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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | février 2021
This checklist is intended to help UK-listed companies keep abreast of key developments in the fast-moving areas of corporate governance and narrative reporting.
It sets out our thoughts on some of the main areas of change during the last few months, as well as a list of key developments by area, including links to more detailed summaries of those developments.
With the current focus of many companies being on the preparation and/or finalisation of their annual report, many of the developments in this checklist will be relevant to that. Listed companies will need to take account of the expectations of regulators such as the Financial Reporting Council and Financial Conduct Authority, as well as of institutional investors, when considering their narrative disclosures. Plenty of guidance as to those expectations, as to best practice and as to areas requiring particular improvement, has been provided in the period covered by the checklist.
The continued impact of the COVID-19 pandemic on businesses will also need to be reflected in financial and non-financial reporting, as well as decisions around matters such as executive remuneration.
In addition, climate-related reporting continues to be a key area where there is particular focus. This applies not only to listed companies (who will need to take account of the new Listing Rule reporting requirement in this area for financial years commencing on or after January 1, 2021), but could also apply to a wider range of UK companies going forward. We will continue to monitor developments.
FCA and FRC: Joint statement reminding companies that extended financial timelines continue to apply (January 2021): The Financial Conduct Authority (FCA) and Financial Reporting Council (FRC) have published a joint statement reminding companies about the various measures announced in a joint statement from the FCA, FRC and Prudential Regulation Authority in March 2020 in light of the COVID-19 pandemic, which continue to remain valid. These relate to the publication of annual and half-year financial statements, the filing of accounts and AGMs. Further details are here.
LSE: Inside AIM – Coronavirus and financial reporting deadlines (January 2021): The AIM Regulation team has published an issue of Inside AIM in respect of continued temporary measures for financial reporting deadlines in light of the coronavirus pandemic. This Inside AIM confirms that the temporary measures announced on March 26, 2020 and June 9, 2020 for reporting deadlines in relation to the publication of audited annual results and half-yearly reports required by the AIM Rules for Companies remain available for AIM companies until further notice of an orderly transition back to standard reporting periods. Further details are here.
FRC: Updated guidance for companies on corporate governance and reporting – COVID-19 pandemic (December 2020): The Financial Reporting Council (FRC) has published updated guidance for companies on corporate governance and reporting in light of the COVID-19 pandemic, which supersedes earlier guidance published by the FRC in March and May 2020. Further details are here.
FRC: Going concern, risk and viability – COVID-19 and reporting in times of uncertainty: A look forward (October 2020): The FRC’s Financial Reporting Lab has published a report which looks at recent reporting practice in relation to going concern, risk and viability. This was previously looked at in a report on the subject published in June 2020, which looked at the limited reporting practice on this that had developed by then. This new report looks at how reporting has evolved in this area since then and it provides examples of more recent practice. Further details are here.
FRC: Resources, action, the future – COVID-19 and reporting in times of uncertainty: A look forward (October 2020): The FRC’s Financial Reporting Lab has published a report which looks at recent reporting practice in relation to the areas of resources, action and the future. This was previously looked at in a report on the subject published in June 2020, which looked at the limited reporting practice on this that had developed by then. This new report looks at how reporting has evolved in this area since then and it provides examples of more recent practice. Further details are here.
LSE: Inside AIM – Coronavirus: IFRS 16 Amendment: The London Stock Exchange (LSE) has published an Inside AIM setting out temporary relief for AIM companies who choose to use the Accounting for Lease Modifications (Amendment to IFRS 16 – COVID-19-Related Rent Concessions) before adoption by the EU (“IFRS 16 Amendment”). Further details are here.
FCA: Statement on accounting for lease modifications (amendment to IFRS 16) (August 2020): The Financial Conduct Authority (FCA) has announced temporary relief for issuers who choose to use the amended IFRS 16 during the COVID-19 pandemic and its aftermath. Further details are here.
FRC: Statement on accounting for lease modifications (Amendment to IFRS 16 – COVID-19-Related Rent Concessions) (August 2020): The FRC has announced that it will not pursue regulatory action where issuers take advantage of the provisions contained in the Accounting for Lease Modifications (Amendment to IFRS 16 – COVID-19-Related Rent Concessions) before adoption by the EU. Further details are here.
