Ashurst Perkins Coie Governance & Compliance Update – Issue 85

Modern Slavery

1. Significant changes to the Modern Slavery Act put before Parliament

The Modern Slavery Act 2015 (MSA) was once widely regarded as a pioneering piece of legislation, placing the UK at the forefront of global efforts to combat forced labour and human trafficking. By way of reminder, section 54 of the MSA requires commercial organisations carrying on business in the UK with annual turnover of £36 million or more to publish an annual slavery and human trafficking statement (Modern Slavery Statement) describing the steps taken to address modern slavery in their business and supply chains, or stating that no such steps were taken. The content of the statement is largely voluntary, and there is wide variation between the approach taken by businesses, with no legal consequence for vague or inadequate disclosures.

Since 2015, however, global expectations and regulations have changed. The MSA has attracted sustained criticism for the absence of sanctions for companies who do not comply with reporting requirements, and the poor quality of many published Modern Slavery Statements. In October 2024, the House of Lords Modern Slavery Act 2015 Committee recommended progressing towards standards of international best practice on supply chain due diligence and on 30 June 2026 the UK Government introduced proposed amendments to section 54 MSA within the Immigration and Asylum Bill, currently before the House of Commons. Wider legislative reform is expected later this parliamentary term.

This has coincided with the extension of corporate liability for all UK criminal offences - including modern slavery offences - to the actions of 'senior managers', a change brought in by section 250 of the Crime and Policing Act 2026, on 29 June 2026.

This article examines the practical implications of these changes for companies carrying on a business in the UK.

Equity Capital Markets

2. Revised AIM Rules for Companies in force

The London Stock Exchange has published its updated AIM Rules for Companies - the biggest overhaul in two decades - following the consultation launched in June 2026 (see AGC Update, Issue 83 – Item 5). The consultation response, summarised in AIM Notice 64, was overwhelmingly supportive and the Exchange is implementing all proposed changes - with minor amendments. A marked-up version of the updated AIM Rules is attached to the AIM Notice, with any further revisions made to the AIM Rules following the draft published in June highlighted.

Key changes include the following:

• A more proportionate framework for large M&A transactions

An acquisition by an AIM company will only be classified as a reverse takeover where it results in a fundamental change in its business, board or voting control. Consistent with a more proportionate approach, the Exchange has not proposed a mandatory shareholder approval requirement solely by reference to a transaction exceeding 100% in any of the class tests. Instead, where a substantial transaction exceeds 100% in any of the class tests but does not constitute a fundamental change of business, and the company is not proposing to seek shareholder approval, the AIM company should consult the Exchange via its Nominated adviser. In such instances, the position will be considered on a case-by-case basis following discussion with the Nomad relating to the nature of the transaction.

The substantial transaction class test threshold has been increased from 10% to 25%, as per the Main Market approach.

• Voluntary Capital Access Window

Where an AIM company is seeking to undertake a fundraise or corporate transaction involving the issue of securities, it can voluntarily request a temporary trading suspension – a Capital Access Window – whilst it is conducting its negotiations to allow closer management of the fundraising process and facilitate broader investor engagement. The Exchange notes that, as is the case when an AIM company’s securities are suspended from trading in all other scenarios, its obligations under UK MAR and the AIM Rules continue to apply.

• Refreshed corporate governance approach

With a view to affording AIM companies sufficient flexibility to adopt governance arrangements proportionate to their size, stage of development and particular circumstances, the Exchange has shifted away from the 'comply or explain' model, focusing instead on disclosures investors have told it matter most. The key areas for disclosure in relation to a company's approach to corporate governance are board composition, directors’ roles and responsibilities, remuneration and performance, risk and controls frameworks, and approach to investor relations.

• Supporting founder-led and innovative companies

Non-standard director remuneration arrangements no longer require a 'fair and reasonable' opinion from a Nomad where it is satisfied that the contractual terms for director remuneration provide reasonable commercial protections for the AIM company (such as good leaver/bad leaver terms, provisions for clawback). Guidance on what constitutes standard remuneration is set out in the updated rules.

The issue of special voting shares is permitted on admission, subject to constitutional limitations. The Exchange has elected not to prescribe a fixed time limit or sunset provision in respect of special voting shares, on the basis that investors can be expected to evaluate such terms as part of their investment decision.

