Reform of UK corporate governance law proposes annual 'Resilience Statement'
- Published: Wednesday, 24 March 2021 08:58
The UK government has launched a consultation on reforms to the country’s audit and corporate governance regime. This includes the proposed introduction of a Resilience Statement that would require larger companies to report on business continuity, supply chain resilience, and digital security risks.
The consultation proposes measures to ‘unleash competition in the audit market’, through the ‘creation of a new audit profession overseen by a new regulator [the Audit, Reporting and Governance Authority (ARGA )], which will aim to drive up quality and standards in the market and increase choice for businesses, while breaking up the dominance of the so-called “Big Four” firms.’
Under the proposals directors of large companies would be required to publish an annual Resilience Statement that sets out how their organization is mitigating short and long-term risks. This aims to encourage directors ‘to focus on the long-term success of the company and consider key issues like the impact of climate change’.
The Government proposes that the Resilience Statement should be required initially of premium listed companies, in view of their existing experience of producing viability statements, and should extend to other public interest entities two years later. It would also include details of at least two 'reverse stress testing scenarios'.
Other contents of the Resilience Statement may be:
- Threats to liquidity, solvency and business continuity in response to a major disruptive event (such as a pandemic) which disrupts normal trading conditions;
- Supply chain resilience and any other areas of significant business dependency (e.g. on particular markets, products or services);
- Digital security risks (both including external cyber security threats, and the risk of major data breaches arising from internal lapses);
- The business investment needs of the company to remain productive and viable;
- The sustainability of the company’s dividend and wider distribution policy; and
- Climate change risk.