FRC: UKEB website launched (January 2021): The FRC has announced the launch of the UK Endorsement Board (UKEB) website which can be accessed here. The UKEB is being set up as the body responsible for influencing the development and subsequently endorsing and adopting new or amended international accounting standards, issued by the International Accounting Standards Board (IASB), for use by UK companies, from January 1, 2021. Further details are here.
FRC: Guidance for companies preparing IAS accounts for accounting periods straddling IP completion day (December 2020): The FRC has published guidance for preparers using IFRS, and their auditors, to explain the basis of accounts preparation, where an entity has a financial period which straddles the end of the Brexit transition period, being 11 pm on December 31, 2020, known as “IP completion day”. Further details are here.
BEIS: Updated policy paper on the UK Government’s position on the effect of the ESEF Regulation (December 2020): The Department for Business, Energy and Industrial Strategy (BEIS) has published an update to its position paper on the Delegated Regulation on the use of the European Single Electronic Format (ESEF) published by the European Commission on May 29, 2019. Further details are here.
BEIS: Accounting and corporate reporting after the end of the transition period (November 2020): BEIS, with the FRC, has published a letter explaining the arrangements that will be in place for accounting and reporting standards in the UK from January 1, 2021. The letter includes a Q&A section at the back of it. Further details are here.
FRC: Call for participants in Lab project on risks, uncertainties and scenarios (November 2020): The Financial Reporting Lab has issued a call for participants in a new project on corporate disclosures on risks, uncertainties and scenarios. The call notes that given the significant reassessment many companies are making to their longer-term business model and strategy, risk, uncertainty and scenario reporting is likely to become even more important. The aim is to publish a range of outputs from the project across 2021. Further details are here.
FRC: Thematic review – Cash flow and liquidity disclosures (November 2020): The FRC has published the results of a thematic review launched in December 2019 into liquidity risk disclosures. The review was launched as the FRC continues to identify errors in cash flow statements and it examines many of the issues faced in their preparation, as well as providing insights into how the quality of cash flow statements can be improved. Further details are here.
FRC: Summary of key developments for 2020/21 annual reports – Year end letter (November 2020): The FRC has published its annual year end letter to CEOs, CFOs and the chairs of audit committees of listed companies setting out its reporting expectations for preparers of reports and accounts in the 2020/21 reporting season. Further details are here.
FCA: PS20/14 – Delay to the implementation of the European Single Electronic Format: The FCA has published Policy Statement PS20/14 setting out its decision to push back by one year mandatory requirements related to the European Single Electronic Format (ESEF) which includes requirements for the publication and filing of machine readable financial statements and the electronic tagging of basic financial statements and notes to these financial statements. PS20/14 also contains an announcement about the extension of COVID-19-related temporary policy measures on corporate reporting. Further details are here.
FRC: Annual review of corporate reporting 2019/20 (October 2020): The FRC has published the results of its review of 216 sets of company accounts in the last year, including the “top ten” areas where improvements to reporting quality are needed so users of accounts have a clearer understanding of company performance and position. The FRC notes that this will be particularly relevant for future reporting when companies have to explain the effects of the COVID-19 pandemic. Further details are here.
FRC: Amendments to FRS 104 Interim Financial reporting – Going concern (October 2020): The FRC has published amendments to FRS 104 in light of inconsistencies between the requirements for assessing and reporting on the going concern basis of accounting when preparing interim financial reports in accordance with EU-adopted IFRS and FRS 104 Interim Financial Reporting. Further details are here.
FRC: Financial Reporting Lab Report – Video in corporate reporting (October 2020): The FRC’s Financial Reporting Lab has published a report which looks at how FTSE 350 companies currently use video in corporate reporting and how it might be used in the future. It identifies four categories of video used currently (news-focused, insight-focused, aspirational and narrative-focused) and considers the effectiveness of their use and highlights interesting practice in each case. Further details are here.
FRC: Discussion Paper – The future of corporate reporting (October 2020): The FRC has published a Discussion Paper to explore ideas for changes to the system of corporate reporting with a view to making it more effective and engaging for those with an interest in the company. The FRC believes the traditional annual report is outdated and that a more agile approach, with a reporting framework that can be flexed to the nature of the business concerned, is now required. Further details are here.
FRC: Call for participants in new Lab project: reporting on risks, uncertainties and scenarios (September 2020): The FRC’s Financial Reporting Lab published an invitation to investors and companies to participate in a new project on corporate disclosures on risks, uncertainties and scenarios. Further details are here.
