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Legal Headwinds: Quarterly Report – Q2 2020
Legal Headwinds focuses on key legal and regulatory developments
relevant to clients operating in the asset management sector in the
UK and Ireland. We also cover significant developments more
generally within the EU.
Rather than being a retrospective analysis, the report looks at
future developments this quarter and beyond (based on information
available as at 31 March 2020) and it is not intended to be
exhaustive.
This document (and any information accessed through links in
this document) is provided for information purposes only and does
not constitute legal advice in any of the jurisdictions covered.
Professional legal advice should be obtained before taking or
refraining from any action as a result of the contents of this
document.
This document has been created using the following criteria:
Priority: Red; Amber and Green. Region: UK; EU; Ireland and Global
Relevant Sectors: Asset Managers. Relevant Subsectors: Asset
Managers: Hedge funds; Institutional managers; Private equity;
Sovereign wealth; Service Providers and Private Clients.
Headwind topic Region Principal issue This quarter Looking ahead
Relevant to Relevant Subsector
Priority
AIFMD
Imposes EU wide regime for oversight of alternative investment
funds and managers
Annex IV reporting period for quarterly reporting AIFMs with
information to report ended on 31 March 2020 - reports must be
submitted to regulators by 30 April 2020
01 April 2020 - Delegated Regulation amending safe keeping
duties of depositaries of AIFs and UCITS to apply
Asset managers
All
G
AIFMD
Cross border distribution of collective investment funds
ESMA to open consultations on Level 2 and Level 3 measures under
Cross-border Distribution Regulation
02 August 2021 - new legislation on cross-border distribution of
collective investment funds to apply
Asset managers
All
A
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Legal Headwinds: Quarterly Report – Q2 2020 Headwind topic
Region Principal issue This quarter Looking ahead Relevant to
Relevant
Subsector Priority
AIFMD
Integrating sustainability risks and factors
European Commission to continue consideration of ESMA Final
Report on technical advice in respect of integration of
sustainability risks and sustainability factors in UCITS Directive
and AIFMD
European Commission to adopt measures in due course in light of
ESMA advice
Financial institutions
Asset managers
Wholesale banks
Retail banks and other consumer credit providers
Hedge funds
Institutional managers
Service providers
A
AIFMD
Liquidity stress testing 30 September 2020 – ESMA guidelines on
liquidity stress testing in UCITS and AIFs to apply
Financial institutions
Asset managers
Wholesale banks
Retail banks and other consumer credit providers
Hedge funds
Institutional managers
Service providers
A
AIFMD
Review of working of AIFMD Late Q3 or early Q4 2020 - European
Commission report and consultation on review of AIFMD expected to
be published – delayed as result of COVID-19 pandemic
Financial institutions
Asset managers
Wholesale banks
Retail banks and other consumer credit providers
Hedge funds
Institutional
managers
Service
providers
A
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Legal Headwinds: Quarterly Report – Q2 2020 Headwind topic
Region Principal issue This quarter Looking ahead Relevant to
Relevant
Subsector Priority
AML Directives 4+5
Irish implementation of the AMLD4’s requirements on beneficial
owners of corporate entities
Central Register of Beneficial Ownership of Companies and
Industrial and Provident Societies (the “RBO”) is open
By 10 March 2021 - central registers of Member States required
by AMLD5 to be interconnected
All All
R
AML Directives 4+5
Irish implementation of the AMLD4’s requirements on beneficial
owners of trusts
Irish trustees to put procedures in place to collect beneficial
ownership information.
Central register of beneficial ownership for trusts to be set up
by 10 March 2020, but this has been delayed
By 10 March 2021 - Member States’ registers required to be
interconnected
All All
R
Anti-Money laundering
Fifth Money Laundering Directive (5MLD)
Following publication of final text in Official Journal on 19
June 2018, European governments to start preparations for
implementation
By 10 January 2020 - EU Member States to have implemented
5MLD
All All
R
Anti-Money laundering
Sixth Money Laundering Directive (6MLD)
Directive 2018/1673 (6MLD) was published in the Official Journal
of the EU on 12 November 2018
Following publication, 6MLD came into force on 2 December
2018
EU Member States to start preparations for implementation of
6MLD
By 3 December 2020 - EU Member States to have implemented
6MLD
All All
G
Anti-Money laundering
COVID-19 risks Authorities emphasising need to be vigilant of
new AML risks. The European Banking Authority has issued Guidance
on mitigating financial crime risks during the pandemic.
