UK audit regulator drops opposition to government’s ‘nationalisation’ plan
The UK Office for National Statistics (ONS) has ruled that the Financial Reporting Council (FRC) is a public body, after a three-year battle over the status of the accounting and actuarial watchdog.
The ruling means that the FRC will become part of central government operations. It is currently partly sponsored by the Department for Business, Energy and Industrial Strategy (BEIS), and partly funded by the fines it levies on audit firms.
The FRC’s board must now review the operations on a wide range of issues from freedom of information to the conduct fines it levies on audit firms.
The minutes of the FRC’s 24 May board meeting stated: “The board noted that, having sought input from external solicitors, there is no scope to challenge the current classification or to seek reclassification and consequently considered accepting the 2014 decision.”
Last year it emerged that a debate about the FRC’s status had been “reopened”. By December 2016, the board’s minutes revealed that the watchdog’s executive was liaising with BEIS and the Treasury to “clarify the status of the FRC and that relevant stakeholders are aware of the issue”.
Minutes from the FRC board’s February 2017 discussions showed that the watchdog hoped to be classified as a “public non-financial corporation”, with less direct oversight by government.
In a statement, the FRC told IPE: “The FRC has been classified as a public sector organisation and we are working with BEIS, as our sponsoring department, to identify and ensure that we meet the requirements arising from the classification.
“We are working with government and the [accounting supervisors] on the details.”
The decision draws a line under a saga dating back to 2014 that prompted the FRC to take legal advice in a bid to defeat the new classification.
Tim Bush, head of governance and financial analysis at Pensions & Investment Research Consultants, told IPE: “We can see from the board minutes that this saga has been running for three years.
“Nonetheless, I expect the FRC will have no choice other than to become more transparent, and that will include how it recruits key staff positions.”
Bush added that he expected the FRC to fall under the scope of the Freedom of Information (FOI) Act, which allows UK citizens to request information from public bodies.
However, the ONS’s decision to classify the FRC as a public-sector body will have no immediate effect on its operations. The move was an independent statistical decision by the ONS concerning the FRC’s treatment within the national accounts.
It has not affected the day-to-day operations of the watchdog, nor the operation of its disciplinary oversight of the audit and actuarial professions.
The ONS routinely assesses a large number of organisations to decide whether the balance of balance of risks and rewards means they belong in the public sector or not.
Last year, a freedom of information request to BEIS revealed that the FRC had no status to interpret law in England and Wales.
In 2014, the Information Commissioner’s office ruled that the FRC could ignore an FOI request related to the statements of reasonable practive governing the financial statements of UK authorised investment funds.
In addition to its responsibility for regulating audit and accounting companies, the FRC is also in charge of overseeing corporate governance in the UK.
The UK FRC does not have the same powers enjoyed by securities regulators such as the Securities and Exchange Commission in the US.