Sir John Kingman, chairman of Legal and General plc has been charged by the government with carrying out a root-and-branch review of The Financial Reporting Council (the FRC), that rather odd beast in the corporate reporting and governance landscape.
The review is welcome because the position of the FRC is confusing. Key areas of confusion include the name, its jurisdiction and its enforcement powers. Whatever substantive conclusions are reached, greater clarity is welcome.
It is a reality that, over time, responsibilities have been allocated to the FRC in a rather haphazard manner. It would benefit all if it was placed on a clearer statutory footing, probably following the model of the Financial Conduct Authority or the Takeover Panel.
The FRC’s key competencies fall into the following areas:
| Regulation of accountants and actuaries | Noting that the FRC is hoping to see this jurisdiction and the ability to censure extended to all directors |
| Audit regulation | A direct statutory power derived from the EU Audit Directive |
| Issue and enforcement of accounting standards | Under the Companies Act 2006 (section 464) |
| Drafting of the UK Corporate Governance Code and the Stewardship Code | Plus support for the Coalition Group responsible for the Wates Principles for privately held companies |
| Regulation and Enforcement of its corporate governance codes | To date this has been weak, with much enforcement left to the London Stock Exchange and to shareholders |
It remains to be seen if Sir John’s review will conclude that these competencies should all be carried out by the same body. Whilst the author is no advocate of additional regulatory bodies, there does seem to be a powerful case for greater focus and clarity as to the functions, legal basis and responsibilities of a re-badged “Corporate Reporting and Governance Authority”.
For further information please contact Edward Craft.