Financial Institutions, Asset Managers
Financial Institutions, Wholesale Banks, Retail Banks, Fintech,
Institutional Managers, Service providers and
R
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Legal Headwinds: Quarterly Report – Q2 2020 Headwind topic
Region Principal issue This quarter Looking ahead Relevant to
Relevant
Subsector Priority
Anti-Money Law Commission Consultation Government to consider
recommendations Current SARS regime likely to be overhauled to All
All laundering on the SARS regime made by Law Commission eliminate
over-defensive reporting, reduce
number of reports and increase their usefulness to law
enforcement agencies
A Law Commission recommends creation of Advisory Board including
private sector
representatives to create standard form SAR and monitor
effectiveness
Benchmarks
EU Benchmarks Regulation Financial Wholesale
Regulation following LIBOR rate-setting revelations
establishing legislative framework regulating production and use
of indices serving as benchmarks
Institutions Banks Retail Banks and other consumer credit
providers
Insurance G
Asset managers
Hedge funds
Institutional managers
Service providers
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Legal Headwinds: Quarterly Report – Q2 2020
Headwind topic Region Principal issue This quarter Looking ahead
Relevant to Relevant Subsector
Priority
Benchmarks Regulation of benchmarks in UK 01 May 2020 -
Benchmarks Regulations 2018 By end-Q3 2020 –issuance of cash
products linked Asset Hedge funds Regulation following LIBOR
misconduct transition period ends: (i) Article 63S RAO to sterling
LIBOR to cease managers Institutional following LIBOR investigation
activity to become only regulated activity relating managers
rate-setting to benchmarks; (ii) Articles 63O to 63R of 07 December
2020 – SMCR to apply to Service revelations Regulated Activities
Order (current regulated
activities relating to benchmarks) to be revoked; and (iii)
Section 22(1A)(b) and (6) of FSMA to be repealed
benchmark administrators
2020 –steps to be taken to demonstrate that compounded SONIA is
easily accessible and usable
providers
By Q1 2021 – framework to be established for transition of
legacy LIBOR products, to significantly reduce stock of LIBOR
referencing contracts
G
To end of 2021 - LIBOR to be sustained
By 01 January 2022 – third country benchmark administrators need
to be approved through recognition/ endorsement regimes, where
Benchmark Regulation equivalence decision does not apply to
them
Capital Markets
Prospectus Regulation (EU) Q2 2020 – final version of ESMA
guidelines on Financial All
Union 2017/1129 a new Regulation to modernise and overhaul
disclosure requirements expected Institutions
Prospectus regime – applies from 21 July 2019
Asset Managers
All
All issuers of, investors in and other market participants in
relation to capital markets products, in particular equities,
corporate bonds and securitisation s
A
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Legal Headwinds: Quarterly Report – Q2 2020
Headwind topic Region Principal issue This quarter Looking ahead
Relevant to Relevant Subsector
Priority
Capital Markets Union
Amendments to UK legislation to reflect the implementation of
the new Prospectus Regulation (EU)
Financial Institutions
All
2017/1129 Asset All Managers 21 July 2018 - The Financial
Services and Markets Act 2000 (Prospectus and Markets in Financial
Instruments) Regulations 2018 entered
into force
G 21 July 2019: The Financial
Services and Markets Act 2000 (Prospectus) Regulations 2019
enter into force
The Official Listing of Securities, Prospectus and
Transparency
(Amendment etc) (EU Exit) Regulations 2019 (SI 2019/707) Capital
Markets
Securitisation Regulation (EU) 13 April 2020 – ESMA consultation
period ends Level 2 measures continue to be developed Financial
Wholesale
Union 2017/2402 introduces a single on guidelines on
securitisation repository data Institutions Banks uniform
regulatory framework
for securitisation and also creates a new class of simple,
transparent and standardised (STS) securitisation
completeness and consistency thresholds Q1 2021: Joint Committee
of ESAs to publish report on a) implementation of STS requirements
(b) actions that Competent Authorities have undertaken (c)
functioning of due diligence and transparency requirements and
level of transparency of securitisation market in European
Retail Banks and other consumer credit providers Fin-tech
Securitisation Regulation (EU) Union, and (d) risk retention
requirements Wealth 2017/2402 of 12 December 2017 apply from 01
January 2019 (SR) Asset All R Managers Capital Requirements
Amending Regulation (CRR Amending
Regulation) (EU) 2017/2401 recalibrates calculation of risk
weights for securitisation positions and introduces lower risk
weights for STS securitisations
CRR Amending Regulation (EU) 2017/2401 of 12 December 2017
All originators and sponsors of, investors in and other market
participants in relation to securitisation
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Legal Headwinds: Quarterly Report – Q2 2020
Headwind topic Region Principal issue This quarter Looking ahead
Relevant to Relevant Subsector
Priority
apply from 01 January 2019 s CCP - Central Counterparty Clearing
Houses - Recovery and Resolution Regulation
In November 2016, the European Commission adopted a proposal for
new rules for Central Clearing Counterparties (CCPs) Recovery &
Resolution
The European Parliament has adopted a first reading position and
on 27 November 2019 Council adopted a political compromise text for
a mandate to commence negotiations with the European Parliament
Trilogues expected to take place Trilogues to continue but date
of application currently unclear
Financial Institutions
Asset Managers
All
All
G
Central Securities Depositories
Regulation on improving securities settlement and regulating
central securities depositories (CSDR)
CSDR officially entered into force on 17 September 2014
Level 2 measures for CSD requirements (except technical
standards on settlement discipline) published in Official Journal
and apply from 30 March 2017
ESMA has published a proposal to delay the date of entry into
force of Commission Delegated Regulation (EU) 2018/1229 on
settlement discipline to 01 February 2021 (currently 13 September
2020)
01 January 2023 - Article 3(1) of Regulation, under which
relevant issuers must arrange for relevant securities to be
represented in book-entry form, to apply to transferable securities
issued after that date
01 January 2025 – Article 3(1) to apply to all other
transferable securities
Financial Institutions
Asset Managers
All
All
All
Issuers of, holders of, and those entering into transactions
regarding, securities held in settlement systems
G
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Legal Headwinds: Quarterly Report – Q2 2020
Headwind topic Region Principal issue This quarter Looking ahead
Relevant to Relevant Subsector
Priority
Central Securities Depositories
Amendments to domestic legislation through the Central
Securities Depositories Regulations 2014 (SI 2014/2879)
28 November 2017 - The Central Securities Depositories
Regulations 2017 (SI 2017/1064) entered into force
The Central Securities Depositories (Amendment) (EU Exit)
Regulations 2018 (SI 2018/1320)
03 April 2020 - Closing date for responses to Bank of England's
consultation setting out proposals for an operational resilience
framework for CSDs
Financial Institutions
Asset Managers
All
All
CSDs, CCPs, trading venues and any entities that provide
internalised settlement
R
CMA - bond market investigation
CMA investigating four banks in relation to suspected cartel in
bond-trading market
CMA has not yet reached a view as to whether there is sufficient
evidence of an infringement of competition law for it to issue a
statement of objections to any of the parties under
investigation
CMA to decide whether there are sufficient grounds to issue
statement of objections
Financial Institutions
Asset Managers
All
R
