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The FRC lays groundwork for new regulator

Author: ICAEW Insights

Published: 12 Jul 2022

The FRC on Tuesday outlined its plans to tackle the “long-awaited” reforms to the UK Corporate Governance Code in a bid to provide clarity on how it will deal with revised statutory regulatory requirements for directors and preparers.

As set out in this year’s Queen’s Speech, the government is drafting a Bill on reforming corporate governance and audit that will lead to the new statutory regulator the Audit, Reporting and Governance Authority (ARGA), among other measures.

Sir Jon Thompson, Financial Reporting Council (FRC) CEO, said: “These long-awaited reforms are a once-in-a-generation opportunity to ensure corporate Britain upholds the highest standards of governance and protects those stakeholders who rely on high-quality reporting.

“While we await Government legislation, the FRC is pressing ahead with those changes to standards and codes which will improve and enhance the UK’s audit and corporate governance framework and to lay the groundwork for the creation of ARGA.”

As well as new primary legislation, the reforms will require secondary legislation, changes to existing regulatory measures and market-driven measures for which the FRC will be responsible. 

“Our stakeholder engagement will also allow us to ensure that the reforms do not contain unforeseen consequences (for instance, changes to corporate governance may have knock-on implications for audit), and ultimately that they can be delivered by those that we regulate in a way that meets legitimate public expectations but without disproportionate cost or burden, the FRC said in its position paper Restoring Trust in Audit and Corporate Governance, published on 12 July. 

The FRC’s work focuses on five main areas including changes to codes, standards and guidance, strengthening auditing and accounting standards, setting expectations for the markets to drive behavioural changes as well as establishing expectations on future supervision. 

This summer the FRC will consult on the principles on which ARGA will be funded. The government said it would give ARGA statutory funding so that it can operate on a sustainable and independent basis, and market participants will also have to pay a levy to meet the regulatory costs. 

Many of the FRC’s planned changes are dependent on the government passing new legislation. Ministers haven’t yet given a concrete time frame for that, but the FRC said it wanted to begin the change process as early as possible to ensure stakeholders are prepared.

“We are publishing this early view of our intentions, to support the planning and engagement activities of our stakeholders, many of whom are keen to have greater certainty on when and how various aspects of reform will happen,” the FRC said.

The regulator said it would use its annual three-year plan to provide progress updates and “ensure that wherever possible, our stakeholders have a reasonable period of time in which to prepare for future regulatory changes that may impact them”.

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