Twenty Fifth Report Contents

Instruments of interest

Draft Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019

1.These draft Regulations propose new obligations for companies in relation to their directors’ remuneration policy and remuneration report, as required by EU Directive 2017/828.1 The Department for Business, Energy and Industrial Strategy (BEIS) says that UK law, primarily through the Companies Act 2006, already provides a legal framework for executive pay which currently applies to all quoted companies, including traded companies. These Regulations propose two main changes to comply with the requirements of the Directive. First, they propose to extend the scope of the existing legal framework to unquoted traded companies. The Department expects the practical impact of this change to be limited as there are only around 15 UK unquoted traded companies, mainly specialist investment firms, which BEIS believes already comply with existing reporting requirements on executive pay. Second, the draft Regulations propose several new obligations, such as a requirement to show in the directors’ remuneration report the split between fixed and variable remuneration awarded to each director each year, and an obligation to compare the annual change in directors’ remuneration to the annual change in pay of the company’s employees and of the company’s performance (measured in terms of total shareholder return) over a five-year rolling period. BEIS says that these additional requirements will apply to some 600 UK registered quoted and traded companies. The Department explains that the Directive introduces further provisions which are to be implemented separately by the Financial Conduct Authority, HM Treasury and the Department of Work and Pensions, such as in relation to the disclosure by asset managers and institutional investors of how they engage with the companies in which they invest, new transparency requirements for companies that provide research services to investors and requirements to further facilitate the exercise of shareholder rights.

2.We asked BEIS about the transposition of the Directive in the context of the UK’s withdrawal from the EU. The Department told us that:

“the Directive will need to be transposed in the UK by the transposition deadline of 10 June 2019 in the event of there being by then either a withdrawal agreement that includes an implementation period during which common rules would continue to apply, or if the UK remains a Member State of the EU on that date. … In the event of a no deal, the UK would not be legally obliged to meet the transposition deadline, so the Government would need to consider whether it still wanted in any case to implement the new provisions, whether by 10 June or subsequently.”

Draft Higher Education (Monetary Penalties and Refusal to Renew an Access and Participation Plan) (England) Regulations 2019

3.This instrument makes provision under the Higher Education and Research Act 2017 in relation to the Office for Students’ (OfS) power to impose a monetary penalty on a registered Higher Education (HE) provider for a breach of its ongoing registration conditions (these include, for example, updating and publishing an access and participation statement on an annual basis).2 The Regulations set out the matters which the OfS must have regard to when imposing the monetary penalty. The amount of this penalty must not exceed the higher of either: 2% of the income that a provider receives through grant funding from the OfS and from tuition fees in a 12-month period; or £500,000. The OfS has discretion about whether to impose a monetary penalty and the level of that penalty (up to the maximum); the Regulations set out the factors that the OfS must consider when exercising that discretion. The Department for Education (DfE) conducted a public consultation between December 2017 and March 2018 on detailed proposals for the factors the OfS must take into account when considering the imposition of a monetary penalty and the maximum penalty that can be imposed.3 The Explanatory Memorandum (EM), paragraph 10.4, notes that:

“The consultation process identified some concerns that monetary penalties could take away provider income that would otherwise be used for the benefit of students. The majority of respondents did not support the Department’s proposals for the maximum penalty but respondents were broadly supportive of the proposed factors, especially the factor relating to impact on students. In response, the government adopted the lower of its options for a maximum penalty amount … ”.

The EM further notes that the Regulations have been framed to ensure, among other things, that the OfS takes the interests of students into account when setting a penalty. The instrument also makes provision in relation to the OfS’s power to refuse to renew an access and participation plan of a registered HE provider if that provider has failed to comply with the provisions of an existing plan or its fee limit condition. The Regulations set out the matters that the OfS must have regard to when refusing to renew an access and participation plan and the procedure to be followed when imposing that sanction. Appendix 1 contains points of clarification asked of the DfE.

