Transparency of foreign companies – BIS discussion paper

The Government is considering a range of proposals to enhance the transparency of beneficial ownership of foreign companies which either purchase real property in England and Wales or participate in public contracting with the Government. The intention is to lift the veil of secrecy over who ultimately owns and controls companies to “expose wrongdoing and disrupt a key vehicle for illicit financial flows”. Key suggestions in the paper are:

  • that foreign companies be required to provide information on their beneficial owners before they are able to buy land/ property or enter into public procurement contracts; and
  • in addition to making the beneficial ownership information of foreign companies conducting these activities in the UK available to public authorities and law enforcement, the Government is “considering the extent to which it can be made available to the public”.

Although the paper focuses exclusively on property ownership and public procurement, the Government notes that there may be further areas identified in the future.

Impact – the document published this week is only a discussion paper and if, having considered the responses, the Government chooses to proceed with any of the ideas, it will publish formal consultations. This initiative is however in addition to: the PSC transparency regime for UK companies and LLPs which takes effect on 6 April 2016; and the requirement under the fourth money laundering directive, that must be implemented by June 2017 (“4MLD”), that EU member states ensure entities incorporated in their territory hold information on their beneficial owners. The Government will consult later this year on the measures it proposes to bring forward to meet the 4MLD requirements, including changes to the PSC regime.

Modern Slavery Act 2015 – analysis of initial statements and online repository

The Modern Slavery Act 2015 introduced a requirement that businesses within scope publish a ‘slavery and human trafficking statement’ for financial years ending on or after 31 March 2016 (see ‘Background’ below for more detail). CORE and the Business & Human Rights Resource Centre this week published an analysis of early adopters’ compliance with the regime and announced a new free public register to host the statements. This follows the recent publication by CORE, in collaboration  with others, of additional guidance on good practice for businesses considering the application of the provision (‘Beyond compliance: effective reporting under the Modern Slavery Act’).

Impact - the analysis precedes the legislative requirement to make a statement. However it does make clear that whether or not businesses voluntarily submit their statement to the central register (it is not mandatory to do so), their compliance with the regime will be monitored.

Background - the Modern Slavery Act 2015 introduced a business transparency provision requiring companies within scope to produce a ‘slavery and human trafficking statement’ for each financial year. The transparency in supply chains provision was implemented in October 2015 but to give businesses sufficient time to prepare, organisations are not required to make a statement until their first financial year ending on or after 31 March 2016. It applies to a “commercial organisation” (which includes a body corporate or partnership, wherever incorporated or formed), carrying on a business or part of a business in any part of the UK if it supplies goods or services and has a total turnover of not less than £36 million. For more detail on the requirement click here.

Draft regulations amending the law relating to the preparation and filing of the annual accounts of Limited Liability Partnerships

Following BIS’ recently published response to its consultation  on proposed changes to the financial reporting requirements for LLPs and qualifying partnerships, draft regulations have now been made available (the “Regulations”). The Regulations will align the LLP regime with that applicable to companies, reflecting recent changes introduced for companies. The provisions, once finalised, will apply to accounting periods starting on or after 1 January 2016. Early adoption for years beginning on or after 1 January 2015 is permitted (provided those accounts have not already been filed). Changes include:

  • raising the thresholds which determine when a LLP qualifies as “small” for the purposes of certain accounting and reporting exemptions, and for exemption from audit. For example, the turnover test for qualifying as “small” is increased from £6.5 million to £10.2 million and the balance sheet test is increased from £3.26 million to £5.1 million; and
  • no longer permitting a LLP to disclose relevant information about related undertakings (for instance, its subsidiaries)  in its annual return – such information (where required) will have to be disclosed in the annual accounts.

Impact – the underlying changes to the company reporting regime followed publication of an EU directive, described as not making “significant changes to the fundamentals of the EU financial reporting” regime. The Government’s implementation method maintained the UK’s existing approach to financial reporting except where changes were imposed by the directive or there were perceived benefits to business. The application of the revised company reporting regime to LLPs will maintain the consistency between the two regimes and was broadly supported by respondents to BIS’ consultation.


