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Stay Ahead of Corporate Compliance: Navigating the Changes to Corporate Regulations
The Economic Crime and Corporate Transparency Act 2023 (ECCTA) follows on from the Economic Crime (Transparency and Enforcement) Act 2022 which introduced the Register of Overseas Entities in 2022. The legislation is a concerted effort to prevent the criminal exploitation of the UK’s economy through corporate structures and improve the reliability of data held by Companies House.
Key Changes Introduced By ECCTA:
The first series of measures are to come into force on 4 March 2024, which will impact Companies and Limited Liability Partnerships (LLPs).
There will be new stringent regulations relating to registered office addresses – all companies and LLPs will be required to maintain an “appropriate” physical address. An address is considered appropriate if correspondence delivered at that address would be expected to be received by a representative of the company which can be verified by the representative’s acknowledgment of delivery. This means that PO Boxes will no longer be permitted.
Any non-compliant addresses will be changed to the Companies House default address. Failure to provide a suitable alternative address within the specified period may result in the company being struck off. If you consider your address may fall short of the new requirements, you should act now to rectify this.
Additionally, companies will be required to provide a registered email address, to enable the Registrar of Companies to communicate with the company via email for updates, notices, and reminders. The email address will not be published on the public register. New companies will be required to provide a registered email address at the time of incorporation, for new companies incorporated from 4 March 2024. Existing companies will be required to provide a registered email address with their annual confirmation statement for all confirmation statements submitted as of 5 March 2024.
Other important changes to be introduced include granting Companies House power to:
- impose fines up to £10,000 for non-compliance with the Companies House 2006 regulations, as an alternative to pursuing such non-compliance via the courts;
- evaluate the quality of data produced to the Registrar or contained on its register. Information can be cross-referenced against external sources for discrepancies and inconsistencies, in which case the Registrar may:
- reject or remove the data;
- require the production of supporting evidence to validate the accuracy of the data;
- annotate the public register to alert users where the information appears unclear or deceptive; or
- strike the company’s name off the register;
- scrutinise company names that have the potential to deceive the public or which do not otherwise meet the incorporation requirements and if appropriate to require such companies to alter their names, failing which the company may incur a fine or be struck off;
- require companies to deliver a statement that the company is established/operated for lawful purposes, and thereafter to annually declare that the company’s future activities will also be lawful. New companies will be required to provide this statement on incorporation, and existing companies will be required to provide the statement with their annual confirmation statement;
- share data with other government departments and law enforcement agencies;
- expand the types of information/documents that can be withheld from public view on the register.
How We Can Help At Quastels:
With these important changes on the horizon, it is crucial to take action promptly to ensure your company or LLP adheres to the new regulations and avoids the consequences of non-compliance, which could undermine your company’s integrity.
The Corporate Team at Quastels has specialised legal expertise to assist you in navigating and implementing the requisite measures for your business.
To discuss any of the points raised in this article, please contact our corporate team by filling out the form below.
Are You Ready For EU’s Corporate Sustainability Reporting Directive?
Formally adopted by the European Council in late November 2022, the EU’s Corporate Sustainability Reporting Directive (CSRD), will make almost 50,000 companies, including SMEs, subject to mandatory sustainability reporting.
As well as applying to EU-companies the Directive will also capture non-EU companies which have subsidiaries operating within the EU or which are listed on EU regulated markets. Affected companies will have 12 European Sustainability Reporting Standards (ESRSs) to apply, and these ESRS apply regardless of the sector in which you operate.
Affected entities must also disclose on Environment, Social, and Governance (ESG). There are over 120 metrics and targets. In addition, CSRD reporting will require far more rigour and detail, as well as compliance with mandatory limited assurance ESG reporting requirements.
What Is The Background To The Reporting Changes?
According to the Explanatory Memorandum, the European Commission saw a significant gap between what organisations are required to report on under the existing Non-Financial Reporting Directive (NFRD), and what the users of that information needed to know. For example, the reporting framework under NFRD does not guarantee that the data provided by companies is reliable, comparable, and relevant. Also, the reporting framework under NFRD lacks accuracy and companies often struggle to identify the information they need to provide.