Competition - Market study into audit sector
CMA launched a market study into the statutory audit sector in
October 2018. CMA published final report in April 2019, which
identified significant shortcomings in audit quality and issues
with market entry. CMA recommends to government that it make
significant changes, including mandatory joint audit requirements
and operational splits between the Big Four
Department of Business Energy & Industrial Strategy (BEIS)
launched an initial consultation on recommendations by CMA in July
2019, which closed on 13 September 2019
BEIS to consider CMA’s recommendations and enact new legislation
or regulation if appropriate
Plans to reform the audit sector by introducing joint audits
look increasingly likely to be scrapped as incumbent Conservative
party believed to be abandoning its support
Financial Institutions
Asset Managers
All
R
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Legal Headwinds: Quarterly Report – Q2 2020 Headwind topic
Region Principal issue This quarter Looking ahead Relevant to
Relevant
Subsector Priority
Competition - Market study into investment platforms
FCA published its Investment Platforms Market Study final report
and accompanying Consultation Paper 19/12 on 14 March 2019
Report set out FCA’s findings and package of measures to help
consumers who invest through investment platforms more easily find
and switch to the right one for them
FCA to consider responses to consultation and may issue formal
consultation later this quarter
FCA issued Policy Statement on simpler transfers. Rules become
effective 31 July 2020
Asset Managers
All
R
Consumer credit Regulatory responsibility for consumer credit
was transferred to FCA in April 2014. Consumer Credit Act
provisions were repealed, and others replaced by FCA rules. Current
review is aimed at simplifying the regime
Spring 2020 - Interim Report following MS19/1: Credit
Information Market Study due to be published
6 April 2020 - new rules on publication of pricing information
under the Overdraft Pricing and Competition Remedies (PS19/25) come
into force
6 April 2020 – pricing rules under High-cost Credit Review:
Overdrafts (PS19/16) come into force
H1 2020 – FCA to publish response to GC19/3
Financial Institutions
Asset Managers
All
All
R
Consumer credit Consumer Credit (Temporary Covid-19 Support
Measures) Order 2020
Firms are expected to offer a temporary freeze of payment for up
to three months on loans, credit cards, a 0% interest rate on
overdrafts up to £500 and to ensure that the credit rating of
consumers, using these services, is not affected
Q2 2020 - FCA measures to support consumer credit products under
financial stress due to the COVID-19 pandemic to take effect
Relief measures to be withdrawn as COVID-19 related financial
issues overcome
Financial Institutions
Asset Managers
All
All
R
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https://www.fca.org.uk/publication/market-studies/ms19-1-1.pdfhttps://www.fca.org.uk/publication/market-studies/ms19-1-1.pdfhttps://www.fca.org.uk/news/press-releases/fca-proposes-temporary-financial-relief-customers-impacted-coronavirushttps://www.fca.org.uk/publication/policy/ps19-16.pdfhttps://www.fca.org.uk/publication/guidance-consultation/gc19-03.pdfhttps://www.fca.org.uk/publication/guidance-consultation/coronavirus-covid-19-credit-card-instrument-2020.pdf
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Legal Headwinds: Quarterly Report – Q2 2020 Headwind topic
Region Principal issue This quarter Looking ahead Relevant to
Relevant
Subsector Priority
Consumer protection
Fitness Check of six major EU consumer protection laws,
including Unfair Terms Directive and Unfair Commercial Practices
Directive
The review found the Directives fit for purpose overall, but
that they should also be better applied
On 11 April 2018, European Commission adopted New Deal for
Consumers package, including two Proposals for Directives
17 January 2020 - Regulation on cooperation between national
authorities responsible for enforcement of consumer protection laws
to apply
Trilogue negotiations for Directive on collective redress to
take place
28 November 2021 – Deadline for EU member states to adopt
measures complying with Enforcement and Modernisation Directive
28 May 2022 – Deadline for application of measures implementing
Enforcement and Modernisation Directive
Financial Institutions
Asset Managers
All
All
A
Consumer protection
Department for Business, Energy and Industrial Strategy (BEIS)
review of terms and conditions, including civil fining powers for
unfair terms
Financial Institutions
Asset Managers
All
G
Corporate governance
Women on Boards Draft Directive
European Commission proposal for draft directive on gender
equality on boards of listed companies in EU, published on 14
November 2012
Timetable unknown All All
EU listed companies G
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Legal Headwinds: Quarterly Report – Q2 2020
Headwind topic Region Principal issue This quarter Looking ahead
Relevant to Relevant Subsector
Priority
Corporate governance
Directive which amends EU Shareholder Rights Directive
(SRDII)
4 September 2018, European Commission published final
implementing regulation on minimum requirements and standardised
formats to be used when an issuer asks for information to identify
its shareholders and for sending information between issuer and its
shareholders through intermediaries, with a view to harmonising
practices across Member States
Member States to implement most provisions of SRDII into
national law by 10 June 2019
See UK implementation and Narrative reporting below
10 September 2020 - SRD II provisions on identification of
shareholders and communication with shareholders to apply
3 September 2020 - Implementing regulation to apply
All All
R
Corporate governance
UK Implementation of SRD II.
Some of the changes applied from 10 June 2019 and some for the
financial year beginning on or after 10 June 2019. See:
“SRD2 - are you ready?” for the new obligations on, among
others, MiFID firms, AIFMs, UCITS ManCos and self-managed
UCITS.
“SRD II: UK implementation: new related party transaction
regime” for an overview of the new related party transaction
regime.
“SRD II: UK implementation of remuneration changes” for the
directors’ remuneration changes.
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Corporate governance
General meetings and board meetings
Companies need to consider how they can hold general meetings
given the requirement to social
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distance 28 March 2020, UK Government
announced that it intends to introduce legislation to ensure
that companies that are required by law to hold AGMs, will be able
to do so safely and in a way which is consistent with the
restrictions on movement and gatherings that have been introduced
to address the spread of COVID-19.
Legislation to introduce these changes will be introduced in
Parliament at the earliest opportunity and provisions will be
included to enable the changes to be extended if necessary
Companies should also refer to ICSA’s Guidance about AGMs and
impact of COVID-19 and its supplemental guidance here
Companies will also temporarily be extended greater flexibility,
including in relation to holding
AGMs online or postponing meetings
28 March 2020, ICSA published
Guidance on good practice in the conduct of virtual board and
committee meetings
Corporate governance
New corporate governance reporting rules.
17 July 2018, UK Government published new corporate governance
reporting requirements (Companies (Miscellaneous Reporting)
Regulations 2018) to implement its well-publicised corporate
governance reforms to
New regulations apply to financial years beginning on or after 1
January 2019 and companies will have to report on these regulations
in 2020. One exception is that the requirement for companies to
illustrate impact of share price increases on executive pay
outcomes applies to any new remuneration policy introduced from 1
January 2019.