FRC: Technological resources – Using technology to enhance audit quality (December 2020): The FRC has published its response to a consultation it undertook earlier in 2020 to help identify the practical steps it could take to support the use of technology in promoting audit quality and help inform the FRC’s engagement with international standard setters. This follows a thematic review on the use of technology in the audit of financial statements published in March 2020 by the FRC’s Audit Quality review team and comments and recommendations by Sir Donald Brydon in his December 2019 report on audit. Further details are here.
FRC: FRC announces its thematic reviews, audit areas of focus and priority sectors for 2021/22 (December 2020): The FRC has announced its corporate reporting and audit quality review programme for 2021/22 alongside its priority sectors for review. Further details are here.
FRC: Audit Committee chairs’ views on, and approach to, audit quality: The FRC has published the results of research it commissioned which involved interviews with 50 chairs of the Audit Committees of public interest entities (including FTSE 350 companies and smaller listed entities) to explore their views on, and approach to, audit quality. These views will help inform the FRC’s work to support Audit Committee’s in their work on driving high quality audits. Further details are here.
FRC: Audit firms’ going concern review (November 2020): The FRC has published the results of a review of 11 audits of the going concern assessments performed by the seven largest UK audit firms. Further details are here.
BEIS: Information for auditors and audit firms regarding arrangements from 1 January 2021 (November 2020): BEIS, with the FRC, published a letter explaining the arrangements that will be in place for auditors and firms from January 1, 2021. The letter includes a Q&A section at the back of it. Further details are here.
FRC: Developments in audit 2020 (November 2020): The FRC has published a report, following its monitoring of audit reports in the 2019/2020 inspection cycle. The report looks at certain questions and focuses on how the FRC is working to drive improvements. A key concern is inconsistent audit quality which needs to be remedied, particularly in light of the economic turbulence created by the COVID-19 pandemic. Further details are here.
FCA: Reporting obligations of audit firms (August 2020): The FCA has sent a letter to senior partners and directors of audit firms reminding them to be mindful of their regulatory reporting obligations. Further details are here.
GC100: Shareholder meetings – Time for change? (January 2021): The GC100, representing general counsel and company secretaries working in FTSE 100 companies, has published a discussion paper to inform legislative and regulatory developments in the area of shareholder meetings, particularly AGMs. The GC100 believes that that the current AGM regime should be reviewed so that the positive experiences at some AGMs in 2020 can be extended to benefit more companies, their shareholders and other stakeholders. The discussion paper provides a company perspective on the limitations of the current format for AGMs and considers that a different approach to the AGM format which embraces the use of technology could result in greater shareholder and stakeholder engagement. Further details are here.
ShareAction: Fit-for-purpose? The future of the AGM (January 2021): ShareAction has published a report by a working group it established to look at the purpose of the AGM of the future. The report sets out recommendations for companies, shareholders, stakeholders and policy-makers with a view to making the AGM of the future a key component of corporate governance and investor stewardship. Further details are here.
BEIS: The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 (SI 2020/1349) (November 2020): On November 24, 2020, the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 were made and they came into effect on November 26, 2020. They further extend the suspension of the wrongful trading provisions in the Insolvency Act 1986 and extend the temporary flexibilities for company meetings introduced in the Corporate Insolvency and Governance Act 2020 (CIGA). Further details are here.
FRC: AGMs – An opportunity for change (October 2020): The FRC has published the results of a review it has undertaken into the different ways companies held Annual General Meetings (AGMs) in the first half of 2020 and whether the approaches taken best served shareholders’ interests. Annex 1 to the review sets out best practice guidance that the FRC asks companies to consider when planning and conducting future AGMs as it is concerned to ensure that shareholder engagement is improved and made more effective. The FRC also believes technology should be used more to facilitate robust virtual interaction during AGMs so that shareholders are able to hold board to account. Further details are here.
ICGN: Shareholder Meetings and Investor Dialogue: The New Normal (September 2020): The International Corporate Governance Network (IGGN) has published a “Viewpoint” document to provide insight and guidance on what annual general meetings (AGMs) and other shareholder meetings might look like in future, following major changes enabled by emergency legislation in many jurisdictions in the midst of COVID-19 pandemic. Further details are here.
