Corporate law update: 31 July - 6 August 2021

In this week’s update: the FCA consults on mandatory board gender and ethnic diversity reporting, the FRC publishes feedback on proposals to overhaul the UK’s corporate reporting framework, Companies House changes the cut-off time for same day incorporations, ISS’s annual benchmark policy survey and ESMA publishes updated EU Prospectus Regulation Q&A.

• The FCA is consulting on mandatory board gender and ethnic diversity reporting
• The FRC publishes feedback on its proposals to overhaul the UK's corporate reporting framework
• Companies House is to change the cut-off time for same-day incorporations to 3:00 p.m.
• ISS launches its annual benchmark policy survey and a separate climate survey
• ESMA publishes an updated version of its EU Prospectus Regulation Q&A

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FCA consults on board gender and ethnic diversity reporting

The Financial Conduct Authority (FCA) is consulting on proposed new requirements for listed companies to report on the gender and ethnic diversity of their boards.

If implemented, the new proposals would apply to both UK and overseas companies of any size with a premium or standard listing of equity securities (or certificates representing equity securities).

The proposals would not apply to open-ended investment companies, "shell companies" or companies that have only debt instruments admitted to listing.

The key points arising out of the proposals are set out below.

• Specific board targets. A listed company would need to meet certain targets specified by the FCA or explain why it has not done so. The targets are:
  • At least 40% of the board to be women (including persons self-identifying as women).
  • At least one of the senior board positions to be a woman (including a person who self-identifies as a woman). The relevant positions are Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) and Chief Financial Officer (CFO).
  • At least one member of the board to be from a non-white ethnic minority background.
• Management composition. A listed company would be required to provide a breakdown of its board and the most senior level of its executive management by gender and ethnicity. Reporting would need to take the form of two prescribed tables - one for gender and one for ethnicity - set out in the consultation paper.
• Diversity policy. A large company admitted to a UK regulated market is already required by DTR 7.2.8AR to disclose their board diversity policy in their corporate governance statement or explain why it has none. The FCA is proposing to expand this beyond the main board to cover a company's audit committee and (if it has one) its remuneration and nomination committees. It is also proposing to extend the aspects of diversity that a company's diversity policy might cover beyond age, gender and education background (as currently set out in the DTR) to cover ethnicity, sexual orientation, disability and socio-economic background.
• Numerical data. The FCA is also proposing separate guidance to encourage companies admitted to a UK regulated market to add numerical data on the diversity of board and committee members in their description of the results in the reporting period.

For the time being, the FCA is proposing to require reporting only in relation to gender and ethnicity. However, the paper specifically notes that the FCA encourages issuers to consider diversity more broadly and that the FCA may consider introducing reporting on other aspects of diversity, including sexual orientation, disability and socio-economic background in due course.

The changes would come into effect for accounting periods starting on or after 1 January 2022.

The FCA has asked for responses to the consultation by 20 October 2021.

FRC publishes feedback on proposals for the future of corporate reporting

The Financial Reporting Council (FRC) has published a feedback statement summarising responses to its proposals to reform the UK's existing corporate framework.

The proposals, which were published in a discussion paper in October 2020, suggested replacing the existing system, which sees various types of information included in a company's annual accounts, directors' report and strategic report, with a new "principles-based framework" consisting of a series of interconnected "network reports". For more information, see our previous Corporate Law Update.

The statement notes general support for exploring how corporate reporting can be made more relevant and accessible, particularly by providing a model that accommodates the information needs of investors and wider stakeholders, developing standards for non-financial reporting and creating a stronger role for technology in the corporate reporting process.

Support was less strong for the proposed standalone public interest report (PIR) and whether an "objective-driven model" that is neutral regarding audience should replace the current model where content is determined by the information needs of primary users.

The FRC will now consider how best to develop some of the concepts from the discussion paper over the short, medium and longer terms. The statement notes that this will need to be conducted alongside the Government's agenda for corporate governance reform.

Also this week...

• Companies House allows more time for same-day incorporations. Companies House has announced that, from Thursday, 19 August 2021, the cut-off time for applying to incorporate a company or change a company name on a "same-day basis" will change from 11:00 a.m. to 3:00 p.m. Applications received after 3:00 p.m. will not be processed until the next working day.
• ISS consults on voting and climate policies. Proxy advisor Institutional Shareholder Services (ISS) has opened its annual benchmark policy survey seeking views for its voting policies for 2022. Topics on which ISS is seeking views include the use of non-financial ESG metrics in executive compensation, racial equality audits and virtual-only shareholder meetings. ISS has also launched a separate climate survey to gather views on minimum criteria for boards in overseeing climate-related risks and on shareholders having a right to regularly vote on a company's climate transition plans.
• ESMA publishes updated Prospectus Regulation Q&A. The European Securities and Markets Authority (ESMA) has published an updated version of its Q&A on the EU Prospectus Regulation. New questions cover whether unaudited Q4 financial information should be considered "interim financial information", information on share transfer restrictions in shareholders' agreements, and offers of warrants. The Q&A do not apply within the UK but may be of interest to issuers admitted to an EU regulated market or considering a public offer in the EU.