The Queen's speech delivered on 10 May 2022 announced the intention of strengthening the protection and support for victims of human trafficking and modern slavery as well as increasing the accountability of organisations in driving out modern slavery from their supply chains through the implementation of a Modern Slavery Bill (the "MSA Bill").
The MSA Bill, which has yet to be proposed in full, would seek to:
- Reduce the prevalence of modern slavery in supply chains by increasing transparency from businesses and public bodies;
- Enshrine in domestic law the Government's international obligations to victims of modern slavery; and
- Ensure law enforcement agencies have stronger tools to prevent modern slavery occurring, protect victims of modern slavery and bring perpetrators to justice.
The Government's key proposals in relation to the corporate requirement to publish a modern slavery act 2015 ("MSA") statement are set out below.
- Mandatory Reporting
The proposals would make reporting against each of the six areas listed in Section 54(5) MSA mandatory. By way of refresher, these areas include reporting on an organisation's business structure and supply chains, related policies and due diligence processes, risk assessment, effectiveness and training.
If organisations have taken no steps within an area, they must state this clearly. They will also be encouraged to provide a reason for this. This requirement will necessitate legislative change to the MSA which the Government has stated will be introduced "when parliamentary time allows". For the time being, reporting on these areas will remain optional, however the Home Office has published updated transparency in supply chains guidance to help organisations prepare for these changes, which can be found here.
- Single Reporting Deadline
Although not explicitly mentioned in the Queen's Speech, the Government has previously stated that it intends to make legislative changes to introduce a single reporting deadline upon which all organisations must publish their MSA statement each year. Rather than basing the deadline on an organisation's relevant financial year end (which is the current requirement), organisations will be required to report on the same 12-month period (April to March) and will then have six months to prepare their MSA statement for the single reporting deadline of 30 September.
- General Compliance
The Government has also stated that it will amend legislation to make the current requirements "clearer and increase accountability". Organisations are currently required to publish statements that are approved by the Board and signed by a Director, but it is often unclear from the statement whether these approvals have been obtained. The Government plans on amending the MSA to require MSA statements to state the date of Board (or equivalent) approval and Director (or equivalent) sign off.
Group MSA statements prepared on behalf of multiple entities will also be required to explicitly state which organisations are covered by such statements once these legislative changes have been made.
- Online Government Registry
The Government has now developed an online registry for MSA statements and organisations to publish their MSA statements (in addition to continuing to post such statements on their own websites), which can be accessed here. Since the registry's launch in March 2021, the Queen's Speech Briefing Paper stated that over 7,000 statements have been submitted to the registry, covering over 23,350 organisations on a voluntary basis. Whilst publishing a statement onto this registry remains voluntary for now, the proposed changes under the Modern Slavery Bill would make this a mandatory requirement for those entities captured by S.54 MSA.
The Government's Consultation on Transparency in Supply Chains (which took place on 10 July 2019) (the "Consultation") highlighted the need for greater enforcement of the current reporting requirements under the MSA. However, specific views on the nature and level of civil penalties have been mixed. In response, the Government has stated that it will consider enforcement options in line with the development of the single enforcement body for employment rights that the Department for Business, Energy & Industrial Strategy consulted on in 2019. The Government released a report in June 2021 confirming its commitment to creating the single enforcement body in line with its manifesto and has outlined next steps for completing this project. The report flags that the complexity of the project means that more detailed plans for the single enforcement body are in development.
- Public Sector Organisations
The Modern Slavery Bill is also intended to extend S.54 of the MSA to public bodies with a budget threshold of £36 million or more. This follows the support to extend MSA reporting to public bodies by 98% of respondents to the Consultation. The Government has also produced the Modern Slavery Assessment Tool ("MSAT") for public sector organisations to identify and reduce the risk of exploitation in their supply chains.
FRC Modern Slavery Reporting Practices
On 1 April 2022, the Financial Reporting Council released its annual report on Modern Slavery Reporting Practices in the UK (the "FRC Report") noting that modern slavery generates an estimated $150 billion annually and encompasses 40 million people in slavery globally. The main focus of the FRC Report was to review how businesses are identifying and disclosing risks in their operations and supply chains, with a particular focus on corporate reporting under S.54 MSA.
The report found that there was generally a lack of information in the MSA statements and annual reports needed for shareholders and wider stakeholders to make informed decisions from the 100 companies sampled who belong in FTSE 100, FTSE 250 and Small Cap companies (with a market capitalisation of below $2 billion). 12% of the companies sampled failed to provide an MSA statement, while those that were provided were found to be unclear and fragmented. Less than half of companies' statements identified and discussed modern slavery issues in the context of their organisational structure, and most were 'backward-looking' rather than proactive in their approach to modern slavery.
The FRC Report findings indicate that there are still significant improvements to be made by organisations when it comes to MSA reporting. The latest updates provided in the Queen's Speech demonstrate that the direction of travel in this area is now clear; as such, organisations should act now to ensure that they have the right systems in place to be ready to implement the changes required. This includes ensuring that MSA statements are clear, coherent and sufficiently detailed to take into account the actual risks faced by the business, as well as a consideration of mitigation measures to help manage those risks. The Section 54(5) criteria described above should also be re-reviewed in light of the proposed changes, with any practical measures implemented as soon as possible.