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Badenoch outlines FRC’s new remit

Author: ICAEW Insights

Published: 23 Nov 2023

Letter sets out the Financial Reporting Council’s core responsibility to enhance public trust and confidence in the quality of audit, corporate reporting and governance, while supporting the UK’s economic growth and international competitiveness.

The Financial Reporting Council (FRC) should reduce unnecessary red tape and consider its impact on the country’s competitiveness and growth when formulating rules, the government says in a letter to the regulator’s CEO.

The Secretary of State for Business and Trade, Rt Hon Kemi Badenoch MP, wrote to FRC Chief Executive Richard Moriarty on Wednesday updating the government’s priorities for the FRC’s work, also outlined in the Autumn Statement.

In the new remit letter, Badenoch stresses that the FRC has a crucial role to play in supporting the government’s drive to ensure the UK upholds high standards of corporate governance, reporting and audit, and contributes to the ambition to make the UK the best place to start, grow and invest in a business.

“Maintaining the UK’s leading reputation for trustworthy reporting remains vital; and we must also ensure that we maintain the UK’s reputation as a great place to do business when considering the requirements and expectations placed on business,” the letter says. 

“Proportionality of any new requirements is essential and it is also important to look actively at where rules and guidance are no longer proportionate and can be removed or streamlined. I would ask that you report back in a year’s time on the steps that the FRC has taken in promoting competitiveness and growth,” Badenoch adds.

The letter also urges progress on a number of other important initiatives, including work to drive up the quality of audit, reviews of non-financial reporting rules with the aim to simplify and streamline current requirements, and enabling companies to report on sustainability in a consistent and proportionate basis by supporting the assessment of the IFRS Sustainability Disclosure Standards. 

In a statement, Moriarty acknowledges the government’s recognition of the progress made to modernise as a regulator: “I welcome the government’s updated remit for the FRC, which reflects our important role in upholding high standards of corporate governance, reporting and audit across corporate Britain, whilst supporting the UK’s economic growth and international competitiveness.”

To support the government’s vision of making the UK the best place in the world to start, grow and invest in a business, Moriarty says the FRC would ensure its growth duty is appropriately embedded across all its work. 

“Our initial priority is to conclude our review of the UK Corporate Governance Code followed by a fundamental review of the UK Stewardship Code. Our focus is to ensure these globally respected Codes achieve good governance and stewardship outcomes, are proportionate and any unnecessary or disproportionate requirements are removed or streamlined.”

Following a backlash, draft reporting regulations were unceremoniously scrapped in October by the Department for Business and Trade, after it described them as “burdensome”. They had included the requirement for companies to produce a new strategic report, a resilience statement and a directors’ report that includes an audit and assurance policy statement, a policy on material fraud and distributable dividends.

ICAEW CEO Michael Izza says: “We strongly agree that enhancing trust and confidence in corporate governance, reporting and audit – the core purpose of the FRC – is critical to maintaining the attractiveness of UK business to international investors. In recent years, the FRC has taken some major steps to drive up standards and, even without new legislation, the profession remains committed to working with the regulator to make changes in these areas on a voluntary basis.

“We strongly support a proportionate approach to standard-setting and regulation, paying particular attention to the impact on SMEs, emphasising simplification and avoiding duplication. In particular, we’d like to see a healthy supply of growing companies to the listed sector without those companies facing ever-larger regulatory step-changes as they grow,” he adds.

“Almost six years on from Carillion, it’s important that reforms to audit and corporate governance strike the right balance, not least to ensure that audit firms remain committed to involvement in the PIE market and the profession remains resilient.” 

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