March 14, 2019 Government confirms new regulator
The independent review into the work of the Financial Reporting Council (FRC) which was published in December 2018 made a number of recommendations, not the least of which was the replacement of the FRC by a new independent statutory regulator accountable to Parliament. As a result of that review, on 11 March 2019 the Business Secretary Greg Clark announced the formation of a new regulator to be known as the Audit, Reporting and Governance Authority.
As a statutory body the new regulator will have powers which were not available to the FRC including the power to direct changes to accounts to be made and the power to require rapid explanations from companies. The new body will also have the power to regulate the biggest audit firms directly.
Significantly, the new regulator will be required to have a strategic direction which protects the interests of customers and the public “by setting high standards of statutory audit, corporate reporting and corporate governance” alongside powers to hold companies and professional advisers to account. In line with this the requirement is to have a diverse board and strong leadership in order to both change the culture of corporate governance and to rebuild the respect of those who fall under the new regulator’s remit. In order to achieve an orderly transition to the new regulatory body the Government is looking to appoint a Chair and Deputy Chair as soon as possible, alongside a consultation which is due to close on 11 June on recommendations made within the Kingman report.
Does the transition period mean that companies are unlikely to see changes to governance and reporting requirements in the short term? Quite the contrary. The government has announced that in the transition period it intends to start work alongside the FRC in taking forward 48 recommendations aimed at addressing the shortcomings identified in the Kingman review including a perceived lack of transparency and the enhancement of enforcement activity. In addition, in his Spring Statement the Chancellor announced an initiative to require company audit committees to review payment practices and to report on them in their annual accounts; a measure designed to tackle a late payment culture which is particularly affecting small businesses.
Commenting on the inception of the Audit, Reporting and Governance Authority the Business Secretary said “This new body will build on our status as a great place to do business and will form an important part of strengthened public trust in businesses and the regulations that govern them.”