Regulatory Landscape: What to Watch for the UK and the EU in 2023

Introduction

The shape of longer-term EU-UK relations remains to be seen. Neither side is waiting for the other before acting on policy and regulation. The UK is reviewing the need for over 4000 EU laws by 31 December 2023. At the same time, the EU has embarked on ambitious plans to secure its position as one of the world's main trading blocks. Against the backdrop of war in Ukraine, economic challenges and strains on global trade, we highlight key recent legal developments in the EU and UK and forecast those likely to impact businesses in 2023.

Steptoe’s European teams in Brussels and London assess developments in Trade, ESG, sanctions antitrust/competition, chemicals, food and food contact materials regulation, insurance and criminal investigations.

Trade, Customs, the Level Playing Field

Renato Antonini, Eva Monard, Byron Maniatis and Elli Zachari

Customs

Customs and supply chain issues continued in 2022, affecting trade between the EU and the UK, but also internationally. In addition to the logistical challenges carried over from the previous years, traders in 2022 also had to deal with the impact of the war in Ukraine and the sweeping sanctions imposed against Russia; general inflation and rising energy costs; increased geopolitical tensions; China's "zero Covid" policy and resulting supply disruptions; and even disruptions caused by extreme weather conditions. Amidst these issues, companies struggled to source their goods and/or faced considerable delays throughout 2022.

As regards to trade between the EU and the UK specifically, this was further affected by the impact of Brexit, with recent evidence suggesting that Brexit resulted in both a decrease in overall trade volumes and in the number of trading relationships between UK and EU firms.[1] The impact of Brexit has so far been felt more strongly by UK companies than EU companies, as the latter have still not been made subject to full customs controls. Indeed, while the EU has been applying full customs checks to imports from the UK since the beginning of 2021, the UK has repeatedly delayed introducing its own controls on imports from the EU.

The UK government did introduce some customs controls, applicable as of 1 January 2022[2], including border controls and a requirement for customs declarations to be submitted at the point of import. However, on 28 April 2022, the UK Cabinet Office announced that the government would be delaying the introduction of further customs checks on goods imported from the EU, which had been scheduled for July 2022.[3] The UK government referred to the war in Ukraine and the rising energy costs as reasons to not further burden businesses that are still recovering from the pandemic, and which may pass-on the associated costs to consumers. The key controls that were postponed include the following:

• a requirement for Sanitary and Phytosanitary ("SPS") checks on EU imports to be carried out at Border Control Posts;
• a requirement for some SPS-related imports to the UK to be accompanied by a health certification;
• prohibitions and restrictions on the import of chilled meats from the EU;
• a requirement for safety and security declarations on EU imports

According to the UK government, the decision to defer these new controls is expected to save British importers at least £1 billion in annual costs. UK exporters, however, in the meantime continue to be subject to EU customs requirements, causing significant disruptions as compared to pre-Brexit levels.

Level Playing Field

The EU has been increasingly concerned in recent years about ensuring a level playing field between domestic and foreign companies and, to this end, it has been developing instruments enabling it to unilaterally limit or regulate foreign companies' access to its market. For example, the Foreign Subsidies Regulation (see our blog post on the regulation here), which was formally adopted in December 2022, entered into force in January 2023, and will generally start applying from mid-2023, gives the European Commission substantial new powers to take measures against companies benefiting from distortive foreign subsidies. Also, the International Procurement Instrument (see our blog post on the instrument here), which entered into force in August 2022, enables the EU to impose measures limiting foreign companies' access to the EU public procurement market if these companies' governments do not offer similar access to EU businesses.

While these instruments are not specifically directed at the UK, UK companies are of course potential targets of both of these new measures introduced in 2022. Moreover, UK business could further be impacted by forthcoming EU initiatives, such as the anti-coercion instrument (see our blog post on the instrument here), and the carbon border adjustment mechanism (CBAM), discussed below, which is meant to equalize the price of carbon between domestic products and imports.

