Financial Reporting Council (Miscellaneous Provisions) Order 2021

Thursday 18th March 2021

(8 months, 3 weeks ago)

Grand Committee

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Department for Business, Energy and Industrial Strategy

Considered in Grand Committee

Moved by

Lord Callanan Portrait Lord Callanan
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That the Grand Committee do consider the Financial Reporting Council (Miscellaneous Provisions) Order 2021.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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My Lords, I beg to move that the Financial Reporting Council (Miscellaneous Provisions) Order 2021, which was laid before the House on 8 February 2021, be approved.

The Financial Reporting Council, or the FRC, as I shall refer to it, is an independent regulator. It is responsible for regulating auditors, accountants and actuaries, and setting the UK’s corporate governance and stewardship codes. Following corporate failures such as BHS and Carillion, the Government have been working to understand and address shortcomings within the UK audit environment, including the role that the FRC as the regulator plays. As a result, the Government commissioned Sir John Kingman to conduct an independent review of the FRC. This review was commissioned in April 2018 and reported on 18 December 2018.

The FRC review made over 80 recommendations; its central recommendation was for a new, stronger regulator. The review indicated that the new regulator needed to be more transparent than the FRC had historically been and should be held to the same standards as other public sector bodies—including full compliance with the Managing public money handbook. The review also recommended that the FRC be subject to the Freedom of Information Act and the Regulators’ Code. These findings were supported by the Government and welcomed by the Business, Energy and Industrial Strategy Committee in another place.

Since the FRC review reported, the regulator has undertaken significant steps to strengthen its capabilities. Under new leadership, it has also begun to build the additional capacity needed to deliver on the ambitious mandate set out by the review. The FRC has also worked to streamline its governance structures and expand its stakeholder engagement. This order builds on the FRC’s progress in taking the non-legislative steps needed to implement the review’s recommendations on its internal workings.

Today represents another important milestone for audit and corporate governance reform. I am pleased that today we have published the Government’s White Paper Restoring trust in audit and corporate governance. It sets out a comprehensive and ambitious vision for reform of the corporate landscape and outlines the Government’s detailed proposals for further reform of the regulator. The instrument’s legislative measures are a further step forward on the path to transforming the FRC into a new, strengthened regulator. They apply the Freedom of Information Act, the Regulators’ Code and the public sector equality duty to the FRC.

I turn first to the application of the Freedom of Information Act to the FRC. As identified by the FRC review, currently only some of the FRC’s statutory functions are subject to the Freedom of Information Act. Since December 2019, however, the FRC has voluntarily complied with the provisions of the Act across the range of its work. This measure designates the FRC as a public authority for the purposes of the Freedom of Information Act so that all of its public functions are covered by the Act.

The Freedom of Information Act provides a general right of access to the public for information held by public authorities, subject to the exemptions set out in the Act. Public authorities are also obliged under the Act to produce and maintain a publication scheme approved by the Information Commissioner. The FRC was consulted on the application of the Freedom of Information Act and it supported the application of the Act to its public functions. Since the FRC is a public body, it is reasonable and proportionate that this measure is taken to apply the Freedom of Information Act to its public functions. In doing so, it will help to underpin trust and confidence in the regulator.

I turn now to the Regulators’ Code measure. The FRC is already subject to the code in respect of some of its regulatory functions. This order will apply the Regulators’ Code to all of the FRC’s regulatory functions, except for those that it has delegated to the relevant professional bodies. The code aims to encourage proportionate and consistent regulatory activity; it also promotes trust, open dialogue and accountability between the regulator and those that it regulates. Application of the code by legislation will enable the FRC to be more accountable and bring it into line with other regulators who are subject to the code in this way. It will encourage greater transparency for regulatory delivery, allowing the FRC to target its resources better. This in turn will support the FRC’s delivery of high standards of audit, reporting and governance in the UK. The Government have worked closely with the FRC and the relevant professional bodies and have consulted them regarding this measure. All the parties consulted support the application of the Regulators’ Code to the FRC through secondary legislation.