The Explanatory Memorandum concluded:
“The primary users of sustainability information disclosed in companies’ annual reports are investors and non-governmental organisations, social partners, and other stakeholders. Investors, including asset managers, want to better understand the risks of, and opportunities afforded by, sustainability issues for their investments, as well as the impacts of those investments on people and the environment. Non-governmental organisations, social partners and other stakeholders want to hold undertakings to greater account for their impacts of their activities on people and the environment.
The current legal framework does not ensure that the information needs of these users are met. This is because some companies from which users want sustainability information do not report such information, while many that do report sustainability information do not report all the information that is relevant for users. When information is reported, it is often neither sufficiently reliable, nor sufficiently comparable, between companies. The information is often difficult for users to find and is rarely available in a machine-readable digital format. Information on intangibles, including internally generated intangibles, is under-reported, even though these intangibles represent the majority of private sector investment in advanced economies (e.g., human capital, brand, and intellectual property and intangibles related to research and development).”
When Does CSRD Reporting Apply?
The CSRD revises, expands, and strengthens the sustainability reporting requirements of the NFRD. It will be effective from 1 January 2024 for those entities already subject to the NFRD) (reporting in 2025) and from 1 January 2025 for all companies newly caught within its scope (reporting in 2026).
What Companies Will Be Subject To CRSD Reporting?
The following entities will need to comply with CRSD reporting requirements:
- All large companies based in the EU that exceed two of the following criteria; a) 250 or more employees, or b) €40 million in turnover, or c) €20 million in assets.
- All companies listed on EU regulated markets. This includes companies not established in the EU but are listed on EU regulated markets generating a net turnover of €150 million and which have at least one subsidiary or branch in the EU.
- From the 2026 financial year, all SMEs listed on EU regulated markets.
In relation to non-EU companies, in order to be within the scope of the CRSD, the global corporate group of a non-EU business must have generated a net turnover within the EU of €150 million for two consecutive financial years, and also either:
- have an EU subsidiary that meets the thresholds under Article 19a of the CSRD (e.g., is a large undertaking or public interest entity); or
- have a branch in the EU that generated €40 million net turnover in the preceding financial year.
The standards applied to SMEs will be less onerous than those applied to large companies. The Commission states:
“The Commission will adopt standards for large companies and separate, proportionate standards for SMEs. The SME standards will be tailored to the capacities and resources of such companies. While SMEs listed on regulated markets would be required to use these proportionate standards, non-listed SMEs – which are the vast majority of SMEs – may choose to use them on a voluntary basis.”
What Are Affected Companies’ Obligations Under The CRSD?
If your business falls under the new CRSD reporting standards, you will need to report on the following:
- Environmental protection
- Social responsibility and treatment of employees
- Respect for human rights
- Anti-corruption and bribery
- Diversity on company boards (in terms of age, gender, educational and professional background
The above requisites are currently mandatory under the NFRD. The below requirements cover the additional reporting under the CRSD.
- Your company’s strategy towards sustainable risks.
- Referring to investment and financial strategies:
- how your company plans to move its business model and overall strategy to ensure compatibility with the transition to a sustainable economy and limiting of global warming to 1.5°C, or
- a description of the time-bound sustainability targets the company has set for itself.
- Information relating to intangibles (social, human, and intellectual capital)
Conclusion
Reporting must be in line with the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation.
When drafting reports, it is helpful to keep in mind the European Commission’s objective which is to ‘nudge’ organisations to direct capital towards sustainable investments to achieve viable and inclusive growth.
To discuss any of the points raised in this article, please contact Ann-Maree Blake or fill in the form below.
Beaut-AI | How Regulations Will Impact the Beauty Industry
In the-post-Covid world, retailers have been working hard to improve the customer experience as the retail landscape continues to move from in-store to online. From fitness to footwear, couture to cosmetics, data analytics and artificial intelligence are the new ingredients accelerating product development and providing consumers with personalised products and services.
