London, 18 December 2018 – ICSA: The Governance Institute has welcomed the publication today of Sir John Kingman’s Independent Review of the Financial Reporting Council (FRC), but believes certain opportunities have been missed.
The review contains 83 recommendations for improvement, ranging from the replacement of the FRC with a new body, the Audit, Reporting and Governance Authority, with clear statutory powers and objectives, to the removal of responsibility for oversight of the actuarial profession or local government audit. The majority of these recommendations make excellent sense although, naturally, there are some different emphases that we might have preferred to see. For example we would have liked to see a recommendation to support our suggestion that the FRC work with the Financial Conduct Authority (FCA) to use existing powers of sanction for breaches of Listing Rule 9.8.6 (compliance with the UK Corporate Governance Code), and we do not entirely agree with the criticism of FRC guidance which, in our experience, is generally helpful and welcomed by users.
One caution that we offered was that Sir John would receive a number of responses to this call for evidence, many of which would be sensible and well-considered, but some of which would be self-serving, advancing private interests or grinding axes over existing disputes with the FRC. It is inevitable that a regulator will attract more criticism for its actions than praise, especially where that regulator is responsible for the oversight of accounting, auditing and financial reporting at a time when there have been some significant market failures, but we asked Sir John to avoid the risk that necessary change adversely affect those areas of the FRC which work most effectively. We are pleased that this advice seems to have been heeded. The suggestion that the new regulatory structure reflect those of the FCA and the Prudential Regulation Authority, which carry out similar roles are, as we commented in our response, helpful.
Peter Swabey, Policy and Research Director at ICSA: The Governance Institute said:
“Our detailed response to the review focussed on the FRC’s role as owner of the UK Corporate Governance Code and we are pleased to see that Sir John in his balanced review has recognised the value added by the corporate governance function and the Financial Reporting Lab. Of particular importance are those recommendations extending the powers of the proposed new regulator to all aspects of governance rather than just those relating to the accounting profession and placing the funding of the new regulator on a statutory basis.”
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