The Local Authority Pension Fund Forum is urging FTSE 350 companies to "disregard" the FRC, stating the regulator "has no mechanism to deliver the correct functions in its standards that companies and auditors follow".

The LAPFF said "there are risks to pension funds if the accounts of the sponsoring company are signed off when they should not have been".

"There is no inspection criteria to inspect for it in accounts or audits," it added.

"That means that when a company avoidably due to an accounting problem , pays an unlawful distribution, or jeopardises its pension scheme the FRC is in a weak position to pursue these mischiefs. The FRC is avoiding those parts of the law that would give it the most power, were it to be doing its job properly. The FRC has neutered itself.

"Following the FRC position will be particularly problematic for directors if a company later becomes insolvent, or has an unfunded pension fund deficit, after periods in which distributions were made."

LAPFF has been challenging the FRC for the last four years, raising questions as to whether it is up to the job. The ongoing battle led to LAPFF engaging George Bompas QC and Cherie Blair QC. In that period the FRC has been criticised by others including committees of Parliament.

LAPFF chair Kieran Quinn said: “LAPFF believes that the FRC has been doing its job badly because it’s been reading the law wrongly. What matters to investors is that companies do the right thing. We have today rewritten to FTSE 350 companies advising them to disregard the FRC on this matter so that they comply with the law with no risk of illegal outcomes. To do that it is safer to follow the advice of LAPFF and George Bompas QC."

In a statement responsing to the claims, the FRC stated that it "discusses policy issues on a regular basis with central government".

“The FRC stands by what it has previously said on this matter. It was aware that the LAPFF had written to company chairmen in late 2015.Their letter dealt with a very narrow point of company law in terms which we cannot support and which raises uncertainty unnecessarily. The LAPFF’s new letter is drawing on emails regarding a draft statement. The final version of the statement was agreed with BIS.”

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