I turn to the public sector equality duty measure, which will add the FRC to the list of public bodies that are formally subject to this duty. At present, the FRC is subject to the public sector equality duty only in respect to the exercise of its public functions. The measure expands this so that the FRC itself will be subject to the public sector equality duty in respect of all of its functions. Sir John Kingman’s review of the FRC recommended that the regulator should fully consider and assess equalities impacts in its work. This measure will support that recommendation.

Those subject to the equality duty must: eliminate unlawful discrimination, harassment and victimisation and other conduct prohibited by or under the Equality Act 2010; advance equality of opportunity between people who share a protected characteristic and those who do not; and foster good relations between people who share a protected characteristic and those who do not. The term “protected characteristic” refers to those characteristics covered by the equality duty and includes age, disability, pregnancy and maternity, race, religion or belief, sex and sexual orientation and gender reassignment. This order means that the FRC will need to consider the objectives of the public sector equality duty in its oversight of those it regulates. Additionally, as the FRC is the regulator that sets the UK Corporate Governance Code, it promotes diversity reporting to the UK’s largest companies. It would only be right that the FRC itself was subject to the public sector equality duty in full. This measure will ensure that equality is considered as an important aspect of the regulator’s day-to-day activities.

In March 2019, in their initial response to the FRC review, the Government committed to replace the FRC with a new independent statutory regulator with stronger powers. The new regulator, the audit, reporting and governance authority, will be a stronger regulator underpinned by legislation. It will have stronger enforcement powers and will be funded by a mandatory levy on the industry that it regulates. The White Paper published today sets out the Government’s proposals in more detail. The Government intend to bring forward the necessary primary legislation to create the new regulator when parliamentary time allows. But we want to press forward with measures such as those in this draft instrument. They do not need to and they should not wait. These measures will ensure that the FRC is more transparent and accountable to the public as well as to the businesses and professions it regulates. It will also bring the FRC into line with the requirements of similar public bodies. These measures are therefore a further step down the road to creating the new regulator.

I conclude by emphasising that I see the measures contained in this order as important since they will help to bring about greater transparency on the part of the FRC. I hope that noble Lords will support them and commend the draft order to the House.

Lord Davies of Brixton Portrait Lord Davies of Brixton (Lab) [V]
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My Lords, I declare my interest as a fellow of the Institute and Faculty of Actuaries, which in some areas is subject to regulation by the FRC. I thank the Minister for his detailed introduction. To a certain extent he has shot my fox. I was intrigued as to the conjunction of these two events—the publication of the White Paper and the statutory instrument today—and he has made it absolutely plain that it was not a coincidence. It was a coincidence to me but, clearly, it was part of a deeper plan, and I feel that it might have been better if those who like myself were coming from outside to the issue had understood that beforehand. My contribution might have been a bit more effective. But still, it is right and proper that the Government should do what they can to implement proposals in this area, and I support the regulations.

Could the Minister say a little more about the timing of the process? It is happening now, but it is happening to an organisation that is on its way out. We are to have the new audit, reporting and governance authority which the Government say will have these clearly defined roles, one of which is to protect and promote the interests of investors, other users of corporate reporting and the wider public interest. How do those things tie together? Could we have a few brief remarks about that?

There are three substantive parts to the order. First, there is the public sector equality duty, which obviously is something that we agree with. The issue of why it was not done before comes to mind, but we shall pass over that. The second leg of the instrument is the extension of the freedom of information requirements. Obviously, that is to be welcomed as well. However, the Minister seemed to imply that all the relevant statutory functions of the FRC and its successor will be subject to the requirements, but all we have is a list—and when we are given a list I always wonder what is not on it. Is there any way for the Minister to explain what has not been included and, if it has not been included, why it has not been? If it is all there, that is fine, but an assurance that that is the case would be welcome.

I just want to say a bit more about the third leg, which is the obligation to follow the principles in Section 21 of the Legislative and Regulatory Reform Act 2006 and under Section 22 to follow a code of practice. I want to highlight the key part. In fact, Section 21 is very brief and pretty vague; it says that the principles are that

“regulatory activities should be carried out in a way which is transparent, accountable, proportionate and consistent”.