New regulations require disclosure of::
All All
make directors more accountable
UK Government has also published guidance on these regulations
in the form of Q&A which were updated in November 2018
UK incorporated quoted companies with more than 250 UK employees
- ratio of CEO’s total remuneration to median (50th), 25th and 75th
percentile of full time equivalent remuneration of company’s UK
employees, together with certain supporting information
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22 October 2018, GC100 published guidance on directors’ duties
under section 172 Companies Act 2006 and stakeholder
consideration
All UK incorporated quoted companies - effect of future share
price growth on executive pay outcomes
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7 December 2018, GC100 and Investor Group published an updated
version of the Directors’
Large companies – (i) statement explaining how directors have
complied with duty to have regard to matters in s.172(1)(a) to (f)
Companies Act
Remuneration Reporting Regulations Guidance to reflect these
regulations. A further revised version was published on 22 July
2006 and (ii) statement summarising (in more detail) how
directors had regard to need to foster business relationships with
suppliers, customers and others.
2019 that replaces the 2018 version
UK incorporated companies with more than 250
UK employees - summary of how directors have engaged with
employees.
Corporate Revised UK Corporate Governance 2018 Code applies to
financial years beginning FRC expected to update Guidance on Audit
All All governance Code
16 July 2018, revised UK Corporate Governance Code and FRC
Guidance on Board Effectiveness published
27 November 2018, FRC published
on or after 01 January 2019 so first reporting against revised
Code in 2020 unless adopted earlier or one of provisions companies
were expected to follow in 2019. (The FRC expected companies to
follow the new provisions on explanations during 2019 where
significant votes were cast against resolutions and to develop
future remuneration policies and changes to existing ones by
reference to new version of the
Committees to reflect 2018 Code in due course. FRC will also
make consequential changes to Guidance on Risk Management and
Internal Control and Related and Financial Business Reporting and
will consider whether further changes are needed in light of
various investigations following Carillion’s collapse
Main Market companies
FAQs on the 2018 Code Code and the Guidance on Board
Effectiveness)
9 January 2020, FRC published its annual review of the Code
which assesses reporting against the 2016 UK Corporate
Governance
Code as well as early adoption of the 2018 Code. FRC is
expecting:
i. companies to be clearer about their R
‘purpose’ and to consider it alongside culture and strategy;
ii. more details on how companies have assessed and monitored
culture;
iii. information on the methods used to understand the views of
the workforce and how companies have considered and, if
appropriate, taken forward matters raised by the workforce;
iv. the section 172(1) statement to cover the concerns raised by
stakeholders, how companies understood their issues and how they
thought about the impact on the long-term success of the
company;
v. for board re-elections, the reasons why
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the director’s contribution is, and continues to be, important
to the longterm success of the company;
vi. more detailed commentary on all aspects of diversity (not
just women);
vii. more detail on how the remuneration committee have engaged
with the workforce and the effect of that engagement; and
viii. how companies are aligning existing directors’ pension
contributions with those of the workforce.
Corporate governance
Insolvency and corporate governance.
Further consultation awaited All All
26 August 2018, Government response to its consultation paper
setting out proposals to improve corporate governance of firms in
or approaching insolvency published
Legislation for these changes will be introduced in Parliament
at the earliest opportunity and provisions will be included to
enable the changes to be extended if necessary
See Changes to UK insolvency law to protect companies impacted
by COVID-19
4 November 2019, the House of Commons' Business, Energy and
Industrial Strategy (BEIS) Committee published a letter to the
Secretary of State for the Department of BEIS setting out a
series of recommendations concerning, among other things,
corporate governance, audit reform and executive pay and bonuses
following its inquiry into the collapse of Thomas Cook
A
28 March 2020, the Secretary of
State for Business, Energy and Industrial Strategy announced
measures to support businesses following the coronavirus
outbreak which include proposed changes to the insolvency rules
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Corporate governance
Dividend payments.
25 May 2019, IA published a report on the extent to which UK
listed companies seek shareholder approval for dividend payments
(“Shareholder Votes on Dividend Distributions in UK Listed
Companies: The case for a Distribution Policy”). As a result of its
findings (which showed that more than 22% did not hold annual votes
on payment of dividends) the IA recommends that all listed
companies should publish a ‘distribution policy’ to enable
shareholders to engage on their approach. This policy should set
out their long-term approach to returns to shareholders, including
dividends, share buybacks and other capital distributions
IA to establish a working group to develop best practice
guidance on this distribution policy, which had been expected to be
published in Autumn 2019
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Corporate governance
Board evaluations 5 July 2019 - The Chartered Governance
Institute consultation on the effectiveness of the independent
board evaluation process closed. This review is being carried out
at BEIS’ request following its response to its consultation on
insolvency and corporate governance referred to above. Response
awaited
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Corporate governance
Corporate governance for large private companies
New corporate governance reporting regulations (see above)
require certain large private companies to state:
i. which corporate governance code (if any) they have applied in
a relevant financial year
ii. how they applied it; and
iii. any aspects they departed from and the reasons for doing
so.
If no corporate governance code has been applied for the
financial year, then the company must instead explain the reasons
for that decision and what corporate governance arrangements were
applied
10 December 2018, The Wates Corporate Governance Principles for
Large Private Companies published (following consultation in June
2018). The Wates Principles can be applied to meet this
requirement
Regulations apply to financial years beginning on or after 1
January 2019 so first reporting in 2020
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Large private companies
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Corporate governance
IA Public Register
The 2018 Corporate Governance Code provides that, when 20% or
more of votes are cast against the board recommendation for a
resolution, a company should:
i. when announcing results, explain what actions it intends to
take to consult shareholders to understand reasons for result;
Register to be updated on ongoing basis throughout year
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Listed companies
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ii. publish an update on views received from shareholders and
actions taken no later than six months after vote;
iii. provide final summary in annual report, or explanatory
notes to resolutions, on whether the board has taken any action or
proposed new resolutions as a result of feedback.
The IA, which maintains public register, has published guidance
setting out what investors expect to see in any update
statement
Corporate governance
Kingman Review.
