Summary
These Regulations 2016 amended the Companies Act 2006 to implement EU Directive 2013/34/EU on annual financial statements. Key changes include: (1) modifying group accounts exemption thresholds so small companies subject to the small companies regime are exempt from preparing group accounts unless the group contains certain EEA-established public-interest entities, credit institutions, or insurance undertakings; (2) introducing mandatory non-financial information statements for traded companies, banking companies, and insurance companies, requiring disclosure of environmental matters, employees, social matters, human rights, and anti-corruption/bribery information; (3) providing exemptions for small/medium-sized companies and those with 500 or fewer employees; (4) allowing companies to use national, EU-based, or international reporting frameworks to satisfy these requirements.
Reason
This regulation is EU-derived legislation implementing Directive 2013/34/EU, representing exactly the type of inherited EU bureaucratic burden that should be reviewed post-Brexit. The non-financial reporting requirements impose significant compliance costs on UK companies with questionable benefits — much of this reporting is qualitative, narrative-based, and does not directly improve capital allocation or economic efficiency. The requirement to disclose policies on environmental matters, human rights, social issues, and anti-corruption creates a compliance industry with no corresponding gain in competitiveness for the UK. Small and medium-sized companies are exempted, but large traded companies, banks, and insurers face substantial new burdens. From a Friedmanesque perspective, shareholder capitalism already provides mechanisms (through financial statements and shareholder pressure) for addressing legitimate concerns; mandatory non-financial disclosure mandates are a form of bureaucratic solution searching for a problem, adding layers of compliance cost that ultimately reduce the flexibility and global competitiveness of UK firms.