Well, yes, of course they should. It then says that

“regulatory activities should be targeted only at cases in which action is needed”.

But if you put the converse to those principles, you are left a bit in the air. Are there really people out there keen to apply regulatory activities to cases where action is not needed? It is a statement of the obvious.

We have to turn to the Regulators’ Code for a bit more substance. This puts a bit more meat on the bones of the principles. It is interesting to see that the regulators’ purpose is supposed to be:

“to regulate for the protection of the vulnerable, the environment, social or other objective.”

That is just one of the principles in the code, and those are fairly lofty objectives.

The code also says:

“When designing and reviewing policies, operational procedures and practice, regulators should consider how they might support or enable economic growth for compliant businesses and other regulated entities, for example, by considering how they can best … understand and minimise negative economic impacts of their regulatory activities”.

It also says that there should be

“simple and straightforward ways to engage with those they regulate”.

That is all fine and dandy, but this is what the Regulators’ Code says at the end, on the final page, about monitoring the effectiveness of the code:

“The Government will monitor published policies and standards of regulators subject to the Regulators’ Code, and will challenge regulators where there is evidence that policies and standards are not in line with the Code or not followed.”

I suppose that, to an extent, the White Paper is a reflection of the Government’s intention, but I think that the word “monitor” implies something more regular and consistent. So the one big question I am raising today is this: do the Government actually have a system for monitoring all the work of all the regulators subject to the code? There are a lot of them—I understand that—but what is the Government’s approach to monitoring their activities? How can we avoid the situation that we have with the FRC, whereby things got to a pretty pass before action was taken? Maybe a more consistent, measured and regular approach to enforcing the code would be appropriate.

Baroness Wheatcroft Portrait Baroness Wheatcroft (CB) [V]
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My Lords, I thank the Minister for the way in which he introduced this statutory instrument, and I am delighted to follow the noble Lord, Lord Davies. His final point was very interesting, and I would be interested to hear how the Minister will address the issue of how one monitors the regulators. As the noble Lord said, there are so many of them. What they do is important, and they need to be held to account.

On one level this is a perfectly straightforward SI, imposing three new and perfectly reasonable duties on the FRC. But the anomaly is the FRC itself. In December 2018, in his review of the organisation, Sir John Kingman described it as the equivalent of

“a rather ramshackle house, cobbled together with all sorts of extensions over time.”

In other words, it was not fit for purpose—a verdict that the Government themselves accepted the following March, in welcoming the review.

They were equally supportive of the findings of the Competition and Markets Authority, which called for significant changes to the way in which the audit profession operates in the UK. Indeed, the Queen’s Speech in December 2019 stated as one of its priorities the reform of auditing.

What we have here is just another extension to that rather ramshackle house, which is becoming increasingly unstable. I know that the Minister acknowledged the need for root and branch reform, and for the new regulatory authority that will eventually come to us, but here we are, in March 2021, debating a minor SI relating to the still-extant FRC.

The letter that we received this afternoon—what a wonderful coincidence of timing—tells us that the White Paper is coming out and that there will be reform. It all sounds very promising, but my first question to the Minister has to be: when does he think, realistically, that we might see legislation on this, and the emergence of the new accounting regulation and governance authority?

In the meantime, we remain dependent on the FRC to conduct this crucial work and its governance is in flux. In October 2019, Simon Dingemans took over as interim chairman. This turned out to be even more of a temporary post than most had expected; in May the following year, he was lured away by private equity. He was replaced, although not until the following October, by Keith Skeoch but this was declared to be for a term of no more than six months. My second question to the Minister is: does he have a successor lined up for 12 April? It seems that the FRC will be with us for a while to come and, at the moment, I am unaware of who is going to be leading it.

It is important that the equality duty in this SI should certainly be imposed, as the Kingman review found that very few roles at the FRC actually went through an appropriate recruitment process. That might have done more to improve the gender pay gap there, which is still quite pronounced. Reform of the organisation is clearly needed urgently