18 December 2018, BEIS published final report of independent
review of FRC led by
5 February 2020, FRC published a draft plan and budget for
2020-2021 for consultation (with a deadline for comments of 28
February 2020). Response awaited
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Sir John Kingman
11 March 2019, BEIS published a press release and initial
consultation on recommendations in the Kingman review report. As
recommended, the government proposed replacing the FRC with a new
independent regulator, the
The draft plan sets out the FRC's initial response to the
Kingman review and the transitional steps it is taking before the
Kingman recommendations come into effect
A Audit, Reporting and Governance Authority (ARGA) with
stronger
powers
18 December 2019, the Kingman
Review final report was published. It includes 83
recommendations,
including that the FRC be replaced as soon as possible with a
new independent regulator, the Audit, Reporting and Governance
Authority that would be accountable to Parliament
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19 December 2019, the Queen’s speech set out the government’s
proposals to develop a stronger regulator with powers to reform
corporate reporting and audit sector
Corporate governance
Executive Remuneration.
In 2019, IA expecting pension contributions to current directors
to be reduced over time to equal rate that workforce receive; and
investors to “red top” companies who pay new directors pension
contributions not in line with
The letter highlights the areas of focus for 2020 AGMs:
alternative remuneration structures, discretion on vesting
outcomes, pensions, post- employment shareholding requirements,
levels of remuneration and pay for performance.
For companies with financial year that end on or after 31
December 2019, IA’s IVIS will from start of 2020 AGM season:
By end of 2022 - IA members expect remuneration committees to
set out a credible action plan to reduce pension contributions of
all executive directors to same level of contributions as majority
of workforce receive
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contributions to majority of company’s employees
1 November 2019, the Investment Association (IA) published
updated Principles of Remuneration and a letter to the remuneration
committee chairs of FTSE 350 companies
The Principles have been updated to reflect current best
practice and evolving views of IA members including the impact of
remuneration on wider stakeholders, approach to leavers, long term
incentives and alignment of performance conditions with the company
strategy
i. ‘amber top’ any company when an existing director has a
pension contribution of 25% of salary or more provided there is a
credible plan;
ii. ‘red top’ any company with an existing director who has
pension contribution of 25% of salary or more, and there is no
credible plan;
iii. ‘red top’ any company who appoints a new executive director
or a director changes role with pension contribution out of line
with majority of workforce, or seeks approval for new remuneration
policy which does not explicitly state that any new director will
have their pension contribution set in line with majority of
workforce.
Companies are also expected to disclose, in their remuneration
report, the pension contribution rate that they consider is given
to the majority of the workforce
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Corporate governance
Executive Remuneration New requirement for certain companies to
report ratio of CEO’s remuneration to UK employees’ remuneration
applies to financial years beginning on or after 1 January 2019 so
reporting in 2020. (See New corporate governance reporting
regulations above.)
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Corporate governance
Executive Remuneration – share buybacks
19 July 2019, the UK Government published a research paper
(Share repurchases, Executive Pay and Investment), prepared by PwC,
on the findings of the buyback review that it had been asked to
carry out. The research looked at any connections between executive
pay incentives and share buybacks, and between share buybacks and
investment levels. The research found no significant relationship
between share repurchases and either the existence of an EPS
condition or the proportion of an incentive award linked to that
condition within executive pay incentives and share repurchases. It
also did not find a systematic relationship between share
repurchases and corporate investment
Report will now be followed by research into the potential for a
direct link (rather than through the use of buybacks) between the
existence of executive pay targets and investment levels in
companies. This research will investigate the extent to which pay
incentives and performance targets can result in short-termist
executive decision-making. Research awaited
All All
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Corporate governance
UK Stewardship Code
24 October 2019, 2020 Stewardship Code published. Key changes
for asset managers are:
i. a clear benchmark for stewardship - stewardship is now
defined as “the responsible allocation, management and oversight of
capital to create long- term value for clients and
The 2020 Code takes effect on 01 January 2020 and applies to
reporting years beginning on or after 01 January 2020. The Code
continues to be voluntary and asset managers and asset owners
wanting to be signatories must publish their first Stewardship
Report by 31 March 2021. (The FRC has removed the requirement for a
Policy and Practice Statement on signing up to the 2020 Code.)
Read Stewardship & Sustainability: the revised UK
Stewardship Code for more information
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beneficiaries leading to sustainable benefits for the economy,
the environment and society”
ii. extended scope – the 2020 Code now covers asset
owners (such as pension funds and insurance companies) and
service providers as well as asset managers
iii. annual reporting – asset managers will have to report
annually on their stewardship activities in the previous year and
what the outcome was, including how they engaged with the assets
they invested in
(Stewardship Report) iv. ESG factors (including
climate change) – environmental, social and governance factors
must be taken into account in all stewardship activities and
signatories must ensure their investment decisions are aligned with
the needs of their clients
v. stewardship across all asset classes – signatories are now
expected to explain how they exercised stewardship across all asset
classes (not just listed equity). Other asset classes include fixed
income, private equity and infrastructure and investments outside
the UK
vi. organisation’s purpose, investment beliefs,
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strategy and culture required – signatories are required to
explain what these are and how their governance, resourcing and
staff incentives help with them. This aligns the 2020 Code with the
UK Corporate Governance Code.
Corporate governance
FCA/FRC stewardship discussion paper
Feedback Statement (FS19/7) published in response to the FCA and
FRC discussion paper (DP19/1)
All All
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Corporate governance
Stakeholder engagement
21 February 2020, PLSA published its Stewardship Guide and
Voting Guidelines 2020
19 November 2019, Institutional Shareholder Services (ISS)
published its updated UK and Ireland Voting Guidelines for the 2020
proxy season, which apply to shareholder meetings on or after 01
February 2020
PIRC has also published its UK Shareowner Voting Guidelines 2020
which apply now.
