Welcome to our snapshot of key changes and current affairs for Company Secretaries working in social housing.
As a new financial year dawns, this month we’re looking at updates from the FCA and the Charity Commission, the latest advice on shareholder voting and more!
Economic Crime and Corporate Transparency Act: failure to prevent fraud offence
The Home Office has published a factsheet on 11 April 2023 which confirms that a failure to prevent fraud offence will be introduced in the upcoming Economic Crime and Corporate Transparency Act. The factsheet sets out some information about how the offence will be applied, including:
- The offence will apply to organisations when a specified fraud offence is committed by an employee or agent, for the organisation's benefit, and the organisation did not have reasonable fraud prevention procedures in place. It will not need to be proven that consent or connivance existed.
- The offence will apply to all large companies (as defined in the Companies Act 2006), not-for-profit organisations such as registered societies, charities and incorporated public bodies which meet two out of three of the following criteria: more than 250 employees, more than £36 million turnover and more than £18 million in total assets.
- The offence is limited to failing to prevent offences under the Fraud Act 2006, Theft Act 1968 including false accounting and fraudulent trading.
- The offence can be committed even if the organisation and the relevant employee are based outside of the UK.
If convicted, organisations can receive an unlimited fine. Organisations will be able to avoid prosecution if they have reasonable procedures in place to prevent fraud. The government will publish guidance to set out reasonable fraud prevention procedures before the offence comes into force. The new offence will come into force once the Economic Crime and Corporate Transparency Bill has received Royal Assent.
AGMs: ICGN statement on post COVID-19 AGM practices and shareholder rights
The International Corporate Governance Network has published a statement on post COVID-19 AGM practices and shareholder rights. It calls on regulators to discourage the practice of virtual-only AGMs and require companies to provide for hybrid AGMs, and encourages regulators to adequately consult with shareholders and stakeholders in considering changes to regulation or legislation regarding AGMs, particularly matters impacting shareholder rights.
The ICGN reiterates its expectations related to AGMs in the statement, including that:
- A hybrid format is the optimal AGM format, allowing for in-person shareholder presence while also accommodating meeting access via electronic or virtual means.
- The AGM date should be co-ordinated with other company AGMs (to the extent possible) to facilitate a wider dispersion of meetings beyond a few days or weeks in a given year.
- AGM materials should be published at least one month ahead of the meeting, including the meeting format and relevant procedures.
- Reliable technology must be used to allow democratic, secure and efficient access for all participants.
- Robust procedures must be established to verify shareholder identification and level of shareholding and to ensure all participants can attend and vote.
- Shareholder questions should be permitted in advance or during the AGM and adequate time allowed for discussion and follow-up questions or statements.
Updates to the FCA’s Mutual Register
The Financial Conduct Authority (FCA) will no longer accept special resolutions contained in a set of board minutes. Where resolutions are submitted containing other information that is not required by legislation (e.g. details of attendees at the meeting, minutes of other business conducted), the FCA is likely to return the submission.
The resolution will then need to be re-submitted without the additional information. The resolution should still include the wording of the resolution, the society name and registered number and the required signatories and their details.
The FCA has also introduced a new Digitisation Status for society records on the Mutuals Register. The new feature will allowing those accessing the register to see if a society’s records has been fully digitised. This will hopefully help societies who are trying to track historic records.
Charity Commission begins trialling new investment guidance
Last year, the courts published a judgment on trustee investment duties (the Butler-Sloss judgment). The case confirmed that:
- Trustees (which includes board members of charitable registered societies) have a wide discretion in making investment decisions, for example, in deciding to exclude certain investments based on non-financial considerations.
- Trustees can equally choose to focus just on financial return – ultimately what is appropriate for charities may differ.
The Charity Commission has updated its guidance (CC14) to reflect the Butler-Sloss judgment. Before the Commission publishes its revised guidance, approximately 1,000 charities will now be taking part in a “road test” of the new guidance.