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 – SI 2020/1031 (September 2020): On September 24, 2020, BEIS announced that certain temporary measures in the Corporate Insolvency and Governance Act 2020 (CIGA), aimed at relieving pressure on businesses dealing with the coronavirus, were being extended beyond September 30, 2020, and the extension is set out in the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 (the CIGA Regulations). CIGA provides that the temporary provisions will automatically expire on September 30, 2020 unless regulations are made to prolong the period within which some or all of the temporary provisions have effect. Further details are here.
Investor Forum: Review of activities in 2020 (January 2021): The Investor Forum has published a review of its activities in 2020, together with a call for a mandatory non-binding shareholder ‘say on climate’ on TCFD-aligned disclosure obligations. Further details are here.
FCA: Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations – Policy Statement 20/17 (December 2020): The FCA has published Policy Statement PS20/17 summarising feedback to the consultation paper it published in March 2020 (CP20/3) on proposals to introduce a new rule and guidance in the Listing Rules concerning climate-related disclosures. PS20/17 sets out the final rules and guidance as well as a new Technical Note which clarifies existing disclosure obligations. Further details are here.
HM Treasury: Interim report of the UK’s Joint Government Regulator TCFD Taskforce (November 2020): The TCFD Taskforce, established in 2019 and made up of regulators and government departments to explore the most effective approach for implementing the 2017 recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), has published an interim report. The UK Government intends to introduce fully mandated climate-related financial disclosure requirements across the UK economy by 2025, with a significant proportion of mandatory requirements in place by 2023. The interim report sets out the pathway to meeting that commitment. Further details are here.
FRC: Financial Reporting Lab Report – Climate Thematic: The FRC Financial Reporting Lab (Lab) has published the results of a thematic review undertaken in 2020 of climate-related considerations by boards, companies, auditors, professional bodies and investors. The Lab has summarised its findings in one report and then published the detailed findings on governance, corporate reporting, audit, professional oversight and investor reporting in separate reports. Further details are here.
TCFD: 2020 Status Report on climate-related financial disclosures November 2020): The TCFD has published its latest Status Report on the alignment of companies’ reporting with the TCFD recommendations published in June 2017. This is the third Status Report published by the TCFD since publication of the recommendations. The TCFD notes significant momentum around adoption of and support for its recommendations, but it also highlights the challenges of more consistent and robust implementation. Further details are here.
ICSA: Review of the effectiveness of independent board evaluation in the UK listed sector (January 2021): ICSA’s Chartered Governance Institute has released the findings of its review into the effectiveness of independent board evaluation in the UK listed sector. The review, which was carried out at the request of the Department of Business, Energy and Industrial Strategy (BEIS), assessed the quality of evaluations and has identified a number of ways in which board evaluation might be improved. Further details are here.
FRC: Review of corporate governance reporting 2020 (November 2020): The FRC has published its assessment of the reporting of up to 100 FTSE 100, FTSE 250 and FTSE Small Cap companies against the 2018 UK Corporate Governance Code (2018 Code). It states that while it has found examples of good reporting, overall it is disappointed with the response to the 2018 Code. The review presents the FRC’s findings and sets out its expectations for the future application of the 2018 Code and reporting. Further details are here.
FCA: Review of corporate governance disclosures by listed issuers (November 2020): In Primary Market Bulletin No.31 published on November 11, 2020, the FCA linked to a review (Review) it has conducted of disclosures relating to corporate governance from a sample of issuers across different listing segments and categories. The FCA notes that it has found several areas where it felt that required disclosures could be improved. Further details are here.
FRC: The UK Stewardship Code – Review of early reporting (October 2020): The FRC published a review of responsible investment, active ownership and stewardship reports in which primarily asset managers have reported against the UK Stewardship Code 2020 (Code) that came into effect on January 1, 2020. Further details are here.
Investment Association: Investors call for greater transparency on ethnic diversity on boards October 2020): The Investment Association has issued a press release calling for greater transparency on ethnic diversity on boards, noting that almost three-quarters of FTSE 100 companies failed to report the ethnic make-up of their boards this year in their annual reports, despite investors requesting that information alongside gender diversity reporting. Further details are here.
BEIS: Women make up more than a third of all board members across FTSE 350 for first time (October 2020): BEIS has reported that more than one-third of board members of the companies in the FTSE 350 are women, meeting the overall target set by the Hampton-Alexander review in 2016, but 41 per cent of such companies have not yet, individually, got 33 per cent female board representation. The Business Secretary has called on those companies to meet the target before the end of December 2020. Further details are here.
