EQ Bulletin – August 2021

Articles in this Edition

• FRC sets out proposals on developing standards for ESG challenges
• Consultations on reforms to the UK Listing regime
• Rising D&O Insurance premiums reported for smaller companies
• GC100 asks for companies to participate in survey into 2021 AGMs
• FRC report reveals increase in challenger audit firms auditing FTSE 250 companies
• FRC Report on Stakeholders, Decisions and S172 Statements
• FRC research into benefits of diverse boards and how to achieve this

Dates for your diary:

The EQuivalence Forum

The EQuivalence Forum, chaired by Simon Maynard, Client Director at Prism Cosec, discusses the latest Corporate Governance updates impacting Company Secretaries in 2021.

Date: 15 September 2021
Time: 9:00am (BST)

Register here

FRC sets out proposals on developing standards for ESG challenges

The Financial Reporting Council (FRC) has published a ‘Statement of Intent on Environmental, Social and Governance Challenges’. The FRC has recognised that reporting and information on ESG matters are becoming more significant. However, the systems that produce information and data on ESG matters is less established than those for financial information. The purpose of the statement of intent is therefore to assess the challenges in reporting on ESG issues and how to meet these. The FRC has grouped the challenges into six stages – production, audit and assurance, distribution, consumption, supervision and regulation and considers each of these. The report also sets out short and longer-term actions for each of the areas identified that the FRC proposes to take. This includes developing Codes, standards and guidance and working with regulators and other stakeholders.  

The Statement of Intent is available from here. 

Consultations on reforms to the UK Listing regime

The Financial Conduct Authority (FCA) has issued a consultation on the operation of the listing regime following recommendations made in Lord Hill’s Listing Review. The consultation is stated to have two main objectives. Firstly, to understand the purpose and value of listing to companies and investors and secondly, to make changes to increase accessibility to listing. The key proposals to changes to the listing regime include:

• Allowing dual-class share structures for premium listings in certain circumstances
• Reducing the number of shares that have to be in public hands (free float) from 25% to 10%
• Increasing the minimum market capitalisation threshold from £700,000 to £50 million for premium and standard listings. This would apply to a new listing, not as a continuing obligation
• Other minor changes to the Listing Rules, the Disclosure Guidance and Transparency Rules and the Prospectus Regulation Rules to simplify them and reflect current practice

The consultation closes on 14 September 2021 with expected changes to the rules by late 2021.  

The consultation is available from here. 

HM Treasury is consulting on proposed reforms to the UK Prospectus Regime following Lord Hill’s UK Listing Review, one of the recommendations of which was to carry out a fundamental review of the prospectus regime. 

The key features of the proposals include:

• The prospectus will remain a key feature of IPOs. The Financial Conduct Authority (FCA) will have discretion to determine when a prospectus is required on a subsequent issue. A public offer to existing shareholders would not require a prospectus.
• The FCA will be given powers to make rules on detailed requirements for the content of the prospectus.
• Liability for forward-looking information in a prospectus will be similar to that for other information issued by a listed company so that liability is only incurred when those involved are reckless.

The consultation closes on 24 September 2021 and is available from here. 

Rising D&O Insurance premiums reported for smaller companies

The latest Quoted Companies Alliance (QCA) survey reports on the increasing costs of D&O insurance with less cover provided for directors of smaller companies. The average increase in premiums was from £22,000 to £48,000. The increases are likely due to concerns over company failures as a result of the pandemic. 

The QCA survey results are available from here. 

GC100 asks for companies to participate in survey into 2021 AGMs

The GC100 has published a poll reviewing the 2021 AGM season. The purpose of the poll is to assess how companies have conducted AGMs in the past year and how they see the future of the AGM. It also looks at companies’ views on climate and ESG issues and how companies may seek shareholder approval on climate action plans and climate-related disclosures. The GC100 are asking for companies in the FTSE 100, FTSE 250 and AIM companies to complete the survey which is available from here. 

FRC report reveals increase in challenger audit firms auditing FTSE 250 companies

The Financial Reporting Council (FRC) has published its latest Key Trends and Facts in the Accountancy Profession. Key highlights include:

• The Big Four firms continued to see an increase (2.7%) in their total fee income. However, the rate of growth has fallen compared with 2018/19 when it was 7.1%. Firms outside the Big Four have also seen an increase in their total fee income in 2019/20 (13.1%) compared with a decrease (0.1%) in 2018/19
• Fees for non-audit work to audit clients declined by 2.2% for the Big Four while the non-Big Four firms saw an increase of these fees of 5.2% from 2019 to 2020
• Audit fee income for the Big Four firms increased by 7.9% from 2019 to 2020 compared with 6.9% from 2018 to 2019. Audit fee income for audit firms outside of the Big Four increased by 20.3% from 2019 to 2020 compared with 2.2% from 2018 to 2019
• Last year, the five largest firms outside the Big Four audited 4.8% (ten) of the FTSE 250 companies; this year they audited 7.6% (19). One firm outside these nine audit firms (the Big Four plus the next largest five) also audited 0.8% (two) of FTSE 250 companies this year compared with 0.4% (one) last year
• All FTSE 100 companies continue to be audited by a Big Four firm.

FRC Report on Stakeholders, Decisions and S172 Statements

The Financial Reporting Council (FRC) has published a report on Reporting on Stakeholders, Decisions and s172 statements which builds on the hints and tips on stakeholder reporting published in October 2020. The report covers three areas from the perspective of the information that investors would like to see:

Information on stakeholders with a spotlight on suppliers:

• Who are the stakeholders relevant to the company and how they influence strategy
• How the company builds and maintains relationships with stakeholders and understands their needs
• What could affect the relationships with stakeholders
• What is measured, monitored and measured in relation to stakeholders.

Information on decisions:

• What the principal decisions were and how they contribute to the company’s success
• How and why the board reached those decisions
• How stakeholders were considered in those decisions
• Difficulties and challenges in making the decisions
• The expected and/or actual outcome of the decisions.

S172 statements:

• In relation to s172 statements, the report recommends that the most useful statements are those that do not just focus on stakeholder engagement but consider all aspects of the s172 duty and discuss principal decisions and how stakeholders and others were considered in making those decisions.

The FRC has also published a series of questions for companies to consider in determining what information to report on stakeholders and decisions which meets investors’ needs.

The report is available from here. 

The questions for companies to consider are available from here. 

FRC research into benefits of diverse boards and how to achieve this

The Financial Reporting Council (FRC) has published research carried out in conjunction with the London Business School, Leadership Institute and SQW into the benefits of diverse boards and how to achieve this. The report acknowledges there has been a step-change over recent years as a result of the Hampton Alexander and Parker reviews but that there is still a long way to go to achieve full diversity. The highlights of the report include:

• It is the responsibility of the Chair to drive inclusion
• Companies must focus on collecting more data on types of diversity, board dynamics and social inclusion
• The Nomination Committee should be diverse and work with search firms that access talent from diverse pools
• The increased representation of women on boards is reshaping culture which is benefitting business from a social justice as well as a performance perspective

The report also includes recommendations for boards and nomination committees on how to drive diversity.

The report is available from here.