AI, data and cybersecurity
EU AI Act now in force: what's the impact for those doing business in or with the UK?
The EU's AI Act has implications for businesses around the world, not just in the EU. Most of the obligations will apply from 2 August 2026 but the bans outlawing unacceptable systems, and the AI literacy requirement (an obligation to educate and train staff interacting with AI), each apply from 2 February 2025. We are advising our UK business clients to plan ahead. Read our briefing for more.
AI Insights
Our AI Insights podcast series explores the key legal issues relating to the development and use of artificial intelligence in the UK, including regulatory, data protection, intellectual property, employment, financial services and competition law aspects.
No new AI Bill for the UK...yet
Whilst no AI Bill was announced in the King's Speech last July, the new UK Government has said that it is considering regulation targeting the largest general purpose AI models/systems (systems such as ChatGPT).
On 5 September 2024, the UK signed the Council of Europe's Framework Convention on Artificial Intelligence and Human Rights, Democracy and the Rule of Law. A legally binding international treaty, it sets out principles which aim to ensure that activities within the lifecycle of artificial intelligence systems are fully consistent with human rights, democracy and the rule of law. The US is another signatory. For the UK, the AI Convention requires domestic implementation, rather than applying directly, and it does not necessarily require new legislation. In light of this, it is doubtful that it will change the regulatory path for AI announced by the UK Government, which is to target only the largest models.
A replacement for the Data Protection and Digital Information (DPDI) Bill?
A Digital Information and Smart Data Bill (DISDB) has been announced (but is yet to be introduced). It looks likely to resurrect elements of the DPDI Bill, which fell away at the end of the last UK parliamentary session.
The DISDB will provide a statutory footing for three data schemes:
(1) Digital Verification Services (which will support digital identification products and services from certified providers to make it easier, for example, to move house and carry out pre-employment checks);
(2) National Underground Asset Register (a digital map of pipes and cables); and
(3) Smart Data schemes, along similar lines to the EU Data Act, building upon the success of Open Banking and extending it to other sectors. It will also introduce further flexibility for scientific research and reform the Information Commissioner's Office.
The extent to which the DISDB will encompass other data protection reforms is less clear, however. Targeted reforms to "some data laws" have been mentioned but there is no more detail yet on what these changes might comprise – e.g. the changes proposed by the previous UK Government to combat GDPR "red tape" are not specifically mentioned, nor are changes to the marketing and cookie regime.
Reform of cyber resilience rules
The new UK Government recognises the need to respond to the increasing frequency and severity of cyber-attacks affecting entities in critical sectors and their supply chains and is also concerned that the UK has fallen behind and is "comparably more vulnerable" than the EU in the cybersecurity sphere. It therefore plans to introduce a Cyber Security and Resilience Bill to reform the Network Information Security Regulations 2018 (NISRs). The last Government had previously proposed extending the reach of the NISRs to bring into scope managed service providers. The new UK Government has said that new legislation will cover "more digital services and supply chains" and is likely to include a cost recovery mechanism for regulators in respect of data breaches and increased incident reporting, including for ransomware attacks.
Although information about the detail of the Bill is scant at this point, it looks likely to cover similar ground to the previous proposals. For information about these and how they compared with the EU's NIS2 Directive, read this briefing.
For further information, please contact
Beyond Brexit/Regulatory reform
Last-minute U-turn on scope for UK courts to diverge from EU case law
The new UK Government has now decided against bringing in reforms designed to give UK courts more opportunities to diverge from EU case law. The Retained EU Law (Revocation and Reform) Act 2023 was due to come into force on 1 October but was shelved in mid-September. This means that the position in the UK remains as follows:
- Since 2021, only the UK Supreme Court, the UK Court of Appeal
and certain other UK courts at the same level as the latter have
been able to depart from retained EU case law (i.e. pre-2021
judgments of the CJEU and domestic courts relating to retained EU
law);
- The test for doing so remains "where it appears right to do so". This is the same test that those courts already apply when deciding whether to depart from their own prior decisions.
Why the rethink?
The UK Government has confirmed that the decision not to introduce this reform is part of the new UK Government's policy on rebooting the relationship with the EU. The modified test for divergence under the proposed reforms, which were due to come into effect on 1 October 2024, would have required the UK courts to have regard to:
- the fact that decisions of a foreign court are not (unless
otherwise provided) binding;
- any changes of circumstances which are relevant to the retained
EU case law; and
- the extent to which the retained EU case law restricts the proper development of domestic law.
This could have been seen as an encouragement to UK courts to lean in favour of divergence, thus moving away from the European legal framework in their decisions. Alongside this change - and perhaps more importantly in practice - the changes would have created additional opportunities for courts to consider diverging from EU law, as explained below.
Impact of the U-turn
The reforms would have allowed lower UK courts to make references to, for example, the UK Court of Appeal or Supreme Court (as appropriate) asking them to consider departing from retained EU case law – whereas the current position is that such issues can only be considered if the parties are permitted to appeal from a judgment of a lower court (which would normally need to be on other grounds, rather than the considering whether to diverge from EU law). As well as creating numerous additional opportunities for divergence to be considered, this could have encouraged parties to seek references on points of EU law primarily as a tactic to increase delays and costs in litigation, especially if the threshold for a reference had been set at a relatively low level.
For more on retained EU law generally, see our detailed guide: Retained EU law: 10 key questions (which has been fully updated to take account of the REUL Act). For a reminder of all the changes made by the REUL Act (most of which took effect from 1 January 2024), see: Retained EU law: what's changed and why does it still matter?
Beyond Brexit
For more on navigating the post-Brexit legal framework and business environment, including what's changed on retained EU law and why it still matters, visit our Beyond Brexit Hub.