All All
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Corporate governance
Corporate directors
Provisions on prohibition of corporate directors under Small
Business, Enterprise and Employment Act 2015
Provisions originally expected to come into effect in October
2016 - implementation delayed and timing unknown
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Corporate governance
Transparency
2 August 2019, UK Government published a research paper on the
review of the implementation of the PSC register. The research
paper explores the costs, benefits, and overall effectiveness of
the PSC register in promoting transparency. It was commissioned to
inform the government’s post-implementation review of the PSC
regulations
30 October 2019, UK Government published its report on
post-implementation review of the PSC regulations. The report
concludes that the PSC register is meeting its objectives and that
the costs to business have been proportionate and in line with the
original estimates. The register is widely used, has a positive
economic effect and contributes to the fight against criminal use
of companies
The report notes the importance of ensuring the reliability of
the PSC Register information. This is being considered and will be
addressed as part of the wider review of the corporate transparency
and register reform
The PSC Regulations will, therefore, remain in their current
form and the next statutory post-implementation review will be
carried out within the next 5 years
Response awaited to BEIS consultation on proposals to reform
company law to increase the accuracy and usefulness of information
available at Companies House
Most measures will need primary legislation and significant
changes to systems and processes at Companies House so will take
several years to deliver
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Corporate governance
Board diversity Investment Association has published its
Shareholder Priorities for 2020. The four areas of particular
importance for this year, as they are considered to be key drivers
to long term value, are responding to climate change, audit
quality, stakeholder engagement and employee voice and
diversity
On diversity it says that IVIS will red top any FTSE 350 company
where:
i. women represent 20% or less of the board;
ii. there is one or less women on the board (unless the one
third target is achieved ie a board of three directors); or
iii. women represent 20% or less of the Executive Committees and
their direct reports.
For FTSE Small Cap companies, IVIS will amber top any company
where women represent 25% or less of the Board; there is one or
less women on the Board (unless the one third target is achieved);
or women represent 25% or less of the Executive Committees and
their direct reports
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Corporate governance
Board diversity: Hampton Alexander annual Review.
21 February 2019, IA announce that IVIS will (i) ‘red top’ FTSE
350 companies that have no women or a single woman on their board;
and (ii) ‘amber top’ FTSE 350 companies not on course to meet
Hampton-Alexander review requirements by 2020.
15 March 2019, IA and Hampton- Alexander Review press release
announces that they have written to 69 FTSE 350 companies which
have no women on their board
Recommendations of Hampton-Alexander third report (November
2018) to be followed now
Recommendations are that FTSE 350 companies’ targets are:
33% of board positions to be held by women by end of 2020,
and;
33% of women on FTSE 350 executive committees and direct reports
to executive committees by 2020
FTSE 350 to increase number of women in role of chair, senior
independent director and executive positions on board by 2020
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asking them to outline the action they are taking to ensure they
meet the Hampton-Alexander targets by
2020
13 November 2019, the fourth report into progress with the
Hampton Alexander Review’s recommendations was published
8 February 2020, government announced that 33% of all FTSE
100 board members are now women, up from 12.5% less than a
decade ago and meaning that a key target of the Hampton
Alexander review has been met. But the announcement also
notes
that further work is needed for many FTSE 100 companies
individually, and for the FTSE 250 overall to meet the 33% target,
as it currently sits at 29.5%
FRC, in its response to this announcement, notes that, as part
of the strengthened UK Corporate
Governance Code,,FRC expects companies to clearly set out how
they plan to develop their diversity pipeline with much improved
reporting, including progress towards any measurable targets. It
states that its "recent review of early adopters reporting against
the
Code found far too many had limited reporting on diversity,
which included how they plan to tackle the lack of women in senior
leadership positions. Those companies that did report well had
clear plans to meet diversity targets
- beyond just gender - and understood the long-term value
diversity brings
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Corporate governance
Board diversity. Parker Review encourages FTSE 350 companies to
adopt the recommendations on a voluntary basis
5 February 2020, Parker Review Committee published an updated
report (Ethnic Diversity Enriching Business Leadership) which
includes detailed data both on the current profile of FTSE 350
boards and on ethnic diversity reporting.
The recommendations in the first report remain the key
targets
The report also includes 'Questions for Directors' and 'The
Directors’ Resource Toolkit' to assist boards
Recommendations are: FTSE 100 to have at least one director of
colour by 2021 and FTSE 250 by 2024
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Cross-border
Following its Consumer Financial 19 April 2020 – providers of
currency conversion In context of review of Payment Accounts
Financial All
payments - regulation
Services Action Plan, in March 2018, the European Commission
adopted a proposed Regulation amending the Cross-border Payments
Regulation to reduce charges for cross-border transactions in
Member States..
services at ATMs and point of sale to disclose information about
cost of transaction and offer customer choice of paying in the
payee's currency
Directive:
European Commission to analyse behavioural, legal, and
commercial obstacles preventing consumers from switching
providers
Institutions
Asset Managers
All
The Regulation was published in the OJ on 29 March 2019 and
applied from 15 December 2019
19 April 2021 – card issuers to send electronic messages to
payers informing them of currency conversion charges
19 April 2021 – payment service providers to inform payer about
cost of currency conversions in connection with online-initiated
credit transfers
19 April 2022 – European Commission to submit to the European
Parliament, the Council, the ECB and the European Economic and
Social
G
Committee a report on the application and impact of the
Regulation
In context of review of Cross-border Payments
Regulation: European Commission to consider: i. extending the
equal charge rule to all Union
currencies;
ii. improving transparency and comparability of currency
conversion charges; and
iii. disabling and enabling the option of accepting currency
conversion by parties other than the payer's payment service
provider
Cybersecurity
"Directive on Security of Network and Information Systems"
("NIS
UK Government guidance issued for DSPs indicates that in a “no
deal” Brexit scenario EU’s
All All
Directive") entered into force on 08 NIS Directive would
continue to apply post-Brexit August 2016
In the UK, the Directive has been implemented via the Network
and
(including the NIS Regulations in UK) and advises DSPs to
prepare for eventuality that they may be required to designate
representatives in EU Member States where they offer services
G
Information Systems Regulations 2018 (the “NIS Regulations”)
which
came into force on 10 May 2018
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NIS Regulations apply to critical organisations within
society
(Operators of Essential Services (“OESs”)) as well as online
marketplaces, online search engines and cloud computing services
(Digital Service Providers,
“DSPs”). The NIS Regulations are designed to ensure the
availability of systems and networks for such organisations
NIS Regulations describe OESs as providers of essential services
only in the following subsectors: electricity, oil, gas, air
transport, water transport, road transport, healthcare, drinking
water supply and distribution, and digital infrastructure.
Threshold requirements further limit the entities that are likely
to be in scope of the NIS Regulations to only the most significant
service providers in those sectors
Main points for UK organisations to consider are as follows:
(i) Overlap with the EU’s General
Data Protection Regulation – Notification requirements,
provisions on security and data protection responsibilities of
OESs and DSP’s.
