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Focus on Regulation

The Modern Slavery Act: stricter reporting requirements on the horizon

MPs commissioned by the UK Government to review the Modern Slavery Act have published an interim report on the Transparency in Supply Chains Provision in s.54.  This blog looks at some of the key recommendations and what they would mean for UK business.

The MPs were asked: “how to ensure compliance and drive up the quality of slavery and human trafficking statements produced by eligible companies.”  The Report acknowledges that when the MSA was introduced in 2015, it was ground-breaking.  However, it also notes general agreement between businesses and civil society that a lack of enforcement and penalties, as well as confusion surrounding reporting obligations have led to poor quality statements and low levels of compliance.  On this basis, it concludes that the current provision is not sufficient and that it is time for the Government to take tougher action to ensure companies take seriously their responsibilities to eradicate modern slavery from their supply chains.

Recommendations

Drawing on expert reports and a comparative study of international legislation (notably the Australian Modern Slavery Act which came into force earlier this year (see our previous blog post)), the Report makes a number of significant recommendations.

In relation to the quality and accessibility of statements, it recommends that Government:

  • Makes it mandatory to report on the suggested criteria in s.54(5) of the current Act, i.e.: the structure of the organisation and its supply chain; its policies in relation to slavery and human trafficking; its due diligence processes; the parts of its business and supply chain where there is a risk of slavery and human trafficking and the steps it has taken to assess and manage the risk; the effectiveness of its measures against performance indicators; and training about slavery and trafficking which it has made available to its staff
  • Removes the provision which currently allows companies to report that they have taken no steps to address slavery and trafficking
  • Amends the legislation to clarify that companies are required to consider the entirety of their supply chain

In order to embed modern slavery reporting into business culture, it recommends that the Government:

  • Amends the Companies Act to require companies to refer to their Modern Slavery Statement in their annual reports
  • Requires that organisations designate an individual board member personally accountable for the statement and make that individual subject to penalties under the Company Directors Disqualification Act if they fail in their reporting requirements

In relation to enforcement, it recommends that the Government introduces graduated legislation to sanction non-compliance, including warnings, fines (as a percentage of turnover) and directors’ disqualification as well as establishing an enforcement body to impose these sanctions.

Finally, in relation to the public sector, it recommends that s.54 should be extended to the public sector and that non-compliant companies are eliminated from public procurement processes.

Comment – what would this mean for UK businesses?

According to the BHR Resource Centre’s sample of the FTSE 100, since the introduction of the MSA, a small number of companies have taken meaningful steps to understand and address the risk of modern slavery and provide detailed disclosure in their modern slavery reports, in accordance with the voluntary steps contained in s.54(5).  If the recommendations in the Report make it in to statute, this “leadership group” will be well placed to respond to the new reporting requirements without having to expend significant time or money on new systems and processes.

However, for the significant number of companies who have not taken these steps, such an amendment to the Act would create a significant compliance challenge.  The amended provision would oblige businesses to introduce policies, due diligence, training as well as monitoring and evaluation processes to judge the effectiveness of their actions.  What’s more, companies which fail to do so (and the individual directors allocated responsibility) would face stiff sanctions.

The tone set by the Government in its terms of reference makes clear its intention to strengthen reporting requirements.  What’s more, this is a rare issue which might command cross-bench support in the current Parliament.  Accordingly, it could be question of when rather than if stricter reporting requirements are introduced.

It takes time to introduce the systems and processes which the Report envisages making mandatory.  Businesses can get ahead of the curve and avoid the possible compliance headache and legal risk by acting now and voluntarily implementing the steps in s. 54(5) of the current Act.

Julianne Hughes-Jennett is partner and head of the Business and Human Rights practice at Hogan Lovells and Peter Hood is a Business and Human Rights Consultant