Importing EU goods into the UK: more changes to introducing border controls
According to media reports, the UK Government is considering a further delay to the introduction of post-Brexit border controls on imports of certain agri-food products to the UK from the EU. These products had been expected to face physical checks from 30 April 2024 but were granted an easement until January 2025. The UK Government is understood to be looking at extending the easement until July 2025, but, at the time of writing, this had not been confirmed.
Although the changes relate primarily to the agri-food sector, they may result in transport delays for all types of EU imports around the time that they are introduced. EU suppliers need to be prepared for these changes.
EU suppliers should also note that from 31 October 2024, all goods imported from the EU will need to be accompanied by safety and security declarations (as is already the case for goods imported from outside the EU). Again, this deadline may cause a degree of disruption to supply chains. For more background, see Importing EU goods into the UK: what's changing?
Regulatory reform
Take a look at our Regulatory reform portal to check for the latest updates on changes to regulation across all areas on which we advise.
New Government's re-set with the EU: what do we know so far?
As widely reported in the press, the new UK Government has sought to use opportunities such as the European Political Community summit in July to lay the foundations for a "re-set" of the UK's post-Brexit relationship with the EU. Many UK and EU businesses will be hoping that this leads to improvements in trading relationships.
Some commentators have highlighted the obstacles facing the UK in negotiating changes to the Trade and Co-operation Agreement (TCA). Whilst they are right to point these out and to warn against taking change for granted, our view is that there should be scope to deliver modest improvements to the existing framework, alleviating some of the trade frictions which followed the UK's exit from the EU Single Market and Customs Union. Businesses will need to be patient though, as change is unlikely to be speedy, particularly in the light of the following:
- At the time of writing, proposed members of the new European
Commission had only just been announced. A mandate to negotiate
changes with the UK is unlikely to be forthcoming until the new
College of Commissioners is in place.
- Following several years of fairly complex relations with the
UK, the EU will want to see more evidence that the new Government
is genuinely committed to improving the relationship and is taking
concrete steps to implement agreements such as the Windsor
Framework for Northern Ireland. Whilst this should not present an
insurmountable obstacle, it will require investment of time and
effort by UK Ministers.
- The UK Government itself may not be entirely unhappy with having to wait before it can open formal discussions with the EU regarding trade. Whereas UK exporters have felt the impact of Brexit since January 2021, delays to UK border controls (see above) mean that EU suppliers to the UK are only just starting to experience the same difficulties as their UK counterparts. The longer it takes to open formal negotiations, the more time there is for EU suppliers to voice concerns to their own representatives about the adverse impact of Brexit – which may help to encourage the EU to the negotiating table and strengthen its willingness to get a deal for the benefit of its own exporters.
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Company law
ECCTA: what's the latest?
Last spring, we reported on the new Economic Crime and Corporate Transparency Act 2023 (ECCTA). Since then, the UK's register of companies, Companies House, has provided further information on the proposed timeframes for the implementation of the new identity verification regime. This confirmed that identity verification for directors, persons with significant control and anyone who files documents on behalf of a UK company will be rolled out from Spring 2025.
We are still awaiting the UK Government's guidance on the new failure to prevent fraud offence under ECCTA and clarity on when the offence will come into force.
Corporate governance: refreshing UK reporting guidelines
The Wates Principles Review
The Wates Principles were developed in 2018 in response to UK Government regulation requiring large UK private companies to adopt a corporate governance code and report against it in their annual Directors' Report.
The latest Review of reporting against The Wates Principles, published in August this year, is a useful reference for UK companies preparing their corporate governance reports, as it identifies how reporting against each Principle could be improved and provides examples of best practice. The Review notes the "need for companies to reduce their use of boilerplate disclosures" and reminds companies that they should link their disclosures to how the company actual operates and its own purpose, values, strategy and culture.
Walker Guidelines
The Private Equity Reporting Group (PERG) and the British Private Equity & Venture Capital Association (BVCA), recently launched a consultation to refresh the Walker Guidelines (Guidelines) on Disclosure and Transparency in Private Equity. The review's aim is to calibrate the Guidelines to today's reporting world and to ensure that the Guidelines remain fit for purpose and provide value: to the UK industry's stakeholders who rely on the transparency and related disclosures, as well as to the private equity firms and companies applying the Guidelines.
The consultation closed at the end of September 2024, and we can expect to see PERG and the BVCA's responses later this Autumn. The final amended Guidelines will be published in January 2025, alongside the 17th Annual PERG Report.
UK Audit reforms
The King's Speech in July 2024 confirmed that the Audit Reform and Corporate Governance Bill will be laid before the UK Parliament. The Bill will:
- replace the Financial Reporting Council with a new regulator -
the Audit, Reporting and Governance Authority (known as
ARGA);
- extend Public Interest Entity status (which creates additional
reporting and governance obligations) to the largest private
companies; and
- take forward some of the previously proposed audit reforms that were shelved by the previous UK Government.
There has been very little information given on the proposed Bill, at this stage, but we will provide further updates, once we know more.
For further information, please contact
Competition
The UK Digital Markets, Competition and Consumers Act 2024 receives Royal Assent
The UK's new Digital Markets, Competition and Consumers Act 2024 (DMCCA) implements the most extensive changes to the UK competition law (and consumer protection) landscape since the Enterprise Act 2002 brought about wholesale change to the merger control regime over 20 years ago.
New UK regulatory regime for Big Tech
The most talked-about reform is the new regulatory regime for Big Tech. Whilst the EU's Digital Markets Act (DMA) is the most high-profile, the UK is the latest jurisdiction to introduce regulation specifically targeting the largest tech firms.