In addition, a key issue for the UK in 2023 will be the position it takes in response to the green subsidy race that is brewing between the US and the EU. In August 2022, the Biden administration signed the Inflation Reduction Act (IRA), which envisages a $369 billion subsidy scheme that is meant to encourage US companies to switch to greener models. In response, there have been calls by several European leaders that the EU should follow a similar course. France's Finance Minister has already announced a range of measures to incentivize green industries domestically and French President Emmanuel Macron had also expressed support for a European equivalent to the IRA. Similarly, European Commissioner for the Internal Market, Thierry Breton, has called for the introduction of an EU Clean Tech Act in response to the US measures.

If the EU eventually decides to go ahead with its plans for green subsidies, this will likely create tensions also with the UK and may give rise to legal issues under the Trade and Cooperation Agreement (TCA) (given the subsidy control rules contained therein). On the other hand, the UK may choose to respond with its own domestic support measures, meaning that EU and UK companies may find themselves entangled in a competition over subsidies between the two blocs.

The Northern Ireland Protocol

Tensions between the EU and the UK over the Northern Ireland Protocol continued in 2022, while negotiations reached an impasse in the beginning of the year. On 13 June 2022, the UK introduced the Northern Ireland Protocol Bill in Parliament[4], which provided that certain aspects of the Northern Ireland Protocol would no longer be applied, specifically relating to trade in goods, regulation of goods, subsidy control, and application of EU law. Shortly after, on 15 June 2022, the EU relaunched infringement proceedings against the UK for failing to properly implement the Protocol[5], followed by additional actions against the UK in July 2022.[6]

The EU’s position continues to be that it is not prepared to renegotiate the protocol, but rather work with the UK on finding a way to apply the protocol flexibly and in a simplified manner.

Moreover, an important demand by the EU is that the UK should provide EU officials with real-time data of goods movements between Britain and Northern Ireland, as was foreseen in Article 12 of the Northern Ireland Protocol, which the EU has accused of having failed to give effect to.

It was reported that negotiations between the EU and the UK restarted in October 2022, for the first time since February, and that some progress was being made. The prime ministerial changes in the UK are also said to have changed the political atmosphere and the UK's attitude towards the negotiations. More recently, on 9 January 2023, UK Foreign Secretary James Cleverly and European Commission Vice President Maroš Šefčovič issued a joint statement announcing that they had reached an agreement on a way forward regarding the issue of the transmission of data on movements of goods. The agreement means that the EU should finally be able to access real-time data on goods moving from Britain to Northern Ireland, and is been hailed as an important step towards resolving the long-running dispute between the two sides.

Subsequently, it was also reported that the EU and the UK are close to reaching a solution on a dispute over the application of EU safeguard duties on British imports of steel into Northern Ireland. After the EU replaced the country-specific quotas for certain steel categories with a single global quota in June last year[7], British steel producers found themselves having to pay a 25% duty on products sold in Northern Ireland, given that the EU global quotas were exhausted earlier than expected. A solution on this issue would be another sign that the EU and the UK may be near to putting an end to their long-standing clashes over the status of Northern Ireland.

Despite the foregoing, there are still important issues that need to be overcome between the two sides, including the role of the Court of Justice in adjudicating disputes over the implementation of the protocol, which the EU insists it is not willing to renegotiate. It therefore remains to be seen how the negotiations will further develop in 2023 and whether an overarching agreement will finally be reached.

Regulatory Landscape

Environment, Social and Governance (ESG) issues

Renato Antonini, Eva Monard, Byron Maniatis and Elli Zachari

The EU's legislative agenda in 2022 was heavily focused on sustainability, human rights and environment issues, and the initiatives proposed or adopted in this regard are likely to significantly impact trade and companies' supply chain operations in the coming years. Moreover, in several of these areas, there has been some alignment with the UK, which has proposed similar instruments, with certain differences, however, meaning that companies may have to adapt to different regulatory requirements for each jurisdiction.