According to McKinsey, in 2022 the beauty market generated approximately $430 billion in revenue and is expected to reach approximately $580 billion by 2027. Amongst the factors driving this growth is the increased digital sophistication of both brands and retailers.
Customer Feedback Analysis
Mintel’s 2024 Global Beauty and Personal Care Trends reports that “AI will permeate the beauty industry in the form of personalised recommendations, virtual try-on experiences and data-driven insights.”
The report goes on to say that “By analysing social media trends, customer feedback and market research, AI will help brands identify emerging beauty preferences and eco-friendly options.
Brands Positioning In AI
In the last few years brands and retailers have been deploying an increasingly sophisticated range of tools and analytics to enhance the consumer experience. For example, the Taiwanese company Perfect Corp has an extensive range of augmented reality enabled tools.
These include virtual make up, hair colour and nail effects, as well as photograph enhancements like virtual tattoos and personalised avatars. No7 used Perfect Corp’s artificial intelligence and augmented reality technology, for its cosmetic shade matching experience and Yves Saint Laurent, L’Oréal Paris, MAC Cosmetics, and Macy’s have all used Perfect Corp technologies to offer customers virtual try-ons of clothes and cosmetic products.
In 2018, L’Oreal acquired ModiFace and used its technologies for an AI makeup app with augmented reality in cooperation with Facebook. With Modiface technology customers use a smartphone camera ‘try on’ products virtually and then move to the product page to make a purchase.
In 2019, Coty released Wella Professionals AR enabled smart mirror for hair salons. Combining AR, facial recognition and 360° video capture that works in salon and on smartphones, Wella customers can retrieve past hair styles and view their hair at every angle in their smart mirror, creating a highly personalised customer experience.
DeepAR‘s augmented reality and emotional detection tools are being used by customers for virtual try-ons of Ray-bans sunglasses and Allbirds footwear, virtual make up by Lush and Sephora as well as augmented reality advertising. It teamed up recently with Sky to integrate AR to the Sky Glass TV using body-tracking software to deliver an AR experience for casual games, and fitness applications at room-scale.
Risks Of AI Implementation
Whilst Beaut-AI offers many benefits for brands and consumers, the collection, storage and processing of personal data, and in particular biometric data from facial recognition software is already subject to Data Privacy laws and regulations.
Companies looking to use technology in this area must guard against data breaches and misuse, ensuring that their policies include adequate customer consents to the collection and use of personal data, and in particular special category data such as biometric information. Beaut-AI will soon be subject to more rigorous and extensive regulations and policies in the EU and UK.
In the EU the use of artificial intelligence will be regulated by the AI Act, the world’s first comprehensive AI law. The new rules will establish obligations for providers and users depending on the level of risk from artificial intelligence. These will range from unacceptable risk AI systems (which are systems considered a threat to people), through to high and limited risk systems.
Unacceptable risk AI systems, such as cognitive behavioural manipulation of people or specific vulnerable groups, or social scoring people based on behaviour, socio-economic status or personal characteristics will be banned. High risk systems will have to comply with EU product legislation and certain categories of products will have to be registered on an EU database.
Limited risk AI systems will have to comply with transparency requirements that allow users to make informed decisions.
At present the UK does not intend to introduce new legislation. In the White Paper published in March 2023 the Government set out five principles underpinning its AI regulatory approach:
- Safety, security, and robustness
- Appropriate transparency and explainability
- Fairness
- Accountability and governance
- Contestability and redress.
Conclusion
As Mintel predicts “Transparency in AI systems will be crucial to building consumer trust and ensuring the disclosure of data sources and decision-making processes. Consumers will prioritise data protection and privacy by demanding customer consent and pushing brands to adhere to relevant regulations.”
Companies using AI-powered software solutions should pay close attention to the new regulatory landscape since the risk of damage to brand and reputation are moving to a whole new level.
To discuss any of the points raised in this article, please contact Marcus Rebuck or fill in the form below.