Digital technologies are at the heart of the UK Government's vision for driving economic growth, and the new DMCCA empowers the UK's Digital Markets Unit (DMU) (already set up within the UK Competition and Markets Authority (CMA)) to designate the biggest digital players with 'Strategic Market Status' (SMS). Having designated a firm as having SMS, the DMU will:
- set ex ante Conduct Requirements on designated
firms i.e. rules on what those firms must and must not do;
- be able to make Pro-Competition Interventions
to remedy competition problems; and
- require designated firms to report M&A activity before deals are completed.
The new UK Government has now confirmed that it expects this regime to enter into force in December 2024 or January 2025. While the UK's DMCCA and the EU's DMA vary materially, the basic aim remains the same – promoting the openness, transparency, 'fairness' and, in turn, competitiveness of digital markets. Read our key take-aways here.
The DMCCA also makes significant competition law reforms applicable to all types of business, not just Big Tech.
UK merger control reform
In the merger control space, the DMCCA updates the UK's jurisdictional thresholds, as well as introducing the UK's first 'no-increment' share of supply test (to capture so-called 'killer acquisitions' as well as vertical and conglomerate mergers), a new safe harbour for 'small mergers' and a specific reporting regime for designated tech firms. Read our key takeaways for more.
Alongside the new legislation, the CMA is consulting on new guidance on how the CMA can use the new incoming jurisdictional tests to cast a wide net and catch a broad range of deals. The guidance also provides for greater procedural flexibility during the CMA's merger reviews – including specifically for private equity firms. See our initial takeaways, prior to the guidance being finalised.
Competition investigations
The DMCCA also introduces substantive reform to investigations across the UK competition law sphere, strengthening the CMA's cross border reach and significantly increasing the penalties that it may impose for failures to comply with its investigatory measures. Read on for more.
Competition litigation
Whilst the DMCCA shifts the dial forwards in some respects (including by adding clout to the relief available for certain competition law breaches, and by introducing a mechanism for damages to be claimed for breaches of the new digital regulatory regime), there are also some notable omissions as discussed in our briefing. The much-debated damages regime for consumer protection breaches did not make it through the UK Parliament, and neither did the provisions dealing with the UK Supreme Court's judgment in PACCAR on litigation funding arrangements.
Artificial Intelligence through a competition law lens
Competition authorities across the globe have, like most organisations, been investing significantly in building their understanding of AI and the potential competition and consumer law impacts of its development and use. There are various ways in which competition authorities, including the UK Competition and Markets Authority, are seeking to tackle the key issues arising from AI through a competition law lens. Read our overview to learn more.
Scope for challenge to UK merger control decisions: the case that keeps 'rolling'
After a lengthy (and still ongoing) court battle, the Court of Appeal has upheld the CMA's intervention in (and unwinding of) Cérélia's completed acquisition of Jus-Rol. In doing so, the Court provides valuable colour to the permitted scope of judicial review as well as to the inherent tension between appeals of UK Competition and Markets Authority (CMA) merger decisions being limited in this way and the specialist nature of the Competition Appeal Tribunal's competition expertise.
In providing important guidance for parties (and third parties with jurisdiction) seeking to challenge CMA merger decisions, the judgment is timely: given the post-Brexit backdrop and the incoming new merger control thresholds under the DMCCA, the CMA has jurisdiction over a wider range of, and more complex, merger cases and is expected to engage with increasingly complex evidence and theories of harm. See our take-aways here.
National Security and Investment Act: remedies clear the path in telecoms deal
The UK Government has repeatedly emphasised its aim to remain "proportionate and well-targeted" and as "pro-business and pro-investment as possible" through its operation of the UK's National Security and Investment Act (NSIA) regime. Now, two years into the NSIA regime (and with 5 deal prohibitions and 21 remedies cases under the UK Government's belt) what more can we say about the UK's willingness to solve national security risks via remedies packages, even where politically sensitive states are involved?
The recent proposed merger between Vodafone's UK business (Vodafone Limited) and Hong Kong-based mobile network operator 'Three' (Hutchison 3G UK Holdings Limited) can, in some respects, be seen as confirmation of a "pro-investment" approach. It signals the UK's willingness to accept remedies in a sector falling within the UK's 'Critical National Infrastructure' (in this case, telecoms and telecoms infrastructure) and in a case involving a politically sensitive origin of investor. The outcome has been keenly awaited given the vigorous debate generated around the stated benefits of the deal (in terms of advanced roll-out of a 5G network) balanced against the perceived national security risks of Hong Kong-based Hutchison as a party. Read our briefing here.
National Security and Investment Act trends
The UK Government's latest annual report on the operation of
the UK's National Security and Investment Act 2001 (NSIA)
covers the regime's second full year of operation. In large
part, it shows a continuation of existing trends. Defence still
tops the list for number of notifications, as well as a focus on
Defence and Military/Dual Use when it comes to interventions. China
also remains the origin of investor with the largest number of
call-ins (although the UK and US also feature highly, demonstrating
the owner-agnostic stance of the regime). However, there are some
points worth calling out.
The time taken by the UK Government to accept a notification is up
– in the case of the mandatory track, from three to six
working days. Also, whilst the overall number of notifications is
up, call-in numbers are down (meaning that only 4.4% of
notifications reviewed were called in for further assessment, down
from 7.5%). The number of 'final orders' also dropped (from
15 to 5).
4.4%
4.4% of notifications called in, down from 7.5%
5
final orders 5, down from 15
This latest report covers the year to 31 March 2024, and therefore does not extend to the period since the change of UK Government. Going forwards, we expect the new UK Government to continue plans to consult upon updating the mandatory notification sector definitions, to continue its work on assessing the need for Outbound Investment controls, and to further assess how targeted exemptions may improve the operation of the regime.
For a quick, digestible summary of the report, take a look at our NSIA 3rd Annual Report Overview here.
