assurance if they wish.  The FRC has adopted ISAE (UK) 3000 to support the delivery of these voluntary engagements, but only a few such assurance reports have been published so far.  The FRC is interested in views on whether an assurance regime over digital tagging would be valued in the UK and whether it should be mandatory. If so, the FRC would also like to hear from stakeholders on what type of assurance regime would be preferred, how and when it should be introduced, and what the associated costs would be for preparers. One option would be to defer consideration of mandatory assurance until any new UKSEF reporting requirements become established. 

Another question on which views are sought is whether the name “UKSEF” itself should be changed to better clarify its purpose and method.

Structured digital reporting post ECCTA

This section of the Discussion Paper is relevant for, among others, all companies filing accounts with Companies House in either digital or paper format.  It covers the implications of ECCTA, which has introduced a comprehensive digital mandate for all submissions to Companies House, including accounts, as part of the Government's ambition to reform company law and tackle economic crime and fraud.  ECCTA gives Companies House the power to mandate digital filing of company accounts via its Registrar's Rules and to check, reject, and improve the quality of data on the register.  In due course, the Registrar's Rules and secondary legislation will result in Companies House requiring company accounts to be fully tagged using iXBRL, meaning that every financial element within the accounts will need to be tagged appropriately. 

The Discussion Paper discusses the definition of full tagging and how it can be measured and enforced to ensure the quality, consistency, and completeness of the reported data.

Supporting stakeholders

This section of the Discussion Paper identifies new stakeholders (including newly in-scope entities and new entrants to the tagging market) and recognises the need to support the full range of stakeholders with materials relating to digital reports. It reviews the existing support materials that are available from the FRC and other regulators, such as regulatory and technical requirements, taxonomy documentation, and guidance tags and references.  It then proposes some potential additional support materials that could be offered, such as examples of good and bad tagging and a best practices handbook.

Tagged digital report

Appendix 1 to the Discussion Paper, “What does a tagged digital report look like? “, demonstrates how preparers use taxonomies to tag their paper reports and it shows some simplified examples of the output from that process.

Next steps

Views on the Discussion Paper are requested by 1 November 2024.

(FRC, Opportunities for future UK digital reporting, Discussion Paper, 13.08.2024)