The architect of an overhaul of the UK accounting regulator has strongly criticised the government, accusing it of failing to support the industry watchdog responsible for promoting good corporate governance.
Sir John Kingman, who recommended in 2018 that the Financial Reporting Council be replaced by a beefed up watchdog covering accounting and corporate governance, said it was inexplicable that ministers had not kicked off the search for a new FRC chair almost 14 months after Simon Dingemans resigned from the role.
Keith Skeoch, interim FRC chair, is due to step down from the position in October.
Kingman said in a letter to the Financial Times that the FRC — which as well as regulating auditors is the custodian of the corporate governance code that applies to listed companies — had made “good progress” under Sir Jon Thompson, its chief executive.
“Nevertheless, it is indefensible that the body responsible for promoting good corporate governance in Britain not only lost its chair more than a year ago, but is about to lose its excellent interim chair as well, and the government has inexplicably still not begun the process to appoint a successor,” added Kingman, chair of Legal and General.
In his government-commissioned review of the FRC following several corporate scandals including Carillion, Kingman branded the watchdog a “ramshackle house” and concluded that it should be replaced by the Audit, Reporting and Governance Authority (Arga), a new regulator with broader powers.
Kingman’s intervention follows the government’s decision not to renew the appointments of two FRC non-executive directors — Jenny Watson and Dame Julia Unwin — despite a recommendation by Skeoch that they be retained.
“This is no way to govern, let alone strengthen, a major regulator whose work is fundamental to trust in companies, accounts and the working of markets
David Childs, another FRC board member, is due to leave at the same time as Skeoch.
“By October, the FRC’s board will be down to just three non-executives,” said Kingman, a former senior civil servant at the Treasury.
“This is no way to govern, let alone strengthen, a major regulator whose work is fundamental to trust in companies, accounts and the working of markets.”
As the successor to the FRC, the Arga would be tasked with enforcing new rules making company directors responsible for the accuracy of businesses’ financial statements, as well as regulating auditors.
Plans for the new regulator were among much-delayed reforms contained in a government white paper in March.
The new watchdog is not expected to be in place until 2023 because it is due to be underpinned by legislation that parliament has yet to approve.
Kingman, who said it was “much more positive” that business secretary Kwasi Kwarteng emphasised the importance of legislation in the next parliamentary session, added: “Even so, it will still be 2023 — nearly five years after my report — before the new regulator finally comes into being.”
The business department said Kingman’s review of the FRC had recommended that a “refreshed board” at the watchdog should lead its transition to becoming the Arga.
“We will be launching campaigns imminently to appoint a permanent chairman and new non-executive directors to ensure this vital transition continues at pace,” it added.
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