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Read Stephen Whitfield Profile
Commercial contracts
UK Supreme Court ruling on force majeure clauses in contracts governed by UK law
In MUR Shipping v RTI (2024), the UK's Supreme Court ruled on the interpretation of a force majeure clause in a shipping agreement. The judgment makes clear that its findings here are applicable to force majeure clauses generally, and that this was not a narrow issue of interpretation. Unless there is clear wording to the contrary, most force majeure provisions will be interpreted in the following way:
- The importance of reasonable steps: The clause
will only apply if the event or state of affairs that has caused
the problem with performance cannot be avoided by taking reasonable
steps. The UK Supreme Court said that this would normally be the
case even if there is no express reference to reasonable
endeavours.
- The importance of the original bargain: The clause is not intended to allow the party who is unable to perform to effectively change the terms of the original bargain by requiring the other party to accept non-contractual performance. If the other party chooses to accept such performance, it can opt to do so – but it is not under any obligation to accept it.
However, although the above comments reflect the way that most force majeure clauses are drafted, it cannot be assumed that all such provisions will automatically be interpreted in this manner. It is essential to consider the precise wording of the clause – and we have previously highlighted a case where the drafting led the UK Privy Council to treat the issue of non-contractual performance differently.
For more detail on the MUR dispute, see: MUR Shipping v RTI: key lessons from the Supreme Court's ruling on force majeure clauses.
AI in UK service supply and outsourcing contracts: managing the risks
Artificial intelligence tools can be a game changer in outsourcing and other contracts for services - promising big wins in terms of costs, time, accuracy, scalability and productivity, to benefit both sides of the negotiating table. To reap those benefits, it is important to stay on top of the "new" risks associated with the use of AI in these arrangements. As we explain in our briefing, some of these risks might be entirely new, but many are a recasting of familiar challenges. The briefing includes discussion of:
- Accuracy and reliability issues
- Data protection
- Rights to access third party data (particularly in the light of moves by many licensors to restrict the ability of licensees to submit their data to AI tools)
- Exit and data migration
- Technical standards e.g. the difference between "compliant" and "certified"
- Intellectual property risks
- Transparency and explainability
- Avoiding bias and discrimination
- Regulatory risk
- Flexible commercial models and assessing value.
What will the new UK Government mean for outsourcing?
In the latest issue of our regular publication, Outsourcing Spotlight, we consider the impact of the new Government, particularly in relation to employment issues and public procurement.
This edition also includes coverage of:
- Impact of the 2019 Hague Convention and the latest on arbitration reform;
- Financial services: EU and UK measures to tighten regulation of outsourcing;
- Pensions dashboards: an outsourcing checklist for pensions schemes and administrators; and
- Key recent workplace related developments in the UK, including TUPE, pay transparency, umbrella companies and new laws on sexual harassment, flexible working and holiday.
Outsourcing video series: 3-minute primer on AI and outsourcing
Finally, don't miss the latest in our Outsourcing video series, in which partner James Longster provides a 3 minute primer on six key issues businesses operating in the UK should consider when looking to deploy AI as part of an outsourcing transaction.
Smart contracts: where are we now and does AI have a role to play?
Smart contracts have been partially eclipsed by the recent focus on AI, particularly Generative AI. But as we explain in our briefing, smart contracts have their uses – and it's possible that in future, generative AI could complement smart contracts to further automate the contracting process. The briefing also contains a handy jargon-buster, together with a "back to basics" explanation of smart contracts and their current uses, including:
- fintech and decentralised finance;
- royalty payments;
- insurance; and
- service default.
Meanwhile the discussion on AI explores whether the technology could be used alongside smart contracts to provide a more efficient means of expert determination.
Pricing and payment issues in the UK
We continue our series on pricing and payment issues in the UK with briefings on the following topics:
- When does failure to pay trigger a termination
right? In UK commercial contracts, the terms of payment
are usually a key element of the parties' bargain – so if
a customer fails to pay a material sum on time, then surely the
supplier should have a right to terminate the contract? Quite
possibly, but in practice it may not be as straightforward as this
– and if the supplier reaches for the "big red
termination button" prematurely, without a careful assessment
of its rights, it can be a costly misstep. Our briefing looks at drafting tips for both
suppliers and customers when it comes to payment obligations and
termination rights and the position if one party is
insolvent.
- Who bears the risk of currency fluctuation? What happens where you are required to pay in a different currency from your own and exchange rate fluctuations mean that suddenly, the cost (in your own currency) has gone up considerably? Our briefing looks at how the UK courts have approached this issue and practical steps.
Other briefings in our UK Pricing and Payment series
Other briefings in the series cover the following topics:
Payment issues
Pricing issues
Transparency and "market-testing" mechanisms/protections
- Audit clauses
- Cost plus and open book pricing
- "Best prices" or "most favoured customer" clauses
- Benchmarking clauses
Are EU-derived rights for sales agents in the UK under threat?
As part of its attempt to reduce the amount of EU derived law in the UK, the previous UK Government launched a consultation on whether to repeal the Commercial Agents Regulations. Among other things, these Regulations enable certain sales agents to claim substantial sums from the business that they act for when the agency comes to an end. Whilst the previous UK Government was minded repealing this legislation, the new UK Labour Government has yet to indicate its view. It is possible that it could decide that it has other priorities; alternatively, it may be more willing than the previous Government to look at changes such as removing protection from sales agents above a certain size, whilst retaining it for smaller agents. For more background, see our briefing.
Thinking of entering into a commercial agency agreement now?
Principals looking to enter into new agreements likely to be caught by the Commercial Agents Regulations may wish to consider whether it is worth holding off until the position has been clarified. Agents, by contrast, may prefer to get on and sign the agreement as soon as possible, given that the consultation makes it clear that existing agencies covered by the Regulations will not be affected (and adopting a retrospective approach would be highly unusual for UK legislation).