• AIM Rule 11 and recognition of the Nomad's role

AIM Rule 11 - which formerly governed the disclosure of price sensitive information - is no longer framed as a disclosure rule, with UK MAR providing the general ongoing disclosure obligation for AIM companies. New AIM Rule 11 is intended to ensure that an AIM company maintains appropriate ongoing engagement with its Nomad in relation to changes or developments in its business, enabling the Nomad to bring its specialist public market corporate finance expertise to bear.

• Buyer beware model

The buyer beware principle is expressly stated in the Introduction to the AIM Rules, reinforced by a requirement for a statement on the first page of every AIM admission document confirming that AIM operates on a buyer beware basis.

• Lower barriers to admission

The requirement for a working capital statement in an AIM admission document has been removed in favour of targeted disclosure on capital resources, material financial commitments, obligations and liabilities, use of proceeds of any fundraising and the directors’ reasonable opinion of future fundraising needs for the next 12 months.

Incorporation by reference into admission documents is permitted. Rather than prescribing an exhaustive list of information that can be incorporated by reference, the Exchange has opted for a flexible approach, allowing for a reasonable assessment to be made by an AIM company, with the support of its nomad, as to whether incorporation by reference is appropriate.

UK incorporated companies are able to use UK GAAP instead of IFRS.

• A fast-track process for international companies joining AIM from other markets

The AIM Designated Market route has been replaced with a new Express Market route, designed to enable companies from a broader jurisdictional base to join AIM. The Exchange notes that the proposed Express Market admission route, as originally consulted on, does not align with the FCA rules made under the Public Offers and Admission to Trading Regulations regime, principally because IOSCO jurisdiction recognition is not tied to the FCA's definition of 'specified markets' in the FCA Handbook Glossary. Where the Express Market is included within the FCA’s definition of 'specified markets' and the applicant is seeking to admit to trading securities of the same class that are already admitted to trading on such an Express Market, an AIM admission document is not required. A simplified AIM admission document is required where this is not the case.

Next steps

The revised AIM Rules, in addition to the updated AIM Rules for Nominated Advisers and AIM Handbook, are now in effect and are available on the Exchange’s website.

3. Dematerialisation Implementation Plan: countdown to the end of paper share certificates

Alongside the Chancellor's annual Mansion House speech in July 2026, the Dematerialisation Market Action Taskforce (DEMAT) has published its Implementation Plan for removing paper share certificates from the UK shareholding framework. This delivers on a key objective set out in DEMAT's Terms of Reference published in October 2025 (see AGC Update, Issue 72 – Item 8).

The Implementation Plan marks the first stage in a phased programme to digitise share ownership in the UK. It sets out the legislative, operational and practical changes needed to give effect to the digital register model and withdraw paper certificates as evidence of title.

• Government response to DEMAT

The Government has welcomed the Implementation Plan and accepted all of its recommendations. The Government will legislate to require all publicly traded UK companies to keep digital share registers and to provide that paper shares in those companies will no longer be evidence of ownership. This legislation is expected to come into force before the end of 2027, with the specific date to be confirmed in due course.

• A three-step roadmap

The UK's move away from paper share certificates is being delivered in three stages:

Step 1 - Replacing existing paper share certificates with digital share registration. The digital register model is intended to cover shares of any UK-incorporated company admitted to trading on a UK regulated market (such as the Main Market) or SME Growth Market (such as AIM), in line with the approach recommended by the Digitisation Taskforce last year.

Step 2 - Improving the intermediated system (through which most shares are already held via nominees and brokers), so that ultimate beneficial owners can receive issuer communications and exercise their rights effectively and efficiently through those intermediaries.

Step 3 - Migrating digital register holdings onto the improved intermediated model, completing the transition to a fully digital, intermediated model of share ownership.

The key measures to be implemented under Step 1 include:

• Withdrawal of paper share certificates.
• Modernisation of share transfer requirements to permit share transfers and related processes to be carried out digitally.
• Development of operational standards for digital registers.
• Considering issues relating to security arrangements over shares (for example, as collateral for a loan). DEMAT intends to run a further sounding exercise with the lending community.
• Addressing how to prevent shareholders from accepting more than one competing takeover offer for the same shares in the absence of paper certificates - an area to be addressed by the UK Takeover Panel. 
• Considering how transfers of shares held on a digital register are processed from a stamp duty and SDRT perspective (noting that, ideally, the digital register model would be introduced at the same time as the planned replacement of stamp duty and SDRT with a single tax on transfers of in-scope securities (see Item 6 below)).
• Issuer and registrar preparatory actions, including the development by a GC100-convened industry working group of model provisions for articles of association which may be adopted by issuers following Step 1.
• Delivering a public awareness campaign to explain the Step 1 reforms to shareholders and other market participants - expected to run from the second half of 2026.