Changes to approval and publication of a prospectus – 24 March 2016

An EU regulation, published in the Official Journal this week, will come into force on 24 March 2016 amending the approval and publication regime for prospectuses (the “Regulation”). The Regulation follows publication by the EU Commission last year of draft technical standards in relation to the EU’s current prospectus directive and specifies:

  • the administrative arrangements for approval of a prospectus, including standards dealing with the way documents are submitted and the receipt and processing of applications;
  • the arrangements for publication of a prospectus, for example requiring it to be easily accessible when entering the website and access to it not being subject to completion of a registration process or acceptance of a disclaimer limiting liability. However it notes that where the prospectus for an offer of securities to the public is made available on an issuer’s website measures should be taken to avoid targeting residents in member states or countries where the offer is not taking place;
  • the dissemination of advertisements including where a supplementary prospectus has been published; and
  • the consistency between information disclosed about an offer to the public or admission to trading on a regulated market and the information contained in the prospectus.

Impact - the standards are intended to be consistent with the current review of the EU’s prospectus regime and details requirements regarding the approval, publication and advertisement of prospectuses. The Regulation will have direct effect with new procedures and forms applying to all draft prospectus submissions (including those currently being reviewed) from 24 March 2016. The FCA consulted last year (CP15/28 and CP15/42) on minor amendments to the Listing Rules and Prospectus Rules, based on the draft technical standards, which will also be necessary.

Market Abuse Regulation: buyback programmes and stabilisation measures

The EU Commission has endorsed the draft regulatory and technical standards published by ESMA last year in relation to buyback programmes and stabilisation measures. MAR, which takes effect this summer, states that the prohibition of insider dealing and market manipulation does not apply to trading in own shares in buyback programmes when the programme fulfils the requirements detailed in MAR. MAR also exempts trading in securities, or associated instruments, for the stabilisation of securities, provided they fulfil the relevant conditions in MAR.

Impact – implementation of MAR will significantly change the regulation of market abuse in the UK (and EU) and require increased safeguarding measures to be employed by both individuals and corporates to avoid falling foul of the provisions.

Background - on 12 June 2014 the final form of a new regulation on insider dealing and market manipulation (known as MAR) and a directive on criminal sanctions for insider dealing and market manipulation were published, requiring implementation by member states within two years of that date. MAR updates and strengthens the EU’s current market abuse framework by extending its scope to new markets and trading strategies and by introducing new requirements. MAR requires the European Securities and Markets Association (ESMA) to develop draft regulatory and implementing technical standards on a number of matters. ESMA published its final report including draft standards last year. The standards covered a number of areas including the conditions, restrictions, disclosure and reporting obligations for buyback programmes and stabilisation measures. MAR, as a regulation, will be directly effective i.e. the UK will not need to implement legislation to adopt MAR in order for it to be applicable. The UK will however have to review existing legislation and regulation to ensure that it is not contrary to the regulation.


  • Draft ICAEW guidance on distributable profits: The ICAEW has published revised draft guidance on distributable profits. The draft is based on the current guidance (Tech 02/10) and has been annotated to show the proposed changes. As well as being updated to reflect changes to the UK’s accounting regime and IFRS, it also contains additional text such as new paragraphs on what is a distribution, distributions in kind and how to deal with intra-group loans on off-market terms. Although the guidance is in draft, to the extent that it deals with issues concerning the interpretation of the law, it states that it should be regarded as having immediate effect. In particular, this applies to the guidance concerning the definition of a distribution, distributions in kind and intragroup off-market loans.
  • FRC advice to audit committees: The Financial Reporting Council has written to audit committee chairs to “provide some pointers for the 2016 corporate reporting season” against the “backdrop of increased uncertainty and/or volatility” citing, for example, the UK’s referendum on EU membership. The letter gives guidance on how such matters should be dealt with in the annual report and accounts highlighting, amongst other things, the need to consider whether the events have a material effect on the preparation of the accounts on a going concern basis and/ or whether there are material uncertainties relating to that assessment requiring disclosure.
  • BIS PSC non-statutory guidance: BIS has republished its non-statutory guidance on the PSC regime slightly expanding its guidance on the conditions in section 7. The amendment clarifies that the rights referred to in the guidance are illustrative and not exhaustive.
  • The Office of Tax Simplification has published its recommendations for simplifying tax for small companies. The recommendations range from things that can be done quickly to ideas for ways that the system could be “radically reshaped”, such as looking further at a ‘sole enterprise protected assets’ structure which could give a sole trader the key aspects of the liability protection they currently incorporate to secure.