For further information, please contact
Dispute resolution
Dispute Resolution round-up
Read our quarterly Dispute Resolution round-up for coverage of recent developments in the dispute resolution sphere from a UK perspective. Our latest edition considers the effect of the change of UK Government on two important pieces of draft legislation: the UK's Litigation Funding Agreements (Enforceability) Bill and the UK's Arbitration Bill. The UK's Litigation Funding Agreements (Enforceability) Bill was intended to undo the effect of last year's decision of the UK Supreme Court in PACCAR, which rendered many commercial Litigation Funding Agreements unenforceable. However, the new UK Government has elected not to take the bill forward, pending a holistic review by the UK Civil Justice Council of the litigation funding industry more generally. By contrast, the UK's Arbitration Bill has been picked back up by the new UK Government and looks set to become law in the near future, cementing this jurisdiction's arbitration-friendly reputation.
The round-up also covers key recent UK case law, including an important decision from the UK Supreme Court in Mur Shipping on the scope of reasonable endeavours provisos in force majeure clauses - required reading for anyone tasked with drafting such clauses – and an examination of directors' duties in a UK insolvency context in the high profile UK case of Re BHS Group Ltd.
Finally, the round-up touches on the implications of the UK's recent ratification of the 2019 Hague Convention, which will, when it comes into force as between the UK and the EU (save for Denmark) on 1 July 2025, mean that a greater range of English court judgments are more easily enforceable in the EU than was previously the case.
Investigations update
Our Investigations round-up covers the latest trends and developments in the UK in the field of investigations, i.e. regulatory and internal investigations, enforcement actions and disciplinary proceedings. In our latest edition, we consider the increased recent focus by UK regulators and other stakeholders on workplace culture, and the consequent need thoroughly to investigate potential misconduct when it occurs. We also cover the new draft guidance from the UK's Solicitors Regulation Authority for UK lawyers conducting in investigations, a controversial proposal from the FCA publicly to announce its investigations at a much earlier stage, and a UK Court of Appeal decision on the application of legal advice privilege to investigation output.
Spotlight on Investigations
When faced with allegations of wrongdoing, there is often a need to act swiftly and sensitively to protect a business and its reputation. Commencing an investigation into the wrongdoing will often be a necessary response. Our market-leading UK investigations team has put together an interactive checklist to guide businesses operating in the UK through the critical first 24 hours of the investigation process. Click here to find out more.
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UK employment law
Preventing sexual harassment
From 26 October 2024, employers in the UK come under a new positive duty to take reasonable steps to prevent workplace sexual harassment. This new duty applies to all employers in the UK regardless of size or sector, and includes overseas businesses with UK staff. The UK's Equality and Human Rights Commission (EHRC) has published guidance which recommends, among other things, that:
- employers conduct a risk assessment to identify where
harassment is most likely to occur in their workplace;
- employers have clear and detailed policies on sexual harassment
with examples relevant to their workforce;
- employers provide regular training for staff covering how to
raise concerns and, for managers, how to handle complaints;
and
- in their preventative measures, employers address the risk of harassment of staff by third parties such as customers, clients and suppliers.
Businesses that fail to take adequate steps could face increased compensation in harassment claims and/or enforcement action by the EHRC.
Changes to employment law
Employers can expect significant reforms to UK employment law under plans outlined by the new UK Government. Draft legislation has been published that will make wide-ranging changes. However, most of the changes will be consulted on in 2025 and will not come into effect before 2026, which is much later than originally expected. Key changes include:
- Dismissals: making it more costly and
difficult to dismiss staff by extending the protection against
unfair dismissal. The current two-year qualifying service
requirement for unfair dismissal claims will be removed, with a new
statutory probationary period introduced, during which a
light-touch dismissal process will apply.
- Flexible working: introducing a new
requirement on employers to demonstrate that any rejection of a
flexible working request is reasonable.
- Diversity reporting: requiring large employers
to publish menopause and gender pay gap action plans, alongside
existing gender pay gap reporting requirements, and introducing
mandatory ethnicity and disability pay gap reporting.
- Restructuring: changing the threshold for
collective redundancy consultation so that the duty is triggered
more easily and making it much more difficult for employers to
change terms and conditions of employment without employees'
agreement.
- Casual workers: introducing new rights for casual workers to move to a regular hours contract, and to receive reasonable notice of shifts and compensation when shifts are cancelled.
- Trade unions: requiring employers to provide staff with information about trade union rights and making it easier for trade unions to call strikes and seek the right to bargain collectively on behalf of workers.
For more about the Government's plans and what they mean for employers, please see our briefing Employment Rights Bill What does it mean for employers? | Travers Smith.
Travelling. Seamlessly.
Our Travelling. Seamlessly. global mobility podcast series explores the implications of moving your people and operations into and out of the UK, in a variety of contexts.
In this episode we discuss changes to the UK's immigration rules for business visitors. Catch up on the whole series here.
Keeping you on track with regulatory change
Catch up on the latest employment and business immigration developments in the UK by reading or listening to our latest Employment Update.
Our In the Pipeline timeline guides you through forthcoming developments in UK employment law and business immigration.
For further information, please contact
Energy and infrastructure
UK Energy Savings Opportunity Scheme (ESOS)
ESOS applies to all UK organisations (and their corporate groups) that were classed as "large" undertakings on 31 December 2022. Many in-scope businesses will, having submitted their ESOS notification to the UK Environment Agency, now have put this reporting obligation to the back of their mind until phase 4 in around three years' time. However, phase 3 of ESOS brought some significant changes, one of which will keep ESOS on the agenda on an at-least-annual basis for the foreseeable future.
