Recently, our Head of GRC & Security sat down with AccessPay CEO, Anish Kapoor, to discuss UK SOx, with a focus on what the new regulations mean for Finance & Audit Directors and the current payments landscape. We have recorded their conversation to make the most important points accessible to all organisations potentially impacted.
Mark: “Anish, would you mind giving us a quick overview of UK SOx?”
Anish:
“In the wake of a comprehensive review of audit practices led by Sir Donald Brydon in 2019, the UK has unveiled its new Corporate Governance Regime, unofficially known as UK SOX for its similarity to the US Sarbanes-Oxley Act (SOx). This development aims to revamp and strengthen corporate governance standards across the country.
One of the primary goals of UK SOx is to align the country’s regulations more closely with the US Sarbanes-Oxley Act (SOx). However, some concerns have been raised about whether the UK regime will go as far as its American counterpart, particularly regarding external assurance requirements due to potential cost implications and practicality challenges.
A significant aspect of the new regime involves the establishment of a dedicated regulatory body called the Audit, Reporting and Governance Authority (ARGA). This marks a pivotal change as it replaces the Financial Reporting Council (FRC), which had been in existence since 1990.
The introduction of UK SOx signals a transformative shift in corporate governance practices and aims to enhance transparency, accountability, and trust within the UK business landscape.”
Mark: “Why has the government decided to implement UK SOx?”
Anish:
“The deficiencies in the current UK oversight model have had far-reaching consequences, affecting businesses, suppliers, and individuals across the country. A review of the system revealed significant failings, particularly in the effectiveness of audit and governance committees, which failed to provide reliable assurance.
This lack of oversight has resulted in unexpected company failures, causing repercussions that extend beyond the immediate impact on the failed business. The ripple effects have affected other businesses, suppliers, and even individuals with no direct connection to the collapsed companies.
Similar to the triggering of the US Sarbanes-Oxley Act (SOx) following failures of major American corporations, the failures within the UK oversight model have highlighted the need for reforms and more robust regulatory measures.”
Mark: “Why does UK SOx need to be a top priority for Finance Directors & Audit Committees?”
Anish:
“The Audit, Reporting, and Governance Authority (ARGA) is poised to bring significant changes to company reports by enhancing transparency and accountability. The government aims to enforce stricter regulations, with a particular focus on disclosure requirements and control measures.
Under the proposed reforms, in-scope companies will be required to disclose their reserves and provide an explanation of the board’s long-term approach to shareholder returns. Additionally, directors will need to explicitly confirm the legality of proposed dividends as well as any dividends paid during the year.
Moreover, the scope and control requirements are anticipated to expand in the future, signalling the government’s commitment to fostering a more responsible corporate environment. Non-compliance or insufficient preparation to meet these obligations may result in severe consequences for companies.
To ensure effective enforcement, ARGA will be empowered to direct changes to company reports and accounts without resorting to court orders. Furthermore, the authority will have the ability to make public summary findings of any review, thereby promoting greater transparency within the financial landscape.
Through these initiatives, the government aims to enhance the integrity of company reporting and reinforce trust in financial information. By holding companies accountable, ARGA seeks to instil confidence and foster a culture of responsible corporate governance.”
Mark: “Who will be impacted by UK SOx?”
Anish:
“Public Interest Entities (PIEs) are considered significant economic actors and have the potential to cause large-scale disruption if they were to collapse. In the UK, PIEs are currently defined as entities with transferrable securities listed on a UK regulated market, credit institutions, and insurance undertakings. This definition includes entities with more than 750 employees and an annual turnover greater than £750m.
However, proposed changes suggest that any private company meeting these criteria would also fall within the scope of PIEs. The guiding principle behind this expansion is to identify significant economic actors and entities that could potentially cause widespread disruptions in the event of their collapse.
It’s important to note that under the proposed changes, local authorities and Lloyds syndicates would be exempt from being classified as PIEs. However, charities and universities that meet the 750-750 rule would still fall within the scope of PIEs.”
Mark: “In your opinion, what will be the results of implementing UK SOx?”
Anish:
“Large companies will be better protected and are expected to experience a reduced risk of collapse, resulting in a more stable and trustworthy system that mitigates the occurrence of unexpected closures and subsequent impacts. This shift aims to instil greater confidence in investors, enabling them to have heightened assurance about the sustainability of firms and potentially leading to increased investment in UK entities.
Furthermore, with the UK no longer obligated to adhere to the EU’s Public Interest Entities (PIE) definition, there is an opportunity to reassess the PIE framework and alleviate any unnecessary burdens. For instance, since current PIEs are typically regulated by both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), there may be potential for streamlining regulations to eliminate duplication.”
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Found this useful? Watch the full interview with Mark & Anish on-demand now: Preparing for UK SOx: What the new regime means for Audit & Finance Directors
Need more advice on UK SOx? Speak to a member of our team today!
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