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Jan 06, 2020

Regulators continue focus on Brexit disclosures

UK departure from EU now almost certain for end of January 2020

Listed companies are being encouraged to pay close attention to their Brexit-related corporate reporting as the UK’s exit from the European Union draws near. 

The UK’s Financial Reporting Council (FRC) has announced it will carry out a thematic review into the impact of the decision to leave the EU on corporate disclosures. The thematic reviews are used to identify best practice and areas that require improvement.

The FRC, which monitors reporting quality by British companies, has kept an eye on how issuers are responding to Brexit since the EU referendum in 2016. 

‘We will continue to monitor these disclosures as Brexit remains an important source of uncertainty for most companies,’ says a spokesperson for the FRC. ‘We expect companies to disclose the specific risks that apply to them and how they mitigate them.’

Early last year, it seemed the UK could crash out of the block without a deal, forcing companies to explain how they were planning for such a scenario. 

‘Once it became clear what the potential deal could be, and the fact that there was still the possibility of a no-deal Brexit, we came to market toward the end of 2018 and formally laid out the risk assessment,’ Steve Nightingale, Britvic’s director of IR, told IR Magazine at the time.

But the situation shifted decisively following the landslide win by the UK’s Conservative Party in December’s general election. With the government able to command a majority in the British parliament, it is now almost certain that the UK will officially leave the EU at the end of January 2020.

Much uncertainty remains for companies, however, given that the British government hopes to conclude a trade deal with the EU in just 11 months – and could still end up in a non-deal scenario if negotiations fail.

Last September the FRC sent a letter to audit committee chairs and finance directors underlying measures they should take in light of the UK leaving the EU.

Regarding corporate reporting, the regulator wrote: ‘Not all companies will require extensive disclosure, but where sensitivity or scenario testing indicates significant issues, relevant information and explanation should be reflected in the appropriate parts of the annual report and accounts, for example in the impairment disclosures.’

US financial regulator the SEC has also called for companies to sharpen their focus on the impacts of Brexit. Speaking at the end of 2018, SEC chairman Jay Clayton said he had directed his staff to review company disclosures covering the topic. 

‘We have seen a wide range of disclosures, even within the same industry. Some companies have fairly detailed disclosures about how Brexit may impact them, while others simply state that Brexit presents a risk,’ he said.

‘I would like to see companies providing more robust disclosure about how management is considering Brexit and the impact it may have on the company and its operations.’