News round-up: November 2023 A&R magazine Nov Dec 23
Corporate reporting regulations emphasise resilience
The UK government has published guidance on draft corporate reporting regulations that will, if approved by Parliament, create new requirements for
very large UK companies to disclose the measures they have taken to improve their resilience.
Under the “Corporate reporting: The Draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023”, large companies will have to produce a resilience statement in their annual strategic corporate report to explain the steps they are taking to build or maintain their business resilience over the short, medium and long term.
Items included in the resilience statement will need to include a summary of the company’s strategic approach to managing risk and how it is building or maintaining business resilience. It will have to describe the principal risks that the directors believe could threaten the company’s operational or financial resilience, and explain how these are being managed. Relevant organisations will have to conduct an annual stress test, report on its findings and provide details of any mitigating actions introduced following the exercise.
Global economies hit by natural disasters
The costs of natural disasters worldwide in the first half of 2023 have been higher than average and have had a greater impact on the global economy. Insurer Aon’s Global Catastrophe Recap: First Half (1H) of 2023 estimates the economic losses stemming from global natural disasters this year at US$194bn. This is the highest recorded loss since 2011.
Catastrophic earthquakes in Turkey and Syria in the first quarter of this year caused nearly half of the total economic losses, while severe convective storms in the US added to global losses. Other major losses resulted from two disasters in the North Island of New Zealand within three weeks in the first quarter of the year, and from wildfires across 10 million hectares in Canada.
TNFD publishes guidance on nature-related risk disclosures
The Taskforce on Nature-related Financial Disclosures (TNFD) has published its final recommendations for nature-related risk management and disclosure, along with a suite of guidance to help organisations start integrated assessment and corporate nature reporting.
The recommendations build on those of the Task Force on Climate-related Financial Disclosures (TCFD). They aim to inform better decision-making by companies and capital providers and help to shift global financial flows to
benefit nature.
The voluntary recommendations are closely aligned to the disclosure framework developed by the TCFD and incorporate the same four conceptual pillars of governance, strategy, risk and impact management, and metrics and targets.
UK proposes tougher anti-money laundering rules
The UK government has published proposals to strengthen anti-money laundering (AML) controls after several bodies, including the Financial Action Task Force (FATF), criticised its approach to oversight and monitoring as vulnerable and ineffective.
Supervision of AML and counter-terrorism financing (CTF) rules is currently the responsibility of three statutory regulators – the Financial Conduct Authority (FCA), HMRC and the Gambling Commission – and 22 professional bodies representing accountancy and law firms.
The Office for Professional Body Anti-Money Laundering Supervision (OPBAS), created in 2017, co-ordinates efforts and information-sharing between these 25 (often overlapping) regulatory organisations.
The Treasury’s consultation on the Reform of the Anti-Money Laundering and Counter- Terrorism Financing Supervisory Regime proposes four new models.
The first, “OPBAS+”, would increase the powers of the current regulators. The second option would consolidate the professional body supervisors so the most competent and best resourced become responsible for their whole sector.
The third model would make a single (probably public-sector) body responsible for supervising AML and CTF in all legal and accountancy firms, plus some or all of the other sectors currently supervised by HMRC.
The fourth possibility would be to create a new regulator to take on all UK AML/CTF supervision, including the work currently done by the FCA.
The consultation closed on 30 September and the UK government’s response is expected before 2024.
Data breaches cost UK businesses £3.4m
UK organisations pay an average of £3.4m for data breach incidents, according to tech firm IBM’s latest annual Cost of a Data Breach Report.
The study found that businesses that used artificial intelligence (AI) and automation were able to increase significantly the speed with which they identified and contained a breach. Those that used AI and automation cut the average breach lifecycle by 108 days and reduced the average cost to £1.6m.
However, only 28% of UK organisations surveyed said they were currently deploying security AI and automation extensively.
The most expensive breaches tended to be in the financial services and technology sectors. The most common entry point for attackers were stolen or compromised credentials. Malicious insiders caused the most expensive breaches, followed by compromised business emails and phishing attacks.
Class actions pose increasing risk for European businesses
European organisations are increasingly being hit by class actions, according to global law firm CMS. The total number of claims filed in 2022 rose to 121, up from 55 in 2018. The UK is the highest risk jurisdiction for class actions in Europe.
No sector is immune – financial services, consumer products and life sciences, tech and data protection sectors all saw more claims last year.
The report found that in 2022 class actions in the UK sought more than UK$120bn in compensation and damages. Almost half of the value of the UK’s class actions were in the mining, energy and transport sector, financial/professional services and technology sectors.
Financial services regulators seek to boost diversity and inclusion
The UK’s financial regulators have published proposals intended to boost diversity and inclusion and support healthy work cultures, reduce groupthink and unlock talent. The measures also aim to enhance the safety and resilience of organisations and improve understanding of diverse consumer needs.
Both the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) said they believed increased diversity and inclusion in regulated financial services firms could deliver better internal governance, decision-making and risk management.
The proposals include new rules and guidance to make it clear that misconduct such as bullying and sexual harassment poses a risk to a healthy work culture.
They include: develop a diversity and inclusion strategy setting out how the firm will meet its objectives and goals; collect, report and disclose data against specific characteristics; and set targets to address under-representation.
The consultation is open until 18 December.
This article was published in November 2023.
