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European Edition
13th February 2024
Badenoch urged to deliver audit reform and boost FRC powers
Business Secretary Kemi Badenoch is under pressure to revive reform of audit rules, with the Chartered Governance Institute (CGI) saying a failure to push through sweeping changes has “undoubtedly contributed to the persistence of the delisting problem which plagues the London market.” While the Financial Reporting Council (FRC) last year outlined measures to strengthen the standards of audits and reporting for listed companies, the audit watchdog had to scale back the plans after a required bill was omitted from the King’s Speech and ministers told the regulator to focus on growth. CGI chief Sara Drake told Ms Badenoch that the Government’s “capricious abandonment” of the reforms represented a “colossal waste” of government time and public money, while also sending a “bad signal” about its commitment to responsible capitalism. She added that the decision has left business leaders and investors “in a state of uncertainty.” Among its demands to the Business Secretary, the CGI wants to see the FRC granted powers to investigate and sanction company directors for breaching auditing rules. A Department for Business and Trade spokesperson insists that “significant reform is already underway,” saying the FRC is “driving up audit quality” and has been given enhanced powers to ban inadequate auditors from reviewing large companies’ accounts.
Business confidence climbs
The continued recovery for the service sector has boosted business confidence, according to analysis from BDO. The firm’s Output Index shows that output rose for the third consecutive month in January, hitting 99.42. This marks the highest level since July 2022. Meanwhile, the Services-Sub Index reached 100.05 – the highest reading since August 2022. BDO partner Kaley Crossthwaite said businesses have started to regain their confidence, with the service sector “spearheading” the momentum. She said: “With output expected to continue rising, recession easing and businesses hopeful of further interest rates cuts – businesses have started the year with a sense of cautious optimism.” Despite renewed optimism, Ms Crosswhite warned: “We can't be complacent.”
Chancellor urged to scrap share tax
Investment bank Peel Hunt has called on the Chancellor to scrap a “pernicious” tax on share trading, saying the move could boost the London Stock Exchange after a drop-off in new listings. The broker says a stamp duty on shares is pushing investors away from the UK towards the US and Europe. Traders to pay a duty of 0.5% on every transaction, a charge which generates £3.3bn in tax revenue for the Treasury every year. Peel Hunt's head of research, Charles Hall, said: “It is clear that stamp duty should be removed as part of a series of reforms to help the recovery in UK capital markets,” adding: “At the very least we believe stamp duty on small and midcap shares should be removed, and materially reduced for larger companies.”
Citi rebuked by regulators
US regulators have asked Citigroup for urgent changes to the way it measures default risk of its trading partners. The Federal Reserve last year told the bank to address how it measures risk of default by counterparties in derivative transactions. Separately, the Office of the Comptroller of the Currency has looked into whether Citi had made as much progress on data integrity as it claimed. Meanwhile, the bank's auditors have found a plan to improve internal oversight to be lacking.
Ofwat's water firm fines criticised
The Lib Dems have hit out at a new scheme that will see water companies fined for providing poor service to customers, criticising the fact that the money will not go to the consumers affected. Ofwat’s new rules on customer service could allow the regulator to impose fines of up to 10% of the company's turnover, with the money going back to the Treasury. Tim Farron, the Liberal Democrats' environment spokesperson, said the plan “isn't up to scratch and is nothing less than a gimmick.” He added: “Money should instead go right back in the pockets of the people affected, through compensation from the water firms.”
Robinson: UK should resist ‘over-regulating' AI
Richard Robinson, the founder of tech start-up RobinAI, believes the UK should resist over-regulating AI, arguing that it would be unwise “to create a bespoke regulatory body whose sole purpose in life is to regulate AI.” Mr Robinson, a former Clifford Chance lawyer, said: “I think in general, we don’t want to over regulate this industry,” adding that embracing the technology offers UK a chance “to actually produce generational companies.” “I really don’t want us to make the classic European mistake of getting excited about regulation when we should be excited about innovation,” he added. This comes after the Government said watchdogs including Ofcom and the Competition and Markets Authority are set to take an “agile” approach to AI regulation.
Eurozone banks face changed risk landscape
Eurozone banks face a permanently changed risk landscape that requires lenders to alter how they operate, according to Claudia Buch, the European Central Bank's (ECB) banking supervisor. She has highlighted surging interest rates, rising geopolitical risk, quicker deposit movements, multiplying cyber attacks, and climate risk as factors that are changing the fundamental nature of the banking business. Ms Buch warned that banks may not be sufficiently prepared for these changes and lack the expertise to work in such an environment. She also emphasised the need for banks to integrate new risks into their risk management processes and adhere to best practices.