Whereas ESOS has until this point been a relatively light reporting obligation, the introduction of a requirement for businesses to draft and implement an "ESOS action plan" changes the nature of the obligation significantly. The ESOS action plan must set out the business's plans to reduce energy consumption, whether these plans are based on recommendations through the ESOS assessment and expected savings (including how these savings were estimated). Annual updates to the plan will be required. The action plan must be signed off by a board level director, or equivalent. Given that guidance for action plans is now not expected to be published until 1 November 2024 and functionality to submit a plan has not yet been made available, the UK Government has extended the original December deadline for submission of the first plans to 5 March 2025. Read our briefing for more.
New UK Government's approach to renewable energy
Since coming to power in July, the UK Labour Government has made some significant advancements in the promotion of renewable energy in the UK. It very quickly changed the UK's National Planning Policy Framework to end the de facto ban on onshore windfarms. The Contract for Difference scheme, one of the few remaining incentive schemes for renewable energy project development, concludes its sixth Allocation Round in early September with a record number of renewable projects across a range of technologies potentially benefitting. If all projects were developed (which is unlikely), 9.6GW of renewable capacity would be added to the grid.
Spotlight on Infrastructure
In our latest edition, we look at what the new UK Government could mean for investors in and operators of UK infrastructure. We also provide an update on disclosure rules for corporates, greenwashing rules for funds and a range of other topics, from EV charging, housing and planning through to tax and expiry of PFI/PPP deals.
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Equity capital markets
Update on UK capital markets reform
As we reported in the spring, the UK listing and prospectus regimes are being overhauled, with the aim of making London a more attractive place for companies to list and remain listed. Over the summer, the UK Financial Conduct Authority (FCA) published its feedback and final UK Listing Rules, which took effect on 29 July 2024 and represent the biggest shake-up of the UK listing regime in the past three decades. The most significant changes are for companies already listed on the UK's Official List, with less onerous obligations as regards significant transactions and related party transactions, as well as changes to the role of sponsors. Read our key takeaways.
Over the summer, the FCA also published a consultation on its draft prospectus rules which will replace the current rules. Proposed changes include allowing a company with shares already admitted to trading on the London Stock Exchange's main market and listed on the UK's Official List to carry out a secondary fundraising of up to 75% of its issued share capital without a prospectus. Read our briefing.
For more on the whole package of reforms to the listing, prospectus and secondary fundraising regimes in the UK, read our updated overview, London Landing: Reform of UK capital markets.
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Read Spencer Summerfield Profile
ESG and Impact
The EU's Carbon Border Adjustment Mechanism (CMAB)
The CBAM is, effectively, an EU import tax on carbon intensive products, such as cement, steel, iron, aluminium and electricity. During the current transitional phase, importers to the EU which are subject to CBAM must report on a quarterly basis the embedded emissions in CBAM goods. Looking forward, the next report will be due on 31 October 2024 (for the reporting period 1 July to 30 September 2024).
The European Commission has published a communication template for CBAM installations, as well as a number of template examples for each sector, both of which should help importers to the EU understand what is required of them. All CBAM resources can be found on the Commission's website here.
CSRD (Corporate Sustainability Reporting Directive) FAQ
As we discussed in the spring and as EU-based firms will be aware, CSRD will apply to many large EU-based companies from financial years starting on or after 1 January 2025, with reporting in 2026 (those in the first reporting wave should already be collecting data for reporting next year). In August, the Commission published Frequently Asked Questions (FAQ) in response to some of the many questions it has received on the Directive.
The FAQ includes some important clarifications for non-EU companies who may need to prepare a CSRD report in 2028/2029 if they have a legal presence and revenues in the EU. These companies will have the option to report under a separate set of non-EU reporting standards, to be developed by June 2026. The Commission has confirmed that these will be based only on the material impacts of the company on ESG matters and not on a double materiality basis, which would include material impacts of ESG on the company from a financial perspective.
The EU Corporate Sustainability Due Diligence Directive (CS3D)
As EU-based firms will be aware, CS3D finally came into force on 25 July 2024 and will have significant consequences for in-scope EU and non-EU companies:
- The way in which the financial sector is dealt with creates some uncertainties, particularly for large asset managers in scope.
- Firms should review the scope of the final text and identify whether they will be covered.
- Firms that are covered should consider the extent of their obligations, which will relate to their own operations and any "subsidiaries", which has an extended definition, and upstream business partners in their "chain of activities".
Member States have two years from July 2024 to enact implementing law. CS3D applies to EU companies with 1,000 employees and more than €450m worldwide turnover, whilst for non-EU companies there is no employee threshold, but net turnover must exceed €450m EU-derived turnover. Once enacted, CS3D will require in-scope EU and non-EU companies to conduct environmental and human rights due diligence across their operations, subsidiaries and value chains, and act on any impacts they identify. It will also be the first piece of EU legislation that mandates companies to adopt a climate transition plan.
The requirements will start to apply for the very largest companies in 2027 (meaning EU companies with more than 5,000 employees and net worldwide turnover of €1.5 billion, and non-EU companies with net turnover generated in the EU of over €1.5 billion), with all companies in scope by 2029. To learn more about the impact of CS3D on financial services businesses in the UK, read our briefing.
Sustainability Insights... in conversation
Listen to our podcast series, Sustainability Insights ... in conversation, where we are joined by thought-leaders to discuss topical ESG issues for private markets. In our fourth episode, Simon Witney speaks to Diandra Soobiah, Director of Responsible Investment at Nest, the National Employment Savings Trust. Their discussion explores Nest's significant commitments to private markets and, with 15% of Nest's £42 billion AUM allocated to private markets, Diandra explains what more she wants to see from the sector. Listen here.
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Read Sarah-Jane Denton Profile
Read Alexandra MacBean Profile
Finance
UK finance: what's new?
Key developments in the UK from the past six months:
- Sterling LIBOR (the reference rate of interest for many
UK-based financial contracts): 2024 brings a significant
milestone for IBOR reform. US dollar LIBOR ceased publication at
the end of September 2024. Three-month sterling LIBOR (the last
remaining tenor) was published for the last time on 28 March 2024.