(ii) Security provisions that a
DSP must have in place when interacting with any organisations
ranging from business continuity, audit provisions and incident
handling processes
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(iii) Incident notification
requirements for DSPs where interruption exceeds set thresholds.
All incident reports should be submitted to the relevant Competent
Authority within 72 hours
(iv) Under NIS Regulations penalties of up to £17 million could
be imposed for non-compliance relating to security and incident
reporting requirements
ICO (the designated relevant
Competent Authority for DSPs) has generally limited its approach
to post-incident oversight and attempted to ensure that there is no
“double jeopardy” in relation to acts that may also lead to a fine
under GDPR
ICO Guidance states that ICO does regulate OESs and DPSs, but
only in the context of data protection law where they are acting as
data controllers (under GDPR)
ICO has clarified that as the NIS and GDPR are separate laws it
is possible to be fined twice for regulatory action under both.
However, ICO states that any action it takes will be
proportionate and in line with sentiment of avoiding “double
jeopardy” where possible
Political Declaration on UK’s withdrawal from the EU (published
on 22 November 2018) provides for
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thematic co-operation with EU in areas of cyber-security, but is
subject to ratification by the UK
Parliament and any conclusion of a withdrawal agreement between
the
UK and the EU (a “deal” Brexit) Data protection -
EU General Data Protection UK and other EU businesses to seek to
follow Businesses should continue to assess and All All
GDPR Regulation (“GDPR”) came into force on 25 May 2018. On the
same day, the Data Protection Act 2018 (“DPA 2018”) also came into
force in the UK. DPA 2018 supplements the GDPR in the UK, adding
some exemptions to rights of data subjects, and additional lawful
bases for processing special categories of personal data
In November 2018, Information Commissioner’s Office (“ICO”)
issued guidance on encryption to provide further understanding of
its approach towards assessing interpretation of appropriate
technical and organisational measures to protect personal data that
is held by data processors or controllers. As well as summarising
different forms of encryption currently available, guidance
outlines possible risks, and details some recommendations for
storing and transmitting personal data
local data protection guidance (either via national implementing
laws or guidance issued by national data protection supervisory
authorities) in relation to implementation of GDPR within different
EU Member States
evaluate their data processing activities to ensure compliance
with the principles set out within the GDPR, in particular
including those that relate to the lawful processing of personal
data, data minimization and fair processing information
requirements
Businesses should also consider relevant enforcement action
taken under the GDPR by their “lead supervisory authority” or data
protection regulators within the EU that are relevant to their
business to ensure that they adequately assess the risk of
enforcement in relation to specific data processing activities
R
In December 2018, ICO published further guidance including:
(i) Updated guidance on some of the basic concepts forming the
foundations of the GDPR (e.g. transparency and implementing
“privacy by design”)
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(ii) How the DPA 2018 works (iii) Which regime within the DPA
2018 applies (i.e. the
provisions relating to all data controllers and/or processors or
those relating exclusively to law enforcement processing)
In January 2019, ICO published updated guidance on data
protection impact assessments
(“DPIAs”). Guidance sets out the circumstances in which a DPIA
is mandatory and confirmed that, when determining whether there is
a high risk in relation to processing, the controller should carry
out a
DPIA if it is in any doubt about level of risk. In March 2019,
ICO also updated its guidance on the “right to be informed” (i.e.
the right to receive certain “fair processing information” set out
under Articles
13 and 14 GDPR)
ICO also expanded its guidance on contracts, controllers and
processors and contracts and liabilities
Data protection -
In a “no deal” Brexit scenario, the The UK withdrew from the EU
on 31 January Businesses should continue to monitor Brexit All
All
Brexit UK Government has clarified that it will continue to
allow the free flow of personal data in “outbound” transfers from
the UK to the EEA
2020. There is now a transition period until 31 December 2020
while the UK and EU negotiate additional arrangements. During this
period EU law will continue to apply to and within the UK
developments up to the end of the transition period in order to
assess and manage any uncertainties contemplated by a “no deal”
Brexit scenario
(or any other country that has already received a European
Commission “adequacy” decision)
On Brexit, “inbound” personal data transfers from the EEA-UK
will trigger the GDPR’s requirement to provide “adequate
safeguards” when transferring personal data to
UK/EU businesses should continue to monitor developments of
negotiations on the UK’s withdrawal from the EU in relation to the
regulation of EU-UK personal data transfers following 31 December
2020, when UK will become a “third country” for purposes of
personal data transfers under GDPR
At present, there is no indication of any potential extension to
the transition period as a result of the current COVID-19
situation, but businesses are well-advised to continue to monitor
announcements from both the UK Government and the EU Commission on
this point
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a third country outside the EEA. In practice, these can be
secured by the entry into European
Commission approved standard contractual clauses
European Commission approved standard contractual clauses for
transfers by a processor to a controller do not currently exist. As
such, how transfers from an EEA processor to a UK controller can be
legally secured following a “no deal” Brexit is a key area of
ongoing uncertainty
Existing Binding Corporate Rules
(“BCRs”) authorised by the ICO will continue to be recognised in
UK domestic law, but the ICO will no longer have a role in the EU
BCR community. Once the UK leaves the European Union, the ICO will
continue to be able to authorise new BCRs under UK domestic law,
but UK entities may need to identify an alternative EU supervisory
authority to authorise the use of
BCRs within the EU
In a “deal” Brexit scenario, the UK will be treated as part of
the EU for data protection purposes until, at the earliest, 31
December 2020 (unless the transition period as agreed within the
withdrawal agreement is extended any further than currently
envisaged, given that the negotiation timetable has been extended).
The Political
Declaration (published 22 November 2018) issued as part of
the proposed negotiated withdrawal agreement between the
UK and the EU states that the
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parties are committed to ensuring a high level of personal data
protection to facilitate the flow of information between them. It
suggests:
i. UK will be establishing its own international transfer
regime;
ii. European Commission is due to start the adequacy assessment
as soon as possible after the UK’s withdrawal; and
iii. both parties will endeavour to complete these activities by
2020.
