In this issue, we take a look at proposals by Parliament to review and reform the UK's corporate governance landscape and upcoming changes to the PSC regime resulting from the Government's implementation of the Fourth EU Money Laundering Directive.

BIS Committee inquiry into corporate governance

On 16 September 2016, the BIS Committee announced that it has launched an inquiry on corporate governance. The inquiry focuses on three main topics: executive pay, directors' duties and the composition of company boards.

The Committee has asked for written submissions by Wednesday 26 October 2016.


The BIS Committee is a Commons Select Committee originally appointed by the House of Commons to examine (among other things) the administration, expenditure and policy of the Department for Business, Innovation and Skills ("BIS"). BIS has now been re-named the Department for Business, Energy and Industrial Strategy.

In July this year, Theresa May announced proposals to allow employee representatives to sit on company boards. There have also been calls in the press to reform remuneration and nomination committees, and Conservative MP Chris Philp recently published a report, in which one of his recommendations is to replace nomination committees with "shareholder committees".

The Inquiry

On directors' duties, the Committee is seeking views on whether the duty of a company's directors to promote its longterm success is clear and enforceable, and how the interests of shareholders and current and former employees are balanced. The inquiry also seeks views on whether there should be further alignment between the rules governing private and public companies (although it is not immediately clear whether this is referring to public companies as a legal entity or companies whose securities are publicly traded).

On executive pay, the Committee wishes to understand how remuneration should reflect the value added by executives relative to more junior employees, what evidence there is that executive pay is too high, how the Government should seek to control executive pay, and what influence recent high-profile shareholder actions have had.

On board composition, the inquiry seeks views on how to increase diversity (including, specifically, the number of women) on executive boards. Of particular interest is that the Committee wishes to hear whether there should be "worker representation" on boards and / or company remuneration committees and, if so, what form this should take. Please click here for more information.

A full list of the questions covered by the inquiry can be found on the Committee's website here.

Upcoming changes to the PSC regime

The European Union Fourth Money Laundering Directive ("4MLD") is an EU directive designed to consolidate EU antimoney laundering legislation. Member States (including the UK) are required to transpose 4MLD into their own domestic legal systems by 26 June 2017 (but see below).

Among other things, 4MLD requires Member States to implement greater transparency regarding beneficial ownership of legal entities. In the UK, this has, for the most part, already been pre-emptively implemented in the form of the "persons with significant control" or PSC regime.


Since 6 April 2016, all UK limited liability partnerships ("LLPs") and most UK companies have been required to keep a PSC register. The register must set out details of persons with significant control over the entity. For a company, this means (broadly) any person who holds more than 25 per cent of the company's shares or voting rights, controls the board, or exercises some other significant influence or control over the company.

As of 30 June 2016, companies must file details of their PSCs in a public register at Companies House annually alongside their confirmation statement.

Changes needed to implement 4MLD

Two key areas of 4MLD remain to be transposed into UK law and will affect the PSC regime. On 15 September 2016, HM Treasury published a consultation paper on transposing these elements.

At the moment, UK entities file details of their PSCs at Companies House once a year. However, 4MLD requires the public register to be current. The Treasury is seeking views on how best to address this. However, it is difficult to see any option other than requiring entities to file details of changes to their PSCs to Companies House when the change occurs, rather than annually.

Second, the PSC regime currently applies only to LLPs, European companies (SEs) registered in the UK and most companies registered under the Companies Act 2006. To transpose 4MLD fully, the regime must be extended to other legal entities. The consultation sets out an indicative list, including OEICs, ICVCs, building societies and Scottish limited partnerships.

European Commission proposals for further changes

On 5 July 2016, the European Commission published a proposal to amend 4MLD and bring forward its implementation. This would entail three key changes:

  • bringing the transposition deadline for 4MLD forward to 1 January 2017;
  • lowering the threshold for shareholdings and voting rights from 25 per cent to 10 per cent for "passive, nonfinancial entities" (broadly, holding companies that do not carry on a business of their own); and
  • extending the disclosure regime to all trusts and trustlike arrangements.

The Government has not given its view on the expedited implementation date, although it has noted that Member States may struggle to adopt the proposed amendments to 4MLD by the end of the year.

It has, however, recently expressed concerns about proposals to lower the threshold for passive entities, citing potential raised business costs and mismatches in registers across complex groups. It likewise raised concerns about extending the regime to other trusts, as this may intrude on the privacy of many trusts that are family-oriented in nature.

The extent to which the UK can resist these changes remains to be seen. There is currently no set timetable for implementing the changes in the UK.

A new regime for foreign companies

Finally, the Government looks set to press ahead with a parallel regime for foreign companies. In March, BIS consulted on requiring foreign companies to disclose their beneficial ownership if they want to own or acquire land in England or Wales or participate in public tenders in England. The Treasury consultation reaffirms this commitment and notes that a register will be established across the UK.


New Prospectus Regulation on the horizon

The European Parliament has approved the European Commission's proposed new Prospectus Regulation with certain amendments. The Regulation is designed to replace the existing Prospectus Directive and related European legislation. Amendments proposed by the Parliament include:

  • increasing the number of persons exemption from 150 to 350 persons per Member State; and
  • introducing the new concept of an "EU growth prospectus", which would be a prospectus in a standard form under a proportionate disclosure regime.

The Parliament will now enter into negotiations with the Commission and the European Council, with a view to returning the text to the Parliament for approval.

ICSA guidance on taking board minutes

The Institute of Chartered Secretaries and Administrators ("ICSA") has released a detailed guidance note on taking board minutes. The note is available to ICSA members. It is based on various principles and highlights many elements of existing good practice, including:

  • limiting minutes to a clear, concise, impartial and balanced record of the key points of discussion, and the reasons for decisions, rather than a verbatim record;
  • using minutes to demonstrate that the directors have considered their statutory duties; and
  • vesting responsibility for preparing and keeping the minutes in the company's secretary but leaving the chairman and board responsible for checking their accuracy.