On 13 December 2022, the Council of the EU and the European Parliament reached a provisional agreement on a Regulation establishing a carbon border adjustment mechanism (CBAM), following a 2021 proposal by the Commission. The CBAM aims to address the problem of "carbon leakage" i.e. the situation whereby, due to costs related to the EU's climate policies, companies move their carbon-intensive production abroad to take advantage of laxer standards. The CBAM, which would become fully operational in January 2026, will require EU importers to buy "carbon certificates" reflecting the carbon price that would have been paid for the products under the EU's carbon pricing rules, i.e. the EU Emissions Trading System (ETS). Importantly, as the UK is not among the countries that are currently excluded from the CBAM, the introduction of this measure could significantly affect UK exports to the EU, with UK exports of iron and steel and aluminium being viewed as particularly vulnerable.

Another important landmark of 2022 was the EU institutions reaching an agreement on a Regulation on deforestation-free products on 6 December 2022, following a proposal by the Commission in November of the previous year. This Regulation aims at curbing deforestation and forest degradation driven by EU consumption and production by prohibiting the placing or making available on the EU market, or the export therefrom, of certain commodities unless they are: (i) deforestation-free; (ii) produced in accordance with the relevant legislation of the country of production; and (iii) covered by a due diligence statement. The EU's Regulation appears at this stage to go further than the UK's 2021 Environment Act, which prohibits the commercial use in the UK of certain commodities unless local laws were complied with in the country of production, although the UK secondary regulations which are meant to set out in further detail the companies' obligations are still to come. If the UK chooses not to align further with the EU Regulation, this could make it more complicated for companies to ensure compliance with both jurisdictions.

Finally, in 2022, the European Commission also issued two important and long-awaited proposals on corporate sustainability due diligence (see our article on the proposal here) and a ban on goods made with forced labor (see our blog post on the proposal here). Both instruments are still at the stage of negotiations among the EU institutions, which are likely to be completed in the course of 2023. Importantly, both instruments entail obligations not only for EU but also for non-EU companies active in the EU, to the extent that the latter meet certain turnover thresholds (under the Corporate Sustainability Due Diligence Directive) or sell products on the EU market or export them from the EU (as regards the forced labor ban). While certain aspects of the two measures may still be amended during the negotiations, it is certain that both instruments have the potential to significantly impact the supply chains of EU and UK companies after their entry into force.

 Sanctions

Alexandra Melia, Eva Monard and Guy Soussan

2022 was a transformative year for UK and EU sanctions. Russia's invasion of Ukraine in February 2022 ushered in wider reaching changes to the architecture of UK and EU sanctions as well as an unprecedented escalation in the deployment of financial and trade sanctions by the UK, EU and their international partners. The effects of these changes will continue to be felt in 2023.

Businesses operating across the UK and EU in 2022 saw increasing evidence of divergence in the timing and targets of sanctions designations as well as the approach to implementation of specific sanctions measures. These developments have resulted, and will continue to result, in an increase in compliance complexity for international businesses, notwithstanding significant efforts by the UK, EU and others to coordinate their sanctions measures. The compliance challenge posed by divergence likely will be further amplified by the trend toward the UK and EU making use of increasingly complex and, at times novel, sanctions measures.

While UK and EU sanctions agencies acknowledge that business desires harmonization and remain committed to close coordination and cooperation when introducing and implementing coordinated sanctions, they also recognize that some level of sanctions divergence ultimately is inevitable because the legislative language and architecture of the UK and EU sanctions regimes now differs to reflect both drafting conventions and, at times, policy-led decisions about how certain measures should be framed and implemented. However, much common ground remains and there are indications that the two jurisdictions are taking steps to align their sanctions regimes even further. For instance, the European Commission has announced that it is planning to put forward a proposal to include corruption in the EU's human rights sanctions regime. This initiative would bring the EU closer to the UK, which already has a similar anti-corruption sanctions regime in place.

There is little evidence to suggest that the scale and scope of UK and EU sanctions will abate in 2023. Subject to developments on the ground in Ukraine, further Russia sanctions measures appear likely. The prospect of additional Iranian sanctions also has been increased by the Iranian government’s supply of drones to Russia and involvement in human rights violations. As the stance of the UK and EU appears to be hardening toward China, one or both may follow the lead of the US in imposing sanctions, particularly if the situation with respect to Taiwan were to deteriorate.