EDPB Guidance has been issued in February 2019 in relation to
the regulation of non-EEA data transfers in a “no deal” Brexit
scenario. Guidance notes that EU
Commission approved standard contractual clauses will remain a
valid method of transfer from EEA to the UK once UK becomes a
“third country” post-Brexit. Such clauses should not be
modified, and where any “tailored” standard contractual clauses are
used, these must be authorised by a competent national authority,
following an opinion of the EDPB. The guidance also reconfirms the
UK government’s approach in continuing to permit the free flow of
personal data from the UK to the
EEA post-Brexit Data protection The Online Harms White
Paper,
published in April 2019, sets out the UK government’s plans for
a world-leading package of online safety measures
Businesses should continue to monitor developments of this
consultation. The UK Government intends to publish the full
response to the consultation in spring 2020. In the meantime, it
intends to publish interim codes of
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practice over the coming months on tackling The White Paper
proposes online terrorist and child sexual exploitation and
establishing in law a new duty of abuse. These codes will be
voluntary and are care towards users, which will be intended to
bridge the gap until the new overseen by an independent
regulator. UK businesses will be held to account for tackling a
comprehensive set of online harms, ranging from illegal activity
and content to behaviours which are harmful but not necessarily
illegal
regulatory framework becomes operational
The White Paper aims to set clear expectations of businesses and
particularly, social media companies. The new regulatory framework
that the Paper describes will set clear standards to help
organisations ensure safety of users while protecting freedom of
expression, especially in context of harmful content or activity
that can be particularly damaging to children and other vulnerable
users. Businesses will be encouraged to develop and share new
technological solutions rather than complying with minimum
requirements
It proposes that the regulatory framework should apply to
businesses that allow users to share or discover user-generated
content or interact with each other online. This encompasses a wide
range of companies of all sizes.
Every organisation within the scope will be required to:
i. fulfil their duty of care; iv. comply with information
requests from the regulator;
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and iii. where appropriate establish
and maintain a complaints and appeals function which meets the
requirements set out by the regulator.
A consultation, which ran from 8
April 2019 to 1 July 2019, aimed to gather views on various
aspects of government’s plans for regulation and tackling online
harms, including:
i. the online services in scope of the regulatory framework;
ii. options for appointing an independent regulatory body to
implement, oversee and enforce the new regulatory framework;
iii. the enforcement powers of an independent regulatory
body;
iv. potential redress mechanisms for online users; and
v. measures to ensure regulation is targeted and proportionate
for industry.
In February 2020, the government published its initial response
to the public consultation on the Online
Harms White Paper.
Whilst there is still some uncertainty in terms of what
organisations will be subject to the new regulatory regime, the
government’s view is that only a small number of UK businesses will
be in scope.
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The Online Harms White Paper called for an independent regulator
to oversee and enforce the new regime. The UK Government has
confirmed that rather than creating a new body (as suggested by
some respondents to the consultation) it is minded to appoint Ofcom
as the new regulator and expand its existing remit. That said, the
response did not address the potential overlap between Ofcom and
the ICO. Current organisations may be investigated or fined by both
regulators for similar issues, particularly in light of the ICO’s
recent publication of the Age
Appropriate Design Code of Practice that sets out standards
organisations should adopt when offering online services that
children are likely to access
Data protection On 08 January 2020, the ICO launched a public
consultation on a draft direct marketing code of practice. The
consultation closed on 04 March 2020
The code applies to organisations processing personal data for
direct marketing purposes. This means any advertising or marketing
material that is directed to an individual, including the promotion
of aims and ideals. It covers all processing activities that lead
up to, enable or support direct marketing. However, it does not
cover solicited requests, blanket advertising or genuine service
messages
The ICO is currently analysing the feedback received from the
consultation, which will inform the final version of the code
Once finalised, the ICO must take the code into account when
assessing whether organisations carrying out direct marketing have
complied with their obligations under the GDPR and PECR
The content of the draft code may be changed, clarified or
expanded. Organisations processing data for direct marketing
purposes should review the draft code and monitor the ICO’s
progress, in preparation for the publication of the final
version
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The code provides practical
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guidance on how to carry out direct marketing fairly and
lawfully, and how organisations can meet accountability obligations
under the
GDPR.
While current ICO guidance in relation to direct marketing
primarily focuses on PECR, the code adopts a broader approach in
covering compliance with the
GDPR as well
Key points include:
i. Direct marketing purposes: the draft code applies to all
processing of personal data for
“direct marketing purposes”. This is not defined in the GDPR or
PECR, but the ICO
takes a wide interpretation of it in the draft code.
ii. Legal basis for processing: the draft code states that
generally consent or legitimate interest are likely to be the most
appropriate legal bases for processing personal data for direct
marketing purposes.
Where consent is used as a legal basis for processing, this must
meet the GDPR standard for consent. If consent is not required,
then legitimate interest may be appropriate.
However, the code stresses that this should not be viewed as an
“easy option”.
Data protection The UK Supreme Court has Although the case
indicates that for serious Based on the Supreme Court’s
interpretation of the All All recently handed down its decision
in the case of WM Morrison Supermarkets plc v Various
employee misconduct such as this, employers may not be held
vicariously liable for data breaches arising from the acts of that
employee
DPA 1998 in its ruling, it is likely that vicarious liability
can still not be expressly excluded under the DPA 2018, meaning
that clients should look to
G
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Claimants [2020] UKSC 12 which this judgment does not give
employers any relief consider whether they have sufficient vetting
has particular implications for the from their existing security
obligations under processes in place for employees handling
vicarious liability of employers in GDPR or the DPA 2018 personal
data and sufficient training programs to relation to the acts of
their ensure employees handle personal data securely employees
under data protection Employers must continue to the highest pursue
and appropriately at all times law possible compliance with such
obligations given that data security failings, whether exploiting
by Given that the increasing use of data-drive The case had been
referred on disgruntled employees or not, will nevertheless revenue
streams, employees are likely to appeal from previous decisions in
continue to attract direct liability for data increasingly use
personal data in the context of lower courts, including most
controllers under GDPR / the DPA 2018 their day-to-day roles.
Employers must therefore recently the Court of Appeal. The continue
to pay due regard to the processes and case involves actions taken
by a safeguards that they have in place to protect Morrisons
employee (an internal IT against misuse of personal data by
employees to auditor) involving payroll data lower the risk of
resulting claims under the GDPR / which resulted in a significant
data
breach involving such data. The relevant employee removed
payroll data through activities related to his role and posted the
data on the internet and to th