• Implementation timetable

Step 1 measures are expected to take effect in late 2027. The exact date remains to be confirmed following further engagement with market participants on the most appropriate weekend for the system changes involved. From that date, paper share certificates will no longer constitute evidence of ownership and in-scope shares will be held and transferred through digital registers alongside holdings on the Central Securities Depository.

Step 1 is described as a 'pit-stop' on the road to full implementation of the intermediated model, rather than an end state in itself. Full transition to the intermediated model under Step 3 is expected to begin by the end of this Parliament, with DEMAT's second report - addressing both Steps 2 and 3 - due in summer 2027.

• What companies need to do now

Whilst no specific steps are required immediately for in-scope companies, the overall DEMAT timetable should be tracked, particularly: (i) the Step 1 awareness campaign, (ii) the draft statutory instrument through which the Step 1 measures will be implemented primarily, as recommended by the Digitisation Taskforce, and (iii) DEMAT's follow-up report on Steps 2 and 3.

Note that the GC100 has recently published a poll, part of which looks at the preparations being made by companies for dematerialisation. See Item 7 below for more detail.

4. FCA publishes changes to PRM regime

The Financial Conduct Authority has published Handbook Notice 143 setting out amendments to the FCA Handbook and other material made by the FCA Board in June and July. Among other changes, amendments have been made to the FCA's Prospectus Rules: Admission to Trading on a Regulated Market sourcebook (PRM) to give proper effect to aspects of the Public Offers and Admissions to Trading (POAT) regime which came into force on 19 January 2026. These are technical corrections rather than policy shifts.

The amendments, consulted on in CP 26/8: Quarterly Consultation Paper No. 51 (see our update AGC Update, Issue 80 – Item 4), came into effect on 31 July via the Prospectus Rules: Admission to Trading on a Regulated Market (Clarificatory Amendments) Instrument 2026.

The key PRM changes for existing issuers are:

• Exemption for transferable securities allotted to directors or employees - The FCA has amended PRM 1.4.12R to clarify that the exemption from the prospectus requirement for securities offered or allotted to existing or former directors or employees is not available where the purpose of the offer or allotment is the subsequent transfer of the securities to a third party as part of an arrangement to raise funds from or satisfy an obligation with a third party for the benefit of the issuer. As previously highlighted by the FCA, the policy rationale of the exemption is to facilitate long‑term incentive schemes or employee share schemes, which incentivise directors and employees to hold securities of their own company. Routine post-vesting deductions or sales to cover tax and social security liabilities remain unaffected. The drafting of the final rule also ensures that securities offered or allotted to existing or former directors or employees of entities within the issuer’s group are within scope of the exemption.

• Accompanying statement for PFLS - An amendment to PRM 8.2.3R clarifies that the content-specific accompanying statement for protected forward-looking statements (PFLS) need not be repeated each time the corresponding PFLS appears in a prospectus, provided that it appears immediately adjacent to at least one instance of the PFLS, with a cross-reference to the statement sufficing in other instances of the same PFLS disclosure.
  
  By way of reminder, the PFLS regime was introduced under the POAT framework and uses a higher, recklessness liability standard for certain types of forward-looking information, such as profit forecasts. As originally drafted, PRM 8.2.3R required the content‑specific accompanying statement - a disclaimer-like statement - to appear immediately adjacent to the PFLS to which it relates. Market feedback indicated that this could impair readability where, for example, the same PFLS disclosure is repeated throughout a prospectus, as the accompanying statement would need to appear every time, disrupting the flow of the document. The amendment gives issuers greater flexibility in presenting PFLS disclosures, while preserving readers' ability to identify the accompanying statement for a particular PFLS.

