Audit watchdog pledges to focus on growth after reforms are shelved
The audit watchdog has announced it will focus on promoting “growth and the UK’s competitiveness” after the government shelved a host of reforms that would have increased reporting requirements for London-listed companies.
The Financial Reporting Council had tabled a number of reforms to the reporting framework that would have increased the amount of paperwork and audit documents boardrooms are required to share with the market.
For the proposals to have been shifted into law, primary legislation was required to be laid by government. However, ministers omitted the bill as a priority in the King’s Speech today in a move described as “disappointing” by FRC chief Richard Moriarty.
In a statement following the speech, the body said it would now take “only a small number” of its original proposals forward and halt development of the wider 18 planned reforms it wanted to usher in.
Moves to “streamline and reduce duplication” associated with the governance code and enhance internal controls at companies will still be taken forward by the watchdog, which it said would “clearly differentiate” the UK from the “much more intrusive approach” of the US.
“The FRC is conscious that some stakeholders have raised concerns about how our guidance issued under the Code can have unintended effects on businesses, investors and their advisers,” Moriarty said.
“We are very keen to explore ways of ensuring any guidance is proportionate and limits burdens whilst not weakening effective governance. This is critical to our role in supporting growth and the UK’s competitiveness,” he said.
The move to shelve the rest of the proposals was welcomed by the Treasury who have been campaigning to strip back red tap from City firms and reduce their regulatory burden.
Cumbersome reporting requirements have been cited as a deterrent to firms listing in the capital and fears had spread among government that tighter requirements would hit the City as it tries to revive its IPO market.
City minister Andrew Griffiths welcomed the move by the FRC and said its proposed changes laid out a more “pragmatic and proportionate” approach.
“The UK’s rightly enjoys a strong reputation for high governance standards but it’s important that we don’t burden our best and brightest companies to the extent that it’s not a level playing field versus our international competitors,” he said.
Expert have warned, however, that the move to shelve planned reform could leave the sector in limbo, with firms unsure how to navigate the previously planned changes.
“A large question mark now hangs over the audit and governance reform agenda with the legislation required to create Audit, Reporting and Governance Authority (ARGA) and implement a number of other long proposed audit and governance reforms having been omitted from King’s Speech”, said Gareth Sykes, a partner and UK head of corporate governance advisory at law firm Herbert Smith Freehills.
The delays were “unhelpful for corporates and investors, and for UK plc more generally”, he added, but the pivot does provide an opportunity to “reassess” the plans.