SFO boss to promise swifter action on fraud
Serious Fraud Office director Nick Ephgrave is set to outline plans to deliver a “bolder, pragmatic, more proactive” prosecutor that will take swifter action to tackle fraud. Calling for a more proactive approach, he is expected to say: “This means not being afraid to close investigations which have limited chance of progressing to charge, so that resources can be moved to other cases.”
TikTok faces copyright lawsuit threat over Universal Music songs
TikTok is facing the threat of a significant copyright lawsuit as songs from Universal Music artists, including Taylor Swift and BTS, continue to be used on the platform despite the label's withdrawal. Simon Goodbody, a lawyer from Bray & Krais, has stated that TikTok should take down Universal Music content, but the platform seems unable to control its users. If Universal Music does not agree to better terms or the case goes to court, TikTok could face a massive copyright claim. Users are finding ways to dodge the copyright filter and upload copyrighted music from other streaming services. TikTok's publishing rights deal with Universal is set to expire soon, which could result in the removal of more music and videos from the platform.
Retail insolvencies expected to increase
Six UK retailers have already gone bust in 2024 and two others have warned that they may struggle to stay afloat. Experts have warned that more retailers could collapse, with high inflation and a squeeze on personal finances hitting consumer spending. Rob Baxter, UK head of corporate finance and global head of KPMG’s consumer and retail M&A team, predicts there will “continue to be an uptick in insolvencies as the year progresses.” He added: “It looks like what we’re seeing is more consolidation within certain sectors and more clear distinction between the winners and losers in the sector.” On the outlook for consumer confidence, Mr Baxter said: “I don’t think it’s going to be a year of massive spending sprees. But it feels more positive than last year.”
Debenhams cuts losses as sales rise
Debenhams has reported that revenue increased from £56.9m to £87.1m for the year to February 28, 2023, while its pre-tax losses were cut from £11.7m to £732,000. revealed Debenhams’ UK sales increased from £52.4m to £73.5m and from £4.5m to £13.5m in the rest of the world. The two sets of financial results come after the accounts for nine other major brands owned by Boohoo were published last month. Meanwhile, the delayed accounts for fellow Boohoo-owned brand Nasty Gal have also revealed the company’s revenue was cut from £110.4m to £67.3m and its pre-tax losses went from £16.8m to £12.1m.
The Body Shop files notice of administration
The Body Shop has confirmed it has filed a notice that it intends to appoint administrators. The beauty retailer has issued a court notice seeking protection from creditors as it lines up FRP Advisory to handle a restructuring of the business. It comes after the company was bought by Aurelius, a German private equity firm, last November in a deal valuing the company at £207m. Store staff now face possible redundancy in an insolvency process designed to cut its liabilities or to clear a path for a full winding down of the business. One private equity source told The Times the company's brand was likely to survive and that there may be suitors for some of the chain's British stores.
M&S accuses Gove of misinterpreting planning rules
Michael Gove is accused of misinterpreting planning rules by Marks & Spencer as the legal battle over the redevelopment of its Marble Arch store begins in the High Court today. The Housing Secretary is accused of taking an inconsistent approach to planning decisions, seeding confusion over what developers need to do to get the green light for projects. Robert Gowing, a senior planning associate at Hogan Lovells, said Gove's decision to intervene in the Marble Arch redevelopment has "cast a dark shadow on commercial development projects". He said: "Prospective developers are faced with real uncertainty as to what information is needed to justify redevelopment proposals." Charles Begley, chief executive of the London Property Alliance, said: "Councils and communities have been left in an invidious position to try and work it all out, with conflicting messaging from national government further confusing the issue."
Sabadell and Unicaja deny potential tie-up
Spanish banking group Sabadell and smaller rival Unicaja have denied rumors of a potential tie-up. According to a report, Sabadell had been in touch with supervisors and politicians to prepare for a potential merger with Unicaja. However, both banks have denied any contact or consideration of takeover deals. Unicaja says it is focused on improving profitability, while Sabadell's focus is on continuing to improve profitability.
Metro Bank plans derailed
Metro Bank's plan to open branches and create jobs in the north of England has been derailed. Metro had pledged to take on 300 staff to serve 15 new high street sites, but it is now behind on its target. This comes after the firm was hit by uncertainty in October and had to agree to a £925m emergency refinancing. As a result, the bank is now looking for smaller sites for new branches and expects to fall short of its commitment to create 300 jobs.

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