• Prospectus submissions and approval requirements - Under PRM 9.4.3R, issuers must now provide a cross-reference list identifying where PRM 8 (PFLS) required statements appear in the prospectus. The requirement to include cross-reference lists in the 'no change' confirmation letter under PRM 9.2.16R has been removed.

5. One Year On: Delivering the Financial Services Growth and Competitiveness Strategy

To coincide with Mansion House Speech 2026, HM Treasury published its first annual progress report on the Financial Services Growth and Competitiveness Strategy - the ten-year plan launched in July 2025 to make the UK the world's centre of choice for financial services investment by 2035. The report tracks delivery against the Strategy's five pillars, those being: a competitive regulatory environment, global leadership, innovation and FinTech, retail investment and capital markets, and skills and talent.

Highlights in the inaugural report include, amongst other things:

• The introduction of the Financial Services and Markets Bill which seeks to streamline the regulatory framework, reduce duplication and make regulation more proportionate.
• Deepened international partnerships and the launch of the Office for Investment: Financial Services to attract international investment to all parts of the UK.
• The introduction of a new regulatory framework for cryptoassets and accelerated work to digitalise wholesale markets.
• The delivery of ambitious reforms to pensions, retail investment and capital markets to make listing and fundraising in the UK easier.

The Government has committed to continue annual reporting as it works toward its 2035 ambition.

6. New Securities Transfer Tax Moves a Step Closer

The Government has published draft legislation introducing a new securities transfer tax (STT) to replace stamp duty and SDRT; an associated policy paper has also been published. The STT is a digitally self-assessed tax administered via a new HMRC online portal.

Key features include:

• Scope - The tax covers shares and 'equity-like debt interests' in a UK-incorporated company. Unlike the current regime where transfers of partnership interests holding chargeable securities can attract stamp duty, transfers of partnership interests will generally fall outside the STT, subject to an anti-abuse rule.

• Rate - The general STT rate is expected to remain at 0.5% of consideration, matching the current 0.5% rate applicable under both stamp duty and SDRT. The existing higher 1.5% charge on certain transfers into depositary receipt systems or unelected clearance services is being carried into the STT framework - the related consultation has now closed and the draft legislation sets this out as a distinct 'higher-rate charge' alongside the main 0.5% charge.

• De minimis exemption - The current £1,000 de minimis exemption under stamp duty will be removed, meaning a greater number of smaller transactions will fall within scope.

• Reliefs - Group relief, reconstruction and acquisition relief, intermediary relief and the growth market exemption (for example, for AIM-only traded shares) are all expected to continue under the STT. UK listing relief will also be carried into the STT framework, exempting agreements to transfer a newly UK-listed company's securities from the 0.5% charge for three years post-listing (excluding the 1.5% higher-rate charge and change-of-control transfers).

• Timing - Legislation implementing the STT is due to be introduced via the Finance Bill 2026-27, with the Government targeting commencement of the new tax, its legislative framework and the associated digital portal in 2027. A further update on the precise commencement date is expected in Autumn 2026.

Corporate Governance

7. GC100 publishes poll on dormant assets and preparing for dematerialisation

Practical Law, on behalf of the GC100, has published the results of a poll carried out among GC100 members relating to the Government's dormant asset scheme and the steps that companies are taking in preparation for dematerialisation (see Item 2 above).

The poll was carried out during June 2026 and focussed on the following areas:

• Participation by listed companies in the Government's dormant assets scheme.
• Forfeiture provisions in articles of association.
• Electronic communications and electronic payments to shareholders.
• Certificated and untraceable shareholders.
• Steps being taken by listed companies to prepare for dematerialisation and digitisation.

The report is available to Practical Law subscribers only.

Narrative and Financial Reporting and AGMs in 2026

8. FRC publishes insights on materiality in corporate reporting

The Financial Reporting Council has published insights on materiality in corporate reporting which are intended to help preparers, investors and other primary users of UK annual reports understand how materiality applies to corporate reporting. The publication includes frequently asked questions and an illustrative process intended to help entities develop their own process for applying materiality when preparing annual reports.

Among other issues, the FAQs address:

• Why materiality matters.
• How materiality is defined for UK annual reports.
• Whether materiality applies throughout the annual report.
• The target audience for an annual report.
• What determines whether information is material.
• How materiality judgements apply to disclosures about climate-related and other uncertainties.
• How quantitative and qualitative factors affect materiality.
• How audit materiality differs from reporting materiality.