The Commission hopes that the new guidance is easier to navigate and is clearer. One of the ways it is aiming to do this is by removing some of the terms used to describe investments such as “ethical”, “responsible”, “mixed-motive” and “programme-related” which were causing confusion and instead relying on the statutory concept of social investments. The new guidance is due to be published in summer 2023.
PLSA Stewardship and Voting Guidelines 2023
The Pensions and Lifetime Savings Association (PLSA) has published its 2023 stewardship and voting guidelines. Changes to the 2022 version include amendments relating to:
- Virtual AGMs – the PLSA acknowledges the case for the use of virtual meetings in exceptional circumstances such as when a government restricts people's movements but otherwise believes AGMs should allow for in person attendance. The PLSA would therefore not support permanent virtual AGMs.
- Chair appointment – when assessing the suitability of a new Chair, shareholders must consider board diversity.
- Chair re-election – investors should consider voting against the re-election of the Chair if: the board consistently fails to move towards the PLSA recommendations relating to good company behaviour regarding board diversity or shows a lack of effort to do so; or the board fails to move towards the latest FCA diversity requirements or satisfactorily explain such non-compliance. Investors should vote against the re-election of a director if there is no clear evidence that diversity is being sufficiently considered by the board, or where previously committed timescales are not being met, in the senior board positions.
- Remuneration – the PLSA calls on companies to exercise restraint in executive pay given the current economic situation.
- Climate change – the PLSA has added to its list of questions investors should ask when deciding whether to support a particular climate-related resolution.
- Workforce – a new section sets out the PLSA's expectations in relation to matters such as workplace health, wellbeing, modern slavery issues and DEI, specifying the situations where investors should consider voting against the approval of the annual report and accounts or the re-election of a relevant director such as where companies identified as highly exposed to modern slavery risks fail to demonstrate adequate risk management and a willingness to change their approach.
Our review of regulatory upgrades/downgrades/regrades in the sector since our January edition has highlighted the following themes:
- Downgrades to non-compliant governance grading and non-compliant viability grading resulting from:
- lack of regulatory assurance that a robust financial plan or effective management of financial position, risk and control framework was in place;
- absence of effective mitigation strategies especially in relation to protecting social housing assets should risks crystalize;
- inadequacies in financial monitoring and board reporting;
- significant short term liquidity issues.
- Upgrade to governance grading resulting from:
- refreshing board membership, resulting in board having a more strategic focus;
- improvements to risk-management (including compliance with loan covenants);
- improvements to quality of data, reporting and oversight of health and safety responsibilities.
- Breaches of the home standard resulting from:
- a failure to ensure that electrical installations are in working and safe condition with 3,500 domestic properties not holding a current electrical condition report;
- a failure to have valid water safety risk assessments in place for a number of properties.
- Breaches of the Governance and Financial Viability Standard resulting from:
- not ensuring governance arrangements are effective, including not undertaking assessments against adopted governance code
- not being able to demonstrate that affairs are managed with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight, and
- failing to ensure that an appropriate business planning, risk and control framework is in place.
- Financial viability regrades resulting from:
- A number of registered providers (RPs) continue to be regraded from V1 to V2. The Regulator of Social Housing has found that the current economic uncertainty in relation to inflation and interest rates means that many RPs have now less financial headroom and reduced capacity to respond to adverse events.
Our take-aways from the above are a reminder to:
- Prioritise protecting social housing assets
- Review and understand funding obligations
- Oversight and management of key risks is essential
- Stress testing will establish ability and financial capacity to deal with a range of adverse scenarios
- Ensure that governance effectiveness reviews are being carried out regularly
- Ensure financial reporting and monitoring arrangements are tight, and controls are in place to catch inaccuracies in data.
Forthcoming events – will you be joining us?
Building Safety Act - are you ready?
The Building Safety Act intends to bring about the ‘biggest improvements to building safety in nearly 40 years’ by putting in place “new and enhanced regulatory regimes for building safety and construction products” and ensuring “residents have a stronger voice in the system”. The costs of both getting it right and getting it wrong can both be extremely high.
Book your place for Wednesday 3 May 2023, 11am - midday
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