Finally, the sweeping changes to the UK and EU sanctions landscape introduced at pace in 2022 are likely to give rise to increased enforcement action in 2023. While the UK and EU have articulated their intention to prioritize the enforcement of sanctions evasion, it remains to be seen to what extent individual sanctions agencies also seek to target "low hanging fruit." The UK’s introduction of strict civil liability for breaches of financial sanctions in June 2022 significantly lowered the evidential bar HM Treasury's Office of Financial Sanctions Implementation must meet to impose civil monetary penalties on companies and individuals, making the prospect of increased enforcement likely.

In the EU, a notable development has been the Council’s recent decision to add the violation of EU sanctions to the list of so-called "EU crimes", which will now pave the way for a Directive establishing minimum rules on the definition of and penalties for the crime of violating EU sanctions measures. This implies that over time, all Member States will eventually have to provide for criminal penalties of a certain minimum level. Other EU concrete measures include the introduction in March 2022 of a new Sanctions Whistleblower Tool, through which EU sanctions violations can be anonymously reported, and the "Freeze and Seize Task Force" set up by the Commission to coordinate actions to freeze and, where applicable, confiscate assets of Russian and Belarusian oligarchs. The EU has also recently appointed an International Special Envoy to liaise with third countries on ways to avoid sanctions circumvention.

For further updates on sanctions on Russia see our dedicated webpage.

Antirust/Competition

Charles Whiddington

This past year saw a range of competition law developments at EU and UK level in enforcement, state aids, block exemptions. Many of these trends will continue through 2023 and we will see the UK's competition law regime continue to move further away from that of the EU. The Brexit analogy we used last year was of two boats moored together on a lake and which, when unmoored, gradually drift apart, even without any specific driving force. This year, there are a number of initiatives which we can see will move the UK firmly away from its close alignment with the EU.

• Enforcement

The UK has always had its own free-standing enforcement regime for investigations which were confined to the UK. Where the conduct being investigated covered other EU Member States, the European Commission would have exclusive jurisdiction to investigate and punish. Post-Brexit, the European Commission can only investigate conduct (wherever it took place) with effects within the EEA. Anti-competitive conduct which takes place in the UK (either exclusively, or which may have adverse effects within the EEA) may be investigated by the Competition and Markets Authority (CMA). During the Covid-19 pandemic, investigations were largely suspended, but have now re-commenced (about 7 investigation were conducted in the EU ones in 2022) and with the possibility of a recession looming, we may expect an increase in this in both the UK and at EU level.

To address concerns that fewer companies are coming forward seeking leniency, the European Commission has issued a guidance notice to potential leniency applicants providing additional transparency on the process.

In the UK, almost uniquely, there is a statutory power for a court to disqualify a person from acting as a director for engaging in anti-competitive conduct. The CMA has stepped up its use of this tool and we have seen 25 such orders with 11- and 12-years' disqualification having been imposed on two individuals in the construction sector.

• Private damages cases

In the UK, the Competition Appeal Tribunal (CAT) has jurisdiction to hear competition damages cases and we are seeing a dramatic increase in the number of class actions (mostly on an opt-out basis) and as we go into 2023 there are about 30 such cases moving through the CAT. They need to be certified by the CAT as suitable for trial and 2023 will see admissibility issues being fought over, including the binding nature of decisions of the Court of Justice of the European Union (CJEU), the ability of defendants to communicate with class members and the suitability of the methodology being advanced by claimants.

• Safe harbors and guidance

The CMA is closely engaged with the European Commission and has been discussing formal cooperation agreements. We may see this formalized during 2023. The EU Commission has been consulting on a variety of updates to block exemptions and guidance notes. These include new R&D and Specialization block exemptions, Guidance on market definition and an important Horizontal Guidance note which includes a chapter on sustainability (see our article on this here).

• State aid

At EU level, the Commission has dealt with a great number of Covid-related aid applications and this is tailing off. It has also been examining the way in which approved aid has been administered.

The UK has recently adopted its own regime to deal with subsidies, the Subsidy Control Act 2022 (see our blog post on this here).