9. Practical Law publishes review of mid-year review of 2026 AGMs

Practical Law has published a mid-year review of annual reporting and AGMs in 2026. It is based on a review of 191 FTSE 350 companies (80 FTSE 100 and 111 FTSE 250) in the 2026 reporting season which published their notice of AGM on or before 31 May 2026 and held, or will hold, their AGM in 2026.

The article references several notable corporate governance and narrative reporting trends identified within the data. These include the different formats in which companies are holding their 2026 AGMs, how companies are performing against UK Listing Rule targets for gender and ethnic diversity on boards, the methods companies are using to engage with their workforce, and the extent to which companies report compliance with the UK Corporate Governance Code.

The article also references disclosures on sustainability reporting, whether climate change, cyber security or AI are identified as principal risks, and the types of committees that companies have at board and executive level.

The review is available to Practical Law subscribers only.

Directors' duties

10. Anticipated harm can be the subject of a derivative claim

The High Court held in the case of De Menezes v Alves [2026] EWHC 1906 (Ch) that the threat of future harm to a company permitted the continuation of a derivative claim under the Companies Act 2006 for an alleged breach of directors' duties under section 172 (duty to promote the success of the company) and section 175 (duty to avoid conflicts of interest). In doing so, the Court rejected the argument that a derivative claim required the company already to have suffered identifiable loss, not least because section 260(3) of the 2006 Act expressly permits derivative claims arising from an actual or proposed act or omission involving breach of duty. Section 263(2)(b) similarly contemplates causes of action arising from acts yet to occur.

Sustainability

11. EU adopts simplified ESRS and sustainability reporting standard for voluntary use

The European Commission has adopted two delegated regulations, which are now subject to European Parliament and Council scrutiny.

• The first delegated regulation and accompanying annexes revise Delegated Regulation (EU) 2023/2772, which introduced the European Sustainability Reporting Standards (ESRS), to provide revised ESRS for undertakings that remain within scope of mandatory sustainability reporting after Omnibus I.
• The second establishes a voluntary sustainability reporting standard and accompanying annexes for undertakings outside the Corporate Sustainability Reporting Directive (CSRD) regime, particularly those protected by the value chain cap.

The revised ESRS are intended to reduce the reporting burden for the largest undertakings that remain within scope, while preserving relevant disclosures on material sustainability impacts, risks and opportunities. The Voluntary Standard addresses the “trickle-down” effect of sustainability information requests on smaller suppliers, customers and business partners that are not themselves subject to mandatory CSRD reporting.

According to the European Commission, the revised ESRS cut mandatory datapoints by over 60% and total datapoints by more than 70% with expected reporting cost reductions of more than 30% per company.

Once in force following EU Parliament and Council scrutiny, the revised ESRS will apply to financial years beginning on or after 1 January 2027.

The Voluntary Standard will enter into force on the third day after publication of the regulation in the EU Official Journal, while the value chain cap applies from financial years beginning on or after 1 January 2027.

For more information, including on the next steps that in-scope companies should take, see EU adopts simplified ESRS and sustainability reporting standard for voluntary use.

12. EFRAG consults on proposed sustainability reporting standards for non-EU companies

The European Financial Reporting Advisory Group (EFRAG) has published a consultation on an exposure draft of the proposed ESRS to support reporting by non-EU companies that are required to publish a sustainability report under CSRD.

The Exposure Draft retains the same overall architecture as the revised ESRS for EU companies adopted by the EU Commission in July. It is also based on the same double-materiality-derived, impact-focused approach used in the ESRS, but adapted for non-EU reporting.

A key difference is that the Exposure Draft introduces a proposed “mixed approach” to reporting scope where, other than for climate-related impacts, an undertaking may in certain circumstances limit reported information to “EU-related impacts”, rather than reporting on a fully global basis.

The Exposure Draft will inform EFRAG's technical advice to the EU Commission on the development of ESRS for in-scope non-EU entities, which EFRAG is expected to deliver to the European Commission in January 2027. The Commission is expected to adopt a delegated act on the ESRS for non-EU entities in time for publication of their first sustainability reports, which are due in 2029, for financial years starting on 1 January 2028.

For more information, see EFRAG consults on proposed sustainability reporting standards for non-EU companies.