REACH etc. (Amendment etc.) (EU Exit) (No. 2) Regulations 2019 (SI 2019/858)

4.The purpose of this instrument, laid by the Department for Environment, Food and Rural Affairs (Defra), is to amend the REACH etc. (Amendment etc.) (EU Exit) Regulations 2019 (“the REACH SI”) to extend certain transitional provisions relating to the import of chemicals after EU exit. The REACH SI replicates the current EU regime for the regulation and control of chemicals (“EU REACH”) in a UK domestic context. There has been considerable interest in the House in the Government’s plans for the regulation of chemicals in the UK after EU exit, and Sub-Committee B of the Secondary Legislation Scrutiny Committee reported on the REACH SI, expressing concerns about an insufficient explanation of the expected impact of the Regulations.4 Defra explains that this instrument, which Sub-Committee A considered when it was laid under the proposed negative procedure,5 addresses concerns that the UK chemicals industry has expressed since the REACH SI was approved and that were raised during debate. The REACH SI currently includes a provision to allow the continuity of supply of chemicals from the European Economic Area (EEA) after EU exit: during a two-year transition period, those importing chemicals from the EEA will need to submit to the Health and Safety Executive (HSE), as the relevant UK regulator, basic data on the company, substances and information on safe use within 180 days. This interim notification needs to be replaced with a full registration after the end of the two-year transition period, requiring importers to submit more comprehensive information to HSE. The current transitional provisions do not cover situations where a chemical was registered by an EEA-based only representative6 but is imported directly into the UK from outside the EEA: UK importers will need to register under UK REACH before importing the chemical. Furthermore, while the REACH SI enables an EEA manufacturer to appoint a UK-based only representative to register a chemical on their behalf, it does not allow the UK-based only representative to carry out the transitional notification for the same chemical. In response to these concerns, the instrument proposes to:

(1)extend the two-year transitional arrangements to imports of chemicals into the UK from outside the EEA, where there is an existing EU REACH registration for the substance held by an EEA-based only representative.

(2)allow UK-based only representatives to provide a transitional notification to HSE on behalf of the UK importer.

5.Defra explains that these changes bring all imports within the scope of the transitional provisions, thereby fulfilling the Government’s intention that all chemicals registered under EU REACH should be available on the UK market after exit.

European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) (No. 2) Regulations 2019 (SI 2019/859)

6.This instrument was laid following the European Council Decision,7 adopted by the European Council on 10 April 2019, to amend the date of the UK’s exit from the EU from 11pm on 12 April to 11pm on 31 October 2019. Due to the need to alter the definition before 12 April it was brought into immediate effect. These Regulations do not themselves extend the Article 50 process, rather they implement one of the provisions of the European Council Decision which the UK accepted by letter on 11 April 2019.

7.Article 2 of the European Council Decision provides that the extension to 31 October 2019 will cease to apply on 31 May 2019 in the event that the UK has not held elections to the European Parliament in accordance with applicable EU law and has not ratified the Withdrawal Agreement by 22 May 2019. A separate instrument, which has no parliamentary procedure, was laid on 8 April 2019 to appoint the polling day for the next European Parliamentary Elections as 23 May 2019.8

1 Directive (EU) 2017/828 on the encouragement of long-term shareholder engagement, amending Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies, collectively known as the Shareholders’ Rights Directive.

2 The OfS website contains information on ‘Initial and general ongoing conditions of registration’ at: [accessed 30 April 2019].

3 Explanatory Memorandum, paragraph 10.3, referencing Department for Transport, Office for Students: monetary and financial penalties (22 March 2018): [accessed 30 April 2019].

4 Secondary Legislation Scrutiny Committee (Sub-Committee B), 15th Report, Session 2017–19 (HL 281).

5 Secondary Legislation Scrutiny Committee (Sub-Committee A), 24th Report, Session 2017–19 (HL 341).

6 Companies based outside the EEA can appoint a European-based only representative to take on the responsibilities of importers for complying with EU REACH.

7 European Council Decision (EU 2019/584, OJ L 101, 11.04.2019, p 1).

8 European Parliamentary Elections (Appointed Day of Poll) Order 2019 (SI 2019/832).

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