Investment Association: Shareholder Priorities for 2021 (January 2021): The Investment Association has published a document setting out investors priorities and expectations for 2021. It also looks at progress made by companies in 2020 on the four areas identified in the January 2020 priorities document as critical drivers of long-term value for companies (responding to climate change, audit quality, stakeholder engagement and diversity). It notes that the importance of these issues has not waned through 2020 or as a result of the COVID-19 pandemic, and sets out how IVIS, the Investment Association’s corporate governance research service, will analyse these issues for companies with year-ends on or after December 31, 2020. Further details are here.
Glass Lewis: UK Proxy Paper Guidelines 2021 (November 2020): The Glass Lewis has published its UK Policy Guidelines for 2021. Further details are here.
ISS: Benchmark Voting Policy Changes for 2021 (November 2020): Following a consultation in October 2020, Institutional Shareholder Services Inc (ISS) has announced the results of its consultation on its proposed changes to its annual benchmark voting policies, including some proposed changes to its voting policies for the UK and Ireland. Further details are here.
Home Office: Transparency in supply chains consultation – Government response (September 2020): The Home Office has published the UK Government’s response to the consultation paper it published in July 2019 which sought views on proposed changes in transparency in supply chain reporting as required by Section 54 Modern Slavery Act 2015. The response document sets out the Government’s commitments in response to the consultation, many of which require changes to Section 54 so will be made when parliamentary time permits. Further details are here.
Glass Lewis: Approach to executive compensation in the context of the COVID-19 pandemic (EMEA region) (January 2021): Glass Lewis has published a document providing illustrative guidance on the intended application of Glass Lewis’ existing policy approach to executive remuneration at companies in the EMEA region under various scenarios expected in the wake of the coronavirus pandemic. This follows publication of its UK Proxy Paper Guidelines for the 2021 AGM season in November 2020. Further details are here.
ISS: Executive compensation and the COVID-19 pandemic – Frequently Asked Questions (January 2021): ISS has published a document setting out guidance on how it will approach COVID-related pay decisions in light of its assessment of companies’ remuneration-related proposals. The guidance is set out in the form of FAQs. Further details are here.
QCA: QCA Remuneration Committee Guide (December 2020): The Quoted Companies Alliance (QCA) has published an updated Remuneration Committee Guide (2020), which is available to members and for purchase by non-members. The guide takes account of the interests of shareholders, executives, the wider workforce, and other stakeholders in small and mid-sized quoted companies. Further details are here.
Investment Association: Principles of Remuneration 2021 (November 2020): The Investment Association has published their latest Principles of Remuneration, together with a letter to the chairs of listed companies’ remuneration committees setting out key changes and areas of focus for the 2021 AGM season. The Investment Association has also published updated guidance on the expectations of its members during the COVID-19 pandemic. Further details are here.
Investment Association: Executive remuneration in listed companies and shareholder expectations during the COVID-19 pandemic (November 2020): The Investment Association published guidance on shareholder expectations during the COVID-19 pandemic in April 2020, and updated that guidance on November 16, 2020. Further details are here.
Investment Association: FTSE 100 cut executive pensions under shareholder pressure (October 2020): The Investment Association announced in a press release that significant progress has been made in bringing executive pension contributions in line with those received by the majority of the workforce, as requested by investors. As well as providing statistics in relation to this, the press release also looks at the issues and resolutions which have resulted in FTSE All-Share companies being added in 2020 to the Investment Association’s Public Register which tracks votes of 20 per cent or more against a particular resolution at a shareholder meeting. Further details are here.
FRC: Section 172 statements and tips on how to make them more useful (October 2020): The FRC’s Financial Reporting Lab has published a short document setting out tips for companies on how to make their Section 172 Companies Act 2006 statement (a statement in the annual report that describes how the directors had regard to the specified factors in Section 172(1) when performing their duty under Section 172 to promote the company’s success) a tool that provides better insight and more accountability. The tips are also aimed at helping companies consider what content to include in such a statement, how to present it, and how to facilitate the preparation process. Further details are here.
ICSA Guidance Note – Directors’ general duties under the Companies Act 2006 (August 2020): The Chartered Governance Institute of the Institute of Chartered Secretaries and Administrators (ICSA) has published an updated Guidance Note which provides practical guidance for directors of companies about their duties under the Companies Act 2006 (CA 2006), with a new section on the narrative reporting requirement in relation to Section 172 CA 2006. Further details are here.
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