Chemicals

Darren Abrahams and Ruxandra Cana

In recent years regulators have acknowledged that chemicals are a ubiquitous feature of modern life (in products, components, ingredients, tools and packaging). Their use and life cycle impacts have never been under greater scrutiny. Policy makers also acknowledge that innovative chemistry has a critical role to play in solving the climate and biodiversity crises.

Strategy Direction

2022 saw the European Commission focus on articulation and implementation of its Chemicals Strategy for Sustainability (CSS), which is part of the wider European Green Deal. Key actions included, a public consultation on REACH revision and setting out a REACH Restrictions Roadmap, issuing Recommendations on the definition of nanomaterials, and on a European assessment framework for "safe and sustainable by design" chemicals and materials, and an initiative to revise the EU Regulation on classification, labelling and packaging of chemicals ("CLP") and introduce new hazard classes for substances which are endocrine disrupting ("ED"), persistent, bioaccumulative and toxic ("PBT"), very persistent and very bioaccumulative ("vPvB"), persistent, mobile and toxic ("PMT"), or very persistent and very mobile ("vPvM").

In early 2023 we expect to see the much-anticipated REACH restriction proposal on per- and polyfluoroalkyl substances (PFAS) in which around 4,000+ PFAS are likely to be targeted. Future criteria for "essential use", which will become a key feature of future chemical regulation, are likely to be influenced by determinations of essentiality made in the PFAS-specific context. Towards the end of 2023 we can expect to see proposals to revise REACH and on improving access to and availability, sharing and re-use of chemical data for the purpose of chemical safety assessments (facilitating the "one substance one assessment" goal).

In the UK, during 2022, the various UK environmental law-makers and regulators (with devolved responsibilities) have been active but more focused on adapting to their new roles in an independent UK. Although the January 2018 "25 Year Environment Plan" for England set a goal of "managing exposure to chemicals", with further detail to be set out in a chemicals strategy, that strategy is still awaited. The UK will, however, have an opportunity to do things differently. The "Retained EU Law (Revocation and Reform) Bill 2022-23" (branded the "Brexit Freedoms Bill"), would enable the revocation, amendment or replacement of retained EU law. The Bill would automatically revoke all retained EU law within scope on 31 December 2023, except where it has been expressly preserved before then by secondary legislation.

In 2023, the registration deadlines of UK REACH will be extended to 2026, 2028 and 2030 (depending on tonnage band and hazard classification). The far greater challenge (for registrants and regulators) will be addressing the huge data gaps arising from the UK's exit from the EU without access to ECHA's databases. Further work will also be undertaken on the potential for a "new model" for REACH registrations, which imposes less of a cost and regulatory burden and is more target to the GB context.

Finally, five priorities have been identified for the 2022 to 2023 UK REACH work program, namely:

• PFAS – acting on the recommendations of a Regulatory Management Options Analysis (RMOA);
• Intentionally added microplastics – an evidence project on identifying and managing the risks they pose;
• Formaldehyde and formaldehyde releasers in articles – an RMOA to review the evidence base and evaluate a potential restriction;
• Bisphenols in thermal paper – an RMOA to review the evidence base and evaluate a potential restriction; and
• Hazardous flame retardants – reviewing and updating the existing evidence on potential environmental risks, to feed into wider chemicals policy.

Food Safety and Food Packaging

Dr. Anna Gergely and Tom Gillett

Food contact materials and articles (FCM) are playing a central role in the objectives of the European Commission to support the EU Green Deal and the Circular Economy Action Plan.

Food Contact Materials

It is noteworthy that after more than a decade of backlog, a major EU development, "Commission Regulation (EU) 2022/1616 on recycled plastic materials and articles intended to come into contact with food" entered into force on 10 October 2022, repealing Regulation (EC) No 282/2008. The new regulation introduces new rules for recycled plastic food contact materials, including new control mechanisms designed to ensure plastics used as intake raw materials are sufficiently decontaminated during collection and recycling. Regulation 2022/1616 also establishes a new Union register of technologies, recyclers, recycling processes, recycling schemes, and decontamination installations.

