London, 22 March 2019 – ICSA: The Governance Institute has responded to press comment that the Institute of Directors has criticised government plans to include oversight of corporate governance in the remit of the Audit, Reporting and Governance Authority (ARGA), the new audit regulator.
Peter Swabey, Policy and Research Director said that “It is disappointing to disagree with our friends at the Institute of Directors (IoD) but, as the professional body for governance – and for governance professionals - we cannot do otherwise on this issue. As Sir John Kingman noted in his report and in our own experience, one aspect of the work of the Financial Reporting Council in which they have proved effective is in the oversight of corporate governance and, in particular of the UK Corporate Governance Code. There is a risk that the flexibility of the UK corporate governance framework, which is highly regarded across the world, may be reduced if ARGA does not pay sufficient attention to the differing needs of the markets that it regulates, but audit is a part of corporate governance, not the other way around, and a recognition of the need for proportionate response to different issues is a fundamental requirement of any regulator with multiple responsibilities.
As we said in our response to Sir John Kingman’s review, the Code makes a huge contribution to the UK’s high standards of corporate governance, which are highly regarded globally. A major strength of the Code lies in the ‘comply or explain’ approach, which allows companies to set the best governance arrangements for their particular circumstances and respond quickly to the changing corporate governance environment. This has contributed to the generally high standards of corporate governance in UK companies. We believe the rules based approach adopted in some other jurisdictions tends to lead to poor governance outcomes.
We therefore support ARGA continuing in its current role in monitoring and maintaining the UK Corporate Governance Code. There are significant synergies between the functions of regulating corporate governance and corporate reporting and as we commented in our response to Sir John Kingman’s review, the notion that responsibility for corporate governance should pass from the FRC to another regulator makes no sense to us given these synergies and the expertise that has been developed in this area”.
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