This means that in the future there will be no further LIBOR rate
quoted (for any tenor or currency). These rates had, of late, only
been quoted on a synthetic basis (no longer relying on submissions
from panel banks). Most companies will have already worked with
their lenders to remove any remaining LIBOR related exposures in
their loans. Nevertheless this 'cliff edge' event could
lead to disputes about the appropriate substitute rate in all kinds
of legacy contracts. Read this briefing for more.
- IOSCO report on good practices in the leveraged loan and CLO markets: In June 2024, the International Organization of Securities Commissions (IOSCO) published its final report on good practices in the leveraged loan and collateralised loan obligation (CLO) markets. The report provides an overview of these markets and their evolution since the global fiscal crisis. It explains why vulnerabilities identified here could impact IOSCO's objectives of protecting investors, ensuring markets are fair, efficient and transparent and reducing systemic risk. Finally, the report sets out twelve "good practices" for market participants. In a press release responding to the report, the UK Loan Market Association emphasises that the good practices are not intended to form the basis for new regulation / legislation, but rather to act as a reference point.
UK Guarantees in focus
Corporate guarantees in the UK will typically be drafted using a beneficiary-friendly template as a starting point. Unsurprisingly, there is no industry standard "guarantor-friendly" template. In this article, first published in the July 2024 issue of Butterworths Journal of International Banking and Financial Law, Knowledge Counsel James Bell looks at issues to consider when protecting the guarantor's position in UK finance transactions (or indeed other commercial transactions) and how that might be negotiated.
DORA
Companies based in the UK or elsewhere who provide tech services to EU asset management firms and are within the scope of the EU's Digital Operational Resilience Act should note the deadline of 17 January 2025 to comply with its requirements. The remaining regulatory technical standards were only published 17 July 2024 (and 26 July 2024 for the delayed subcontracting RTS). This has increased the deadline challenges. This briefing focuses on the contract remediation aspect of a DORA compliance project.
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UK pensions
Pension policies of the new UK Government
The Labour party's victory in the UK General Election was not expected to result in the widespread abandonment of the last UK Government's ongoing pensions initiatives and this was confirmed at the opening of the new UK Parliament with the announcement of a forthcoming UK Pension Schemes Bill.
The last UK Government had various initiatives underway. The new UK Pension Schemes Bill will take up several of these, including:
- the automatic consolidation of small deferred defined
contribution (DC) pension pots;
- a value for money assessment and reporting regime for
trust-based DC schemes (to mirror an equivalent new regime for
personal pensions);
- a requirement for DC schemes to offer a retirement income
solution or range of solutions, including default investment
options where assets remain invested pending drawdown; and
- facilitating the consolidation of defined benefit (DB) pension schemes in commercial 'superfunds'.
Notably, there was no mention of a public DB consolidator scheme (aimed at smaller schemes); easier access to surplus (to encourage DB schemes to be run-on rather than insured); or multi-employer collective DC schemes (to permit commercial offerings). And nor was there mention of Labour's manifesto promise to require pension schemes and others to develop and implement climate transition plans. The new UK Government clearly needs more time to think about those initiatives.
There is also a bigger picture UK pensions review underway. This is looking at DC pension provision and the UK's Local Government Pension Scheme, including how and where pension fund assets are invested and, later, DC member outcomes. UK economic growth is the new UK Government's main priority, and they will be looking to pension funds to help them with this in several ways.
Looking ahead, there is confident speculation that the new UK Government's first Budget, due to be delivered on 30 October 2024, will seek to raise revenue by reducing pension contribution tax reliefs and/or greater taxation of certain pension scheme benefits.
New UK DB funding regime
A new regime in the UK for DB pension scheme funding and investment applies where a scheme valuation has an effective date on or after 22 September 2024. UK legislation and a UK Pensions Regulator code of practice set out new principles governing how DB schemes will have to be funded, alongside an integrated investment strategy. This must be based on a determined long-term objective for the scheme to provide benefits, for example: buy-out with an insurer, consolidation with another/other scheme(s) or indefinite run-on.
There are new requirements for schemes to have a 'funding and investment strategy' (FIS) for ensuring that benefits can be provided over the long term. This must include a targeted funding level(s) to be achieved by a particular date or dates, and information on the investments intended to be held, as at particular dates, along the way.
The FIS must be set out in a statement of strategy (SoS), alongside supplementary matters concerning aspects of the FIS and its implementation. Pension trustees must obtain the agreement of the UK employer to the scheme's FIS (unless they unilaterally set employer contributions, in which case the obligation is only to consult) and must consult the employer on the supplementary content in the SoS.
Our briefing from earlier this year set out the structure of the UK's new regime. What's Happening in Pensions Issue 111 notes material changes to the code of practice from the consultation draft.
Contracting-out requirements – the Virgin Media case
The UK Court of Appeal has upheld a High Court decision on the validity (or rather otherwise) of a rule amendment affecting benefits in a DB contracted-out pension scheme which was made without obtaining the actuary's written confirmation about the adequacy of benefits, as required at the time by legislation.
There are potential implications for other DB schemes that were contracted-out of the additional UK state pension (which was very common), where amendments were made affecting scheme benefits between 6 April 1997 and 5 April 2016, if no actuarial confirmation was given. The risk is that an amendment, for example one reducing benefits for future service, was ineffective.
Our initial alert gives more detail and a Q&As briefing looks further at the practical implications for UK pension trustees and employers.
Spotlight on UK Pensions
Catch up on the latest developments in the UK by listening to the latest edition of What's happening in Pensions. Use our Pensions Radar to keep track of future changes in UK law affecting work-based pension schemes.
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UK real estate
Residential leasehold reform in the UK
In the UK, leasehold title is a common form of property ownership. In comparison with freehold title, leasehold title is limited, as leasehold owners are tenants of a property for a fixed period of ownership.
