Corporate weekly highlights—12 April 2018

This week’s edition of Corporate highlights includes the FRC’s updated sanctions guidance for auditors, accountants and actuaries, analysis on gender pay gap reporting and HMRC’s recommendations for companies to delay the grant of EMI share options.

Audit

Sanctions review recommendations for auditors, accountants and actuaries implemented

The Financial Reporting Council (FRC) has updated its sanctions guidance for auditors, accountants and actuaries in order to implement the recommendations of an independent review of sanctions undertaken in 2017. The updated guidance will take effect on 1 June 2018.

A panel chaired by former Court of Appeal Judge Sir Christopher Clarke conducted the independent review of sanctions, publishing its report in October 2017. The panel made several recommendations, including: an increase in fines to £10m or more for seriously poor audit work by a ‘Big 4’ firm, exclusion from the accounting profession for a minimum of ten years for dishonesty, greater use of non-financial penalties and sanctions that reflect the level of co-operation by respondents.

For further information, see LNB News 09/04/2018 6.

FRC plans to enhance the way it monitors audit firms

The FRC has announced plans to enhance the way it monitors the six largest audit firms by focusing on five key pillars it says are critical to the stability of the audit firms and quality of audit work. The results of the FRC’s inspection of audit quality by the firms will be published in firm-specific reports in June 2018 and summarised in the annual Developments in Audit report in July 2018.

The changes to monitoring aim to avoid systematic deficiencies within firms’ networks, disruption in the provision of statutory audit services and instability in the financial sector.

The five key pillars are: leadership and governance, values and behaviours, business models and financial soundness, risk management and control and evidence on audit quality, including from the FRC’s annual programme of audit quality reviews.

For further information, see LNB News 10/04/2018 79.

Corporate governance

Gender pay gap reporting—a ‘seminal moment’ and a ‘driver for change’

The Business, Energy and Industrial Strategy (BEIS) Committee is inviting written submissions to the gender pay gap inquiry until 10 April 2018, after the final gender pay gap figures for UK companies were revealed, finding that, on average, 78% of firms pay men more than women. Lawyers from Charles Russell Speechlys, Lewis Silkin LLP, and Stewarts have described the reporting as a ‘seminal moment’ but warn that action against companies who failed to report by the deadline of 4 April 2018, may be ‘little beyond naming and shaming’.

BEIS seek to examine the extent of compliance of businesses with gender pay gap reporting, how effective sanctions for non-compliance are, and if the annual information related to pay required under the Equality Act 2010 is sufficient.

Nick Hurley, partner at Charles Russell Speechlys, discusses the potential impact of the findings: ‘It seems likely that this will lead more women to question whether they are being paid less than those men in their organisation doing similar work, and it is likely that this will lead to an increase in equal pay claims as women test the water.’

For further information, see LNB News 05/04/2018 113.

Gender pay gap—the employer’s perspective

Hundreds of companies have filed their gender pay gaps prior to the deadline at midnight on 4 April 2018. Shirley Hall, senior office partner in the employment team at Eversheds Sutherland, and Daniel Zona, solicitor in the employment team at Bindmans LLP, examine the different options available to employers following the disclosure and looks at how businesses can close the gender pay gap in the long-term.

Shirley Hall noted that the main issues employers face when revealing the gender pay gaps are: high pay gaps causing confusion about equal pay, which could be a litigation risk, negative press commentary, which could potentially affect reputation and the impact on recruitment and retention.

Additionally, particularly if contracting with the public sector, there are concerns that a high gender pay gap could impact on the award of public sector contracts.

For further information, see News Analysis: Gender pay gap—the employer’s perspective.

Additional Corporate updates this week

EMI share options face delay in EU state aid approval

HMRC has advised companies to consider delaying the grant of enterprise management incentive (EMI) share options on or after 7 April 2018, until the EU reaches a decision on renewing state aid approval for the EMI scheme. The UK government acknowledges that there will be a delay between expiry of the current approval on 6 April and any new approval. During this period, EMI share options may be treated as non-tax advantaged employment-related securities options.

EMI share options granted in the period from 7 April 2018 until EU State Aid approval is received may not be eligible for the tax advantages presently afforded to option holders, and accordingly share options granted in that period as EMI share options may necessarily fall to be treated as non-tax advantaged employment-related securities options.

Companies may wish to consider delaying the grant of employee share options intended to qualify as EMI share options until fresh EU State Aid approval has been given.

HMRC will continue to apply its current guidance and practice, in relation to employment-related securities options validly granted as EMI share options before 6 April.

A further update will be provided in due course.

For further information, see LNB News 04/04/2018 135.

Additional news—daily and weekly news alerts

This document contains the highlights from the past week’s news. To receive all our news stories, whether on a daily or a weekly basis, amend your personal settings within your ‘News’ tab on the homepage by clicking on either ‘Email’ or ‘RSS’ (depending on how you prefer to receive them) on the right hand side of the blue banner.

Dates for your diary

Date Subjects covered
April 2018 LIBOR: The LIBOR benchmark in the UK will be replaced by a reformed version of the Sterling Overnight Index Average (SONIA). SONIA is anticipated to move to a new basis by April 2018.
SONIA reflects bank and building societies’ overnight funding rates in the sterling unsecured market. The Bank of England announced its plans to reform the SONIA benchmark in July 2015 and is currently in the process of this reform.
The Bank consulted on its high level proposals for SONIA reform, publishing its response to consultation feedback in November 2015. Further consultations were issued in October 2016 and February 2017, seeking views on the detailed proposals for the reform of SONIA.
In March 2017 the Bank provided a summary of feedback from the consultations as well as setting out the specification of reformed SONIA.
At a roundtable on sterling risk-free reference rates in London on 6 July 2017, the need for a transition away from sterling LIBOR towards SONIA was outlined. The reasoning was to build a safer financial system and to better match the risks that firms are hedging.
Bank of England executive director discusses the transition to SONIA, LNB News 17/07/2017 134.
FMLC comments on SONIA as risk-free reference, LNB News 12/10/2017 60.
FSB progress report on interest rate benchmark reforms, LNB News 10/10/2017 79.
8 May 2018 Corporate Governance: Submissions of evidence to the House of Commons BEIS Committee on executive pay close on this date.
The House of Commons BEIS Committee has launched an inquiry to look at the gender pay gap and executive pay in the private sector. The inquiry comes amid concerns about the overall level of executive pay and bonuses and as the deadline for gender-pay gap reporting passed on 4 April 2018.
The Committee is seeking written evidence on executive pay—for example, what progress has been made on implementing the recommendations on executive pay by the previous Committee in its 2017 report on corporate governance.
The evidence can be uploaded via the online portal and should be submitted by 8 May 2018.
See: LNB News 23/03/2018 82.
25 May 2018 Data protection:  the General Data Protection Regulation shall be directly applicable and fully enforceable in all Member States.
On 15 December 2015, the EU institutions reached agreement on the General Data Protection Regulation (EU) 2016/679 (GDPR), which will replace the Data Protection Directive 95/46/EC upon which the UK's Data Protection Act 1998 (DPA 1998) is based. The GDPR was published in the Official Journal of the European Union on 4 May 2016. It came into force on 24 May 2016.
The GDPR will be directly applicable in all Member States from 25 May 2018 and the government has confirmed that the UK will be implementing the GDPR as it will remain a member of the EU on this date.
The General Data Protection Regulation (GDPR)
The GDPR—preparing for implementation

Relevant Articles
Area of Interest