The Financial Reporting Council should be scrapped and replaced with an independent statutory regulator, according to Sir John Kingman.
Kingman, who has undertaken an independent review of the FRC, recommended that a new body be set up, which is accountable to parliament, with a new mandate, new clarity of mission, new leadership and new powers. The new regulator would be called the Audit, Reporting and Governance Authority.
The FRC currently regulates auditors, accountants and actuaries in the UK, sharing this responsibility with the professional membership bodies. However, in his review, Kingman has suggested that neither the FRC, nor the new body, is best placed to be the oversight body for actuaries.
He recommended that the government, working the Prudential Regulatory Authority, and The Pensions Regulator, should review what powers are required effectively to oversee regulation of the actuarial profession. However, he said that the PRA is “best placed” to take on all the actuarial responsibilities currently vested in the FRC.
Commenting, on the review, Pensions and Lifetime Savings Association, policy lead investment and stewardship, Caroline Escott, said: “Pension funds are significant investors in UK companies, with surveys suggesting that DB schemes have roughly a quarter of their assets in listed equities, and over 25 per cent of this invested in UK listed companies. The UK corporate governance regime is internationally well-regarded and it’s vital firms are run in line with corporate governance best practice to protect and grow the value of people’s retirement savings. It is also important that pension scheme investors can rely upon a well-regulated audit market which ensures high-quality audits of the companies they invest in.
“We hope the measures outlined in Kingman’s report will help ensure that a new body can work better towards the interests of investors. Although we believe that the Stewardship Code was a significant step forward, we support moves to ensure the Code helps schemes tell how well their asset manager is doing on stewardship. We welcome the Review’s recognition that the FRC needs to develop deeper relationships with the investor community, but think that a key step in doing so would be to ensure that the FRC, or its successor body, employs more staff with investor practitioner experience and expertise.”
Kingman was asked by Secretary of State, Greg Clark, in April to lead a root-and-branch review of the FRC as part of the government’s modern industrial strategy commitment to strengthening the UK’s world-leading business environment. Alongside the review report, Kingman has published his letter to the Secretary of State in response to the request put to him to consider whether there is any case for change in the way in which audits are currently procured, and audit fees and scope are set, particularly for major companies of public interest.
Commenting, Business Secretary, Greg Clark, said: “I wish to thank Sir John Kingman for his excellent independent review which proposes extensive and fundamental reform for one of our key regulators in respect of audit, corporate reporting and corporate governance. I requested a root and branch review of the FRC and Sir John has duly delivered.”
Clark added that the UK has a world-leading business environment, making the country one of the most attractive places to invest, start and grow a business.
“It is right we continuously keep our corporate governance regime under review to maintain that high competitive standard. The government will take forward the recommendations set out in the Review to replace the FRC with a new independent statutory regulator with stronger powers. This body will build on our status as a great place to do business and form an essential part of the government’s continued efforts to grow trust and public confidence in business and the regulations that govern them.”