Brexit remains at the top of the agenda this month but in-house lawyers should also be keeping track of reforms to corporate governance, audit and employment law.
Brexit planning
It is difficult to predict the final terms on which the UK will leave the EU, and whether this will take place on 29 March 2019. The Prime Minister Theresa May gave a statement to the House of Commons (HoC) on 21 January 2019 setting out how the government proposes to proceed in the Article 50 withdrawal negotiations. The Prime Minister said that:
- She did not believe that there was a majority in the HoC for a second referendum.
- She did not believe that the Article 50 notice should be revoked.
- The way to rule out no deal was for the HoC to approve a deal.
- The EU is unlikely to agree to extend Article 50 without a plan for how the HoC would approve a deal.
On 29 January 2019, the House of Commons will debate the joint motion tabled by the government on 24 January 2019, and will vote on any amendments to it selected by the Speaker. Amendments tabled so far address, among other things, the extension of the Article 50 period.
Practical Law continues to publish content for companies to help them prepare for Brexit, including:
- A note on how to prepare your supply chain for Brexit.
- A note on managing workforce disruption and skills shortages arising from and in preparation for Brexit.
- A case study of how Dixons Carphone is preparing for Brexit.
Corporate governance reform
The Financial Reporting Council (FRC) is expected to publish a consultation on the UK Stewardship Code by the end of January or in early February.
Towards the end of 2018, BEIS published the final report of the independent review of the Financial Reporting Council (FRC) led by Sir John Kingman. The review recommends that the FRC be replaced, as soon as possible, with a new independent regulator to be called the Audit, Reporting and Governance Authority. Among the review’s 82 other recommendations are that the new regulator should be given a range of extensive new powers in the interests of averting major corporate failures.
Following publication of the Companies (Miscellaneous Reporting) Regulations 2018 and the FRC’s revised version of the UK Corporate Governance Code, What’s Market will be tracking additional disclosures in its 2019 summaries including on:
- Section 172(1) statements.
- Workforce engagement mechanisms.
- CEO pay ratios.
Gender pay gap reporting
2019 is the second year for gender pay gap reporting and it should provide an indication of whether companies have been able to close the pay gap from the baseline that was established in 2018. The House of Commons’ BEIS Committee has recently published the government’s response to the Committee’s report on gender pay gap reporting.
The Committee’s report made several recommendations for company boards, investors and regulators to drive change in tackling the gender pay gap. Although the government’s response addresses some of the recommendations, it does not address the Committee’s recommendation that company boards should introduce key performance indicators for reducing and eliminating pay gaps.
Artificial intelligence and corporate reporting
A report by the FRC’s Financial Reporting Lab has highlighted where artificial intelligence (AI) might feature in the corporate reporting process. The report outlines several potential uses for AI across the following areas of corporate reporting:
- Production.
- Distribution.
- Consumption.
Audit reform
Patisserie Valerie’s collapse into administration after reporting “fraudulent activity and accounting irregularities” has once again generated negative publicity for the auditing profession. BEIS announced an independent review into the quality and effectiveness of the UK audit market at the end of 2018. The review will build on the Competition and Markets Authority’s (CMA) market study into the effectiveness of competition in the audit market and the findings of the Kingman review of the FRC. Detailed terms of reference and a project plan will be published later this year.
IOSCO has recently published a report on good practices for audit committees of listed companies in supporting and promoting external audit quality.
Taylor Review and the Good Work Plan
In December 2018, the government published the Good Work Plan, a strategy document setting out further detail on its response to the Taylor Review of employment practices in the modern economy. The Good Work Plan confirms the Government’s intention to legislate to:
“improve the clarity of the employment status tests, reflecting the reality of modern working relationships.”
The government also intends to legislate to improve protection for agency workers, zero-hours workers and others with atypical working arrangements.
Practical Law has published a note on the Taylor Review and the Good Work Plan.
Senior managers regime exemption
The Financial Conduct Authority (FCA) has published a consultation that includes a proposal to exclude heads of legal from the senior managers regime (SMR). It also sets out a summary of the feedback it received to its September 2016 discussion paper on overall responsibility and the legal function, which largely opposed the inclusion of heads of legal in the SMR.
Dates for your diary
- 6 February 2019. Supreme Court due to hear an appeal on employee inventor compensation under the Patents Act.
- 8 February 2019. Law Commission consultation on driverless cars closes.
- 15 February 2019. Closing date for the FRC’s call for feedback to support its review of the 2016 changes to ethical and auditing standards.
- 28 February 2019. Closing date for consultation on the digital services tax.