The UK's Leasehold and Freehold Reform Act 2024 was amongst the final pieces of legislation to be enacted by the outgoing UK Government in July 2024. Amongst other things, it provides for:
- the prohibition of new long residential leases of houses;
- variations to the exiting statutory rights of tenants under
long residential leases to acquire the freeholds of their houses or
to extend the leases of their houses or flats;
- an extension of tenants' right to manage a building to more
buildings;
- a new right for tenants to buy out the rent payable under their
leases;
- new regulations to improve tenants' rights in relation to
the payment of service charges and other fees under a lease;
- new provisions for the regulation of residential estate
management;
- new regulations in relation to rentcharges; and
- some amendments to the Building Safety Act 2022 regarding the remediation of building defects and the insolvency of entities with repairing obligations relating to certain kinds of buildings.
Most of these provisions are not yet in effect and will require secondary legislation to be passed for further detail.
The UK's Renters' Rights Bill is currently undergoing its second reading in the UK's House of Commons. Instead of introducing the previous UK's Government's Renters Reform Act, which we discussed here, the new UK Government has put forward a new Bill, although there are distinct similarities. Its key provisions are as follows:
- the abolition of section 21 evictions and, with that, the end
of the assured shorthold tenancy. From the date of implementation,
all assured tenancies will be periodic tenancies;
- if tenants are evicted by the UK Court, they will be given more
time than under the current regime to find a new home;
- tenants will be given the right to appeal excessive
above-market rents;
- a new UK Private Rented Sector Landlord Ombudsman will be
established, to resolve tenants' complaints about their
landlord;
- a UK Private Rented Sector Database will be set up to help
local authorities and prospective tenants ensure landlord
compliance;
- tenants will have stronger rights to request a pet in the
property, which the landlord must consider and cannot unreasonably
refuse. To support this, landlords will be able to require pet
insurance to cover any damage to their property;
- the UK Decent Homes Standard will apply to the
private rented sector to give renters safer, better value homes.
This will require new regulations to set out the details of what
this standard will entail. In addition, 'Awaab's Law'
will also apply to the sector, which will require private rented
sector landlords to make good certain safety hazards in a rented
home (including damp and mould) within a specified time
period;
- it will become illegal for landlords and agents to discriminate
against prospective tenants in receipt of benefits or with
children;
- it will become illegal for landlords or agents to accept offers
made above the asking rate set out in the advertising materials;
and
- new measures will be introduced to strengthen local authority enforcement powers.
National Planning Policy Framework: reform in the pipeline
As we explored in this briefing, growth and housing are two of the key priorities for the new UK Government and the planning system sits at the heart of both. In the summer, the new UK Ministry of Housing, Communities and Local Government issued a consultation on the changes it proposes to make to the National Planning Policy Framework (NPPF) in order to achieve sustainable growth. The most eye-catching proposals revolve around their proposed changes aimed at boosting the number of houses built annually, to meet the UK Government's pledge to build 300,000 new homes per year. These include a new duty on UK local authorities to identify 'grey belt' land within the 'Green Belt' in their area, which will then be brought forward into the planning system (through both plan and decision-making) to meet development needs. The consultation closed at the end of September, and we await the outcome with interest.
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UK tax
UK Autumn Budget 2024: what tax measures can the UK expect?
The new UK Government's first budget is scheduled for 30 October 2024. Having ruled out rate rises for income tax, employee's national insurance contributions, VAT and corporation tax, the UK is braced for a number of other tax changes to help fill the '£22bn black hole' identified by the UK Government in the public finances.
However, as the UK Government has, so far, provided very little detail as to what measures we can expect in the Budget, speculation has been rife as to what it may contain. It is likely that we will get more colour on the few specific tax commitments the Labour Party made in its election manifesto. These include measures relating to carried interest taxation and reform of the current tax regime for UK resident but non-domiciled individuals ("non-doms"). The UK Chancellor has also confirmed that the UK Government will, at the Budget, outline its business tax road map, which is intended to "offer the certainty that encourages investment and gives business the confidence to grow". The road map will include a commitment to cap corporation tax at 25% for the duration of the current UK Parliament and to retain full expensing.
Rumours have certainly been abounding as to what non-Manifesto measures we can expect to see. Areas to watch out for include a possible increase in the rates of Capital Gains Tax (the tax paid by non-corporates on gains) and/or employer's national insurance contributions and pension tax reform.
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New bonus rates for Save As You Earn (SAYE)
SAYE plans are a form of UK tax-advantaged, all-employee share option scheme under which participants can exercise their options using the proceeds of a savings contract lasting three or five years. At the end of the savings period, the savings contract can have a tax free "bonus" added to it. If an individual chooses to withdraw their savings early, they will not be eligible for a bonus but may be entitled to receive tax free interest.
Following the introduction of a new calculation mechanism in the UK, last year, bonus and interest rates became payable in respect of SAYE contracts for the first time in nearly a decade. However, the fall in the Bank of England base rate in August meant that the bonus rate for SAYE 5-year savings contracts dropped from 3.2 times to three times monthly savings and the interest rate payable to early leavers fell to 1.33% from 1.42%. The bonus rate for 3-year savings contracts is unchanged at 1.1 times monthly savings. The changes applied to invitations issued on or after 16 August 2024.
Payments and incentives: hybrid plans
In their review of this year's company Annual General Meeting (AGM) season, certain proxy voting services commented on the introduction by some companies of "hybrid" long term incentive plans. The term "hybrid plan" is taken to mean a long-term incentive arrangement under which both performance related and non-performance related awards can be granted. The rationale for companies introducing such plans tends to be the influence of US pay practices on their remuneration strategies and it will be interesting to see how shareholders in the UK respond to them going forward.
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