The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Ian Lucas): I beg to move,

It is a pleasure to serve under your chairmanship, Mr. Fraser, in my first statutory instrument Committee as a Parliamentary Under-Secretary of State, and I welcome all Committee members to their respective roles—some old, some new and some recycled. The key purpose of this instrument is to complete the implementation of the company directive 2006/46 on corporate governance statements published separately from the directors’ report by publicly traded companies. The regulations amend the Companies Act 2006 to make provision for the filing of separate corporate governance statements at Companies House. They will also implement the directive’s requirement for an auditor’s report on separate corporate governance statements.

The requirement for a corporate governance statement and its contents was implemented in rules made last year by the Financial Services Authority. As permitted by the directive, companies are given the option in those rules to prepare a separate corporate governance statement, rather than to include it in a specific section in the directors’ report.

Mr. Oliver Heald (North-East Hertfordshire) (Con): I congratulate the Minister on his elevation and on doing such a thorough job in outlining the provisions. However, does he share my concern that the only reason we are having to deal with them now is that back in 2008, when we should have dealt with them—along with all the other matters—the FSA had not yet made the rules? It appears to have dragged its feet. I would be grateful to hear whether the Minister thinks that we should criticise the FSA for not getting its act together. The directive started its life in 2002, when the original proposal was made, and the FSA must have known about it throughout that time. What was it doing?

Ian Lucas: I am not in a position to criticise the FSA at this juncture, because I do not know the reason for the delay. Perhaps I can address that matter in my closing remarks.

The regulations require the auditor to check that share capital and the information in a separate corporate governance statement, on internal control and risk management systems relating to the financial reporting process, are consistent with the audited financial statements. That is the same check that would be required if the information formed part of the directors’ report and it should not add to the costs of audit, because the test for consistency should not be onerous. Some companies’ audited financial statements might well not contain any information on internal control and risk management systems.

The regulations also contain some technical accounting amendments. As hon. Members will be aware, a version of the instrument was laid before Parliament earlier this year, and then withdrawn. That version contained an amendment to section 413 of the 2006 Act concerning disclosure of loans to directors of banking companies. The amendment would have corrected wording that is unclear in its intent and technically puts the UK in breach of the bank accounts directive. However, the amending regulation would have resulted in less information being available to company members and other account readers. We have, therefore, re-laid the regulations without that provision and shall consult further on the options for amending section 413.

If hon. Members so wish, I can give a brief description of each of the accounting amendments remaining in part 3 of the regulations, but for now, I commend the regulations to the Committee.

John Penrose (Weston-super-Mare) (Con): It is a pleasure to have you with us in the Chair this afternoon, Mr. Fraser. I congratulate the Minister on his new post. He is off to a flying start with a thoroughly technical statutory instrument, the details of which he has mastered with great aplomb, as he has just shown. I am sure that this will be the first of many great occasions.

The regulations are very technical and the measure is, from what I gather and following consultations with external bodies, almost entirely uncontroversial. Nobody has written to me to complain about it and, despite our best efforts, my research staff and I can find nothing to object to in it. Therefore, in the interests of both good governance and constructive opposition, we are in no mood to press the measure to a Division or to oppose it at all.

The important thing about the regulations is that they aid transparency and reliability. The Conservative party strongly adhere to those principles. It is obviously important that people who wish to know the status of any company’s organisation and to understand more about what is going on in that organisation have information that they know they can rely on and that has been proven to be sensible. The regulations are small but worthwhile steps in that direction and complete a process that has already been started by other regulations and Acts. We therefore think the measure is entirely sensible, reasonable and proportionate. We have no objections to it, and I will not further detain the Committee.

John Thurso (Caithness, Sutherland and Easter Ross) (LD): It is a pleasure to serve under your chairmanship, Mr. Fraser.

As has been said, this is a welcome and uncontroversial SI that puts into practice things with which most people are happy, but I have a three questions for the Minister. I say in parenthesis that having for part of my life been responsible for corporate governance as a senior independent on a plc, I have more faith in people’s character than in ticking boxes, so I do not hold my breath on the rules.

First, regulation 3 adds the requirement for unquoted companies to register with the registrar any statement of corporate governance that they make. Is there anything in the measure that obliges them to do so? If unquoted companies do not wish to make a statement of corporate governance, do they remain free not to do so? If such companies choose to engage best practice and therefore make such a statement when they do not have to, are they obliged to follow the rules precisely? In other words, do they either opt in or out entirely, or can they produce a modified form of the report? Secondly, will the Minister state the accounting impact of the fairly technical changes to realised losses?

Thirdly, will the Minister confirm that the transfer value of pensions, which will now have to be stated in the directors’ remuneration report, is not necessarily the actual value? In the case of Sir Fred Goodwin, for example, the transfer value would not have shown the value that he actually received, but merely the value he would have received had there been a transfer at the time.

Other than seeking answers to those questions, I am happy to support the regulations.

Ian Lucas: I am grateful to the hon. Gentleman for raising those points. They show the true complexity of the field into which I am now treading. I regret that at this particular juncture, I cannot give him direct responses to each of the items in turn but I will certainly—[Interruption.] I may be able to assist him in at least one regard. I was looking forward to writing to him with responses to those queries, but I am advised that unquoted companies with securities that are publicly traded need to file a corporate governance statement. If they are not publicly traded, they do not have to do so. I have been able to indicate the position in respect of that matter, but I will write to him in respect of the other issues.

John Thurso: Will the Minister clarify, for those who do not know, the difference between an unquoted company and a company that has publicly traded unquoted securities? I think that is to do with the difference between the off-exchange market—ofex—the alternative investment market and other things of that nature. It will be useful to have that clarification on the record.

Ian Lucas: I am sorry; I did not catch the second half of the question.

John Thurso: Will the Minister kindly specify precisely what the difference is between a quoted company and an unquoted company with securities that are publicly traded, as it is obviously an off-market trade and it may either relate to ofex or be completely off-market? It will be most useful to know that.

Ian Lucas: A quoted company is defined in the 2006 Act as one whose shares are included on the stock exchange’s official list, are officially listed in a European economic area state, or are admitted to dealing on either the New York stock exchange or NASDAQ. The current directive applies to companies with securities that are admitted to trading on a regulated market, and that is wider than simply quoted companies. I shall write to the hon. Gentleman on the specific details.

In response to the hon. Member for North-East Hertfordshire, the FSA implemented its rules within the deadline permitted by the regional directive. As it also implemented provisions of the audit directive and as it needed to consult, the FSA was not able to meet the April 2008 commencement date.

Mr. Heald: I think the date on which the rules came into force was in June, and the regulations were made in April. It seems a bit odd that it was not possible to get the two dovetailed. Perhaps the right and left hands did not know what each was doing.

Ian Lucas: It may be that there is a certain curiousness concerning the dates that the hon. Gentleman has mentioned, and I can make inquiries with the FSA on the matter.

I am grateful to hon. Members on both sides of the Committee for their contributions. I will learn a great deal about the detail that we have raised. The regulations make modest changes to the law which are needed to complete our exercise of the member state option under the EU directive, permitting publicly traded companies to prepare a separate corporate governance statement should they so wish. On that basis, I hope that hon. Members will support the regulations.