The Queen’s Speech 2022 – major corporate bills
On March 10, 2022, the UK government set out its legislative program for the 2022-23 parliamentary session announcing 38 bills, at least five of which will be of particular interest to businesses and other companies doing business in the UK. The government has released outlines and details of all proposed bills here. With the exception of the modern slavery reforms (which for the most part will apply to England and Wales), the new legislation will apply across the UK.
Audit Reform
In March 2021, the government published a major white paper on audit and corporate governance reform: Restoring trust in auditing and corporate governance. We discussed a number of these key reforms in the british chapter in our 19th annual corporate governance and executive compensation survey. The white paper followed three previous reviews – the Kingman review into a new audit and corporate governance regulator to replace the current UK regulator, the FRC; and two audit-focused reviews – competition in the audit services market and the quality and effectiveness of statutory audits (the Brydon Review).
The main reforms proposed included:
- the creation of the ARGA (Audit, Reporting and Governance Authority) as a new independent regulator with significantly enhanced statutory powers compared to those currently held by the FRC
- new mandatory annual corporate reporting requirements, including a statement of internal control, a statement of resilience and an audit and assurance policy, building significantly on the “voluntary” reporting requirements existing under the UK’s Comply or Explain framework Corporate governance code
- a new directors’ liability regime to be applied by the ARGA and focusing, among other things, on dividend payments as well as integrity standards, etc.
Some of these proposals – in particular the new proposal for a statement of internal controls, with a Sarbanes-Oxley (SOX) type requirement that the entire board (rather than just the CEO and CFO as under SOX ) confirms its responsibility for reviewing the effectiveness of internal controls – have been pushed back by those concerned that they represent regulatory overload that could make the UK a less attractive corporate jurisdiction in which to operate. ‘establish. Earlier this year, the press reported that some, if not all, of these reforms could be shelved by the government. It is very reassuring to see that the reforms of the White Paper find their way into the Queen’s Speech. We will have to wait and see how much of this reform will end up in the bill presented to Parliament.
Financial services and markets
Since Brexit, the government has launched several reviews of how UK financial services industries can take advantage of the opportunities presented by Brexit and the rapid growth of new technologies, particularly fintech. These have been led by the UK Treasury and range from UK capital market reform – see the List Review and Reform of the prospectus regime for issuing companies and Wholesale Markets Review reform of secondary markets, to rethink even more broadly the future regulation of financial services seen in the Review of the future regulatory framework for financial services. Specifically, the government has also backed a major review of changes – both regulatory and focused on improving the market – that will best help and encourage the UK to achieve global leadership in the fintech space – see the Kalifa review.
Key elements of the government’s bill to advance a number of these initiatives will include the revocation of retained ‘localised’ EU legislation and its replacement with better UK-tailored regulation, with greater emphasis on growth, international competitiveness and regulatory agility. Our previous presentation on the Future of Financial Services Regulation in the UK discussed some of the reforms we can expect from this new legislation and our presentation on Reform of the prospectus regime highlighted the government’s final proposals for the reform of the primary capital markets.
Electronic trade documents
Last year, following a government request, the Law Commission conducted a consultation on reforms to allow legal recognition of certain business documents in electronic form. His final recommendations, accompanied by a draft lawwere published in March 2022. The government will continue this reform by amending existing legislation to allow certain key commercial documents such as bills of lading, bills of exchange, promissory notes and certain other international transport documents (but not bonds to bearer) to be recognized by law in electronic form with the same legal effect and the same functionality as these documents in paper form.
Economic crime and corporate transparency
This Bill will build on the recent Economic Crimes (Transparency and Enforcement) Act 2022 which introduced a register, maintained by the Registrar of Companies, of the beneficial owners of foreign legal persons who own land in the UK . The reforms the bill will introduce were outlined in the government’s February 2022 white paper: Corporate Transparency and Registry Reform and would cover 58 specific areas, including:
- giving the Registrar a new “query power” to check, delete or refuse to accept information on company records maintained by Companies House
- introduce mandatory identity verification for directors of companies (or their equivalents), persons exercising significant control over the registered entity (i.e. PSCs) and other persons submitting documents to the Companies House and improve the usefulness of shareholder and PSC information held by Companies House
- increasing the powers of Companies House to share relevant data with law enforcement and other public and regulatory bodies, etc. as well as to call on external datasets with which to cross-reference the archived data it holds
- tackle the widely reported abuse of limited liability companies (particularly Scottish limited partnerships which have ‘legal personality’) by further tightening transparency requirements for them.
modern slavery
In September 2020, the government finalized its conclusion to its consultation on strengthening transparency requirements for reporting modern slavery under the Modern Slavery Act 2015 (“MSA”). A private member’s bill was tabled in the House of Lords in June 2021 proposing far tougher penalties and enforcement measures than those specifically referred to in the findings of the government consultation – there is currently no no financial or criminal penalties under the MSA for non-compliance with MSA Section 54 requirement to publish a board-approved statement indicating, if any, the steps taken by the affected entity to ensure that slavery and human trafficking does not occur in its supply chains or any part of its business.
Based on the findings of its consultation and as detailed in the details of the Queen’s Speech, these reforms will include:
- mandating the areas that Section 54 declarations must cover
- require the publication of declarations:
- on a register managed by the government (as of March 2021 it is available on a voluntary basis)
- with a single declaration deadline of September 30
- indicating the date of the approval of the board of directors and the signature of the director
- name the entities covered by the group declarations
- extend the declaration regime for MSA declarations to public bodies
- the introduction of civil penalties in the event of non-compliance with reporting obligations.
Next steps
With the government determined to see all the bills promised in its very ambitious legislative program enacted, skillful and efficient management of parliamentary time to achieve this will be essential. While some of the promised bills are likely to face strong opposition in Parliament, which will put pressure on available parliamentary time, it is to be hoped that the prospects for passage of the five bills mentioned above will be rather better, not least because most of the proposals underlying the aforementioned bills have already been widely welcomed by interested stakeholders and, for the most part, by the business community.
“Together, these measures make this Queen’s Speech one that will help us meet the challenges of today. They will enable us to continue to build back a better Britain after the pandemic, boosting our growth and recovery. so that every part of our country can prosper.” An introduction by the Prime Minister to the Queen’s Speech 2022 (Lobby Pack, p. 6)