13. Key updates on Californian climate disclosure laws

The California Air Resources Board (CARB) has withdrawn the initial implementing regulations for both SB 253 (the Climate Corporate Data Accountability Act) and SB 261 (the Climate-Related Financial Risk Act), which had been approved in February 2026 but were pending final sign-off from the Office of Administrative Law. CARB published a revised set of regulations on 27 July 2026 and is accepting public comments until 11 August.

CARB has extended the Scope 1 and Scope 2 greenhouse gas emissions reporting deadline under SB 253 from 10 August 2026 to 10 November 2026, giving reporting entities additional time to comply following final adoption of the revised rules. CARB held a public workshop in March 2026 on its proposed rules for SB 253 Scope 3 emissions reporting, which are expected to be adopted by end of 2026 and take effect for the 2027 reporting year.

Enforcement of SB 261, which requires in-scope companies to publish climate-related financial risk reports, remains on hold pending a ruling on the constitutional challenge to SB 261 and SB 253. CARB's December 2025 enforcement advisory confirming it will not take action against entities for missing the original 1 January 2026 reporting deadline, remains the latest guidance.

These developments are relevant to: (i) UK parent entities with in-scope US subsidiaries with total annual revenues exceeding US$500 million that may choose to submit a consolidated report on behalf of such subsidiaries; and (ii) UK subsidiaries of US parent entities, that may be required to provide information on their emissions or climate risks to contribute to reporting under this legislation.

For more information on these developments, see California Climate Disclosure Laws Update.

Regulation in Practice

14. FRC publishes Annual Review of Audit Quality

The Financial Reporting Council has published its Annual Review of Audit Quality (ARAQ) 2026. The ARAQ provides a market-wide assessment of audit quality and is designed to support better decision-making by audit firms, audit committees and other users of audit. It combines the assessment of Systems of Quality Management (SoQM) with audit file inspections to provide a balanced analysis of the factors shaping audit quality, including firms’ systems, governance and operating models.

According to the FRC, the report shows that SoQMs are the foundation of audit quality, underpinning the consistent delivery of quality audit engagements and creating the conditions for sustainable improvements over time. While progress in audit quality continues to be made, the level of consistency varies across the market. A gap between the largest and smallest firms persists, particularly in relation to the development and investment in SoQMs. Strengthening firm-wide systems and capability is therefore central to delivering sustained improvements in audit quality.

Alongside the report, the FRC published data on Audit Firm Metrics which the FRC considers is a valuable tool for users of audit, in particular audit committees, to consider how audit quality is defined and managed by a firm.

The FRC has also published its Annual Enforcement Review for 2026. The review spotlights issues in the quality of financial reporting and audit, as well as the role of firm-level systems and controls. It addresses how insights from enforcement activity are being used to inform the FRC’s supervisory activity and work on regulatory standards.

The Review outlines developments in the FRC’s enforcement approach, including new routes to resolution under the revised Audit Enforcement Procedure. These are designed to enable earlier engagement and more proportionate and timely outcomes while maintaining the requisite rigour and quality in the FRC’s work to support public confidence.  The case study on Carillion plc and its senior accountants will be of particular interest to in-house reporting teams.

15. DBT renamed DBIST and given wider remit

As part of a wider reorganisation of government departments precipitated by the change of Prime Minister, the Government has announced that the DBT is being renamed as the Department for Business, Innovation, Science and Trade (DBIST) and given a wider remit. It will take on responsibility for the science and innovation portfolio (which previously sat within the Department of Science, Innovation and Technology), as well as emerging sectors. DSIT is being disbanded, with its responsibilities split (as appropriate) between relevant departments.   

Other notable changes include:

• The Investment Security Unit or 'ISU', responsible for operating the National Security and Investment Act 2021 regime, is moving to DBIST.
• The Office for Equality and Opportunity is moving to the Ministry of Housing, Communities and Local Government.
• The establishment of a new AI Taskforce within the Office for the Prime Minister and the Cabinet or 'OPMC'.

If you would like to receive future Ashurst Perkins Coie Governance & Compliance updates, please click here to sign up.

Authors: Will Chalk, Partner; Ruby Hamid, Partner; Kevin Feldis, Partner; Shan Shori, Expertise Counsel; Becky Clissmann, Sustainability Counsel; Marianna Kennedy, Senior Associate.