Findings of the review into the FRC have been published

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The Government has published the final report of the independent review led by Sir John Kingman into the Financial Reporting Council.

Just before Christmas the Government published Sir John Kingman’s independent review of the Financial Reporting Council (FRC). The review puts forward broad proposals for a new organisation with a new mandate, clarity of purpose, leadership and powers in order to create a regulator that is an example of best practice in governance, transparency and independence in UK companies.

The review contains 82 recommendations of which the key ones are as follows:

  • the FRC should be replaced as soon as possible with a new independent regulator, with clear statutory powers and objectives and with a proposed name of ‘Audit, Reporting and Governance Authority’
  • the new body should be accountable to Parliament, with a remit letter to the regulator at least once each Parliament
  • the new regulator should be given a range of extensive powers in the interests of averting major corporate failures
  • the regulator should have an overarching duty to promote the interests of consumers of financial information, not producers
  • a new board should be appointed, and should not be self-perpetuating, as it currently is
  • the regulator should be better equipped to ensure its work and decision-making is informed by market analysis
  • the current self-regulatory model for the largest audit firms should end
  • the new regulator should be required to promote brevity and comprehensibility in accounts and annual reports
  • the regulator’s corporate reporting work should be extended to cover the entire annual report, with stronger powers to require documents and other relevant information in order to conduct that review work
  • the regulator needs to engage at a more senior level in a much wider and deeper dialogue with UK investors
  • the regulator should not be funded on a voluntary basis. A new statutory levy should be put in place
  • the UK Stewardship Code and the viability statement should be fundamentally reformed or abolished.

WM comment

The Government’s response to the review will be published in due course although it has already stated that it will take forward the recommendation to replace the FRC. A number of the recommendations will require primary legislation but others could be put in place in the short term.