From July 2023, only plastics containing recycled plastic manufactured with a "suitable" recycling technology may be placed on the market for food contact uses, unless manufactured using a novel technology. Suitable technologies are: post-consumer mechanical PET recycling (subject to authorization of the individual processes); and recycling from closed loops. From October 2024, quality assurances systems used to collect and pre-process plastic input will need to be certified by a third party.

However, as a clear sign of divergence between EU and UK regulatory requirements following Brexit, Regulation (EC) No 282/2008 remains applicable in the Great Britain market, as retained EU law.

Extended Producer Responsibility

The way UK organizations responsible for packaging (including food packaging) must carry out their recycling responsibilities has changed from January 2023. The new rules place responsibility on certain producers for the entire cost of recycling the packaging they place on the market, including the cost of collection, treatment, and recycling. Those businesses in scope may ultimately need to: collect/report data on the packaging they handle and supply; pay a waste management fee; continue to buy packaging waste recycling notes (PRNs) or packaging waste export recycling notes (PERNs) to meet recycling obligations; and report information about onward supply. It is anticipated that the changes will result in significantly higher compliance costs for some producers.

Single-use Plastics

One important recent development in the area of FCM relates to the regulation of (so called) single-use plastic materials and articles. The ban of various single-use "plastic" food items (the definition is highly debatable) are ongoing, with similar prohibitions coming into force in both markets (but without alignment on scope or timescales).

From July 2021 an EU-wide prohibition on the placing on the market of a wide selection of single-use plastic items came into force under the Single-use Plastics Directive.

The current position on single-use plastics in the UK is more complex. In Scotland a range of single-use items were banned from 1 June 2022. Similar bans were approved by the Welsh Senedd in December 2022. The UK Government remains behind the curve for England, but has confirmed (in January 2023) that it is set to ban single-use plastic items relating to takeaway food and drink in England (with legislation expected in October 2023).

In 2023 the EU is going to move forward as well, most likely introducing new amendments to existing laws (such as the 17^thand possibly 18^thAmendments - to the Plastics Regulation 10/2011) and/or replacing the existing legislation altogether.

This is surely a year to watch for companies concerned with placing materials and articles in food contact applications on the market, whether they are made from plastics or other materials, whether they are virgin or recycled, and whether the relevant market is the EU or the UK (or both).

Insurance

Guy Soussan and Algirdas Semeta

2022 witnessed significant developments in the EU regulatory and business environment for re/insurance business, ranging from the negotiations of a comprehensive reform of the EU's re/insurance prudential framework (Solvency II), the adoption and entry into force of multiple sustainable finance regulations, and the regulatory initiatives in the area of digitalization and digital finance. Multiple reforms will continue in 2023 and several new initiatives will be proposed.

The EU co-legislators will continue negotiating the proposed revision of the Solvency II Directive. While the Council already adopted its negotiating position in summer last year, the European Parliament is still considering the proposals put forward by the Commission. The discussions to date have revealed several significant contentious areas of the reform, such as the calibration of the quantitative capital requirements and the integration of the climate change risks in the Solvency II framework. The upcoming Solvency II reform negotiations between the Council and the European Parliament in 2023 should be complex and may produce unexpected results.

In 2023, the EU co-legislators will also continue negotiating another core pillar of the EU regulatory framework for re/insurers, i.e. the proposed Insurance Recovery and Resolution Directive (IRRD). Similar to the Solvency II review, the adoption of the IRRD proposal will not be a straightforward process given the criticism that the current proposal is too similar to the existing EU recovery and resolution framework for banks.

The EU rules for the distribution of re/insurance products should also be revised in 2023. As part of the EU's Retail Investment Strategy, the Commission is expected to publish its proposal amending the Insurance Distribution Directive (IDD) in relation to the distribution of insurance-based investment products in May 2023. Meantime, a comprehensive review of the IDD was originally foreseen in 2021, but it has been delayed due to late transposition of the IDD in some Member States and the Covid-19 pandemic. The comprehensive review is currently expected to take place as of 2025.

Re/insurers should also expect further regulatory/supervisory initiatives in the area of sustainable finance. In 2023, the focus of the EU agencies – the European Insurance and Occupational Pensions Authority (EIOPA) and the Joint Committee of the ESAs - should shift to the proper implementation and application of the recently-adopted rules on the risk management, reporting and disclosure of sustainability risks and factors. Work should also continue on addressing protection gaps and greenwashing risks.

2023 will also see further legislative and regulatory initiative in the area of digitalization and financial innovation. The Commission is expected to publish its proposal for an open finance framework in the second quarter. Meantime, EIOPA intends to start preparing for the application of the recently-adopted Digital Operational Resilience Act (DORA). Further EU focus areas include a safe use of artificial intelligence applications in finance, open insurance and the development and impact of platforms within the insurance value chain.

Criminal Investigations in the UK

Zoe Osborne

Developments to the UK criminal liability regime for corporates are expected to hit the statute books in 2023, with the introduction of new "failure to prevent" offences. As we saw with the introduction of the "failure to prevent bribery" offence under section 7 of the Bribery Act 2010, any such expansion of the "failure to prevent" regime will likely have far-reaching, and potentially seismic, consequences.

Reform to the UK corporate liability regime has been long discussed and promised, with prosecutors arguing that the current law – requiring them to prove that those individuals with the necessary "directing mind and will" of the company performed the necessary criminal act and had the necessary state of mind (known as the "identification principle") – makes it exceptionally difficult to prosecute large global organizations for criminal offences. It is argued that it is hard to link companies with a diffuse structure to the offence of a controlling officer. The identification principle has been pointed to as the reason for the acquittals in a number of recent high-profile criminal cases.

Whilst a reform of corporate criminal law in the UK has been on the backburner for over 15 years, in June 2022 the Law Commission finally published an options paper on corporate liability. At least four different Parliamentary select committees have also, in 2022 alone, urged the government to introduce corporate criminal law reform. The Law Commission found that the current law poses "an obstacle to holding large companies criminally responsible for offences committed in their interests by their employees" and incentivizes poor corporate governance, by "reward[ing] companies whose boards do not pay close attention" and penalizing those that do. The Law Commission set out several options for reform, which is awaiting a response from the government.

Against the background of the UK Parliament's renewed interest in reform including proposed amendments to the Economic Crime and Corporate Transparency Bill currently going through Parliament (which, if passed will dramatically increase the chances of a successful prosecution of large companies and their senior executives for financial crime), it is hard to see how the government in 2023 can resist some form of meaningful legislative response. We predict both reform of the identification doctrine (to broaden it to cover crimes committed with the consent or connivance of senior managers, and to cover collective negligence) and the introduction of specific failure to prevent offences (particularly in relation to fraud, but maybe also in relation to failure to prevent money laundering). As with the introduction of the Bribery Act over a decade ago, this is now the opportunity for companies to review their existing compliance systems and prepare themselves for the likely changes on the horizon prior to any formal legislation being passed.

Conclusion

Despite some uncertainty still remaining, the regulatory divergence between the UK and the EU is setting in more clearly. Similarly, to last year, 2023 will bring several new developments and changes in the regulatory landscape and business environment, that Steptoe & Johnson LLP will scrutinize closely. With our multidisciplinary approach, we can advise on compliance in all the areas covered in this article.

[1] https://obr.uk/docs/dlm_uploads/CCS0822661240-002_CCS001_SECURE_OBR_EFO_November_2022_BOOKMARK.pdf.

[2] https://www.gov.uk/government/news/less-than-a-month-until-full-customs-controls-are-introduced.

[3] https://www.gov.uk/government/news/new-approach-to-import-controls-to-help-ease-cost-of-living.

[4] https://publications.parliament.uk/pa/bills/cbill/58-03/0012/220012.pdf.

[5] https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3676.

[6] https://ec.europa.eu/commission/presscorner/detail/en/IP_22_4663.

[7] See Commission Implementing Regulation (EU) 2022/978 of 23 June 2022 amending Implementing Regulation (EU) 2019/159 imposing a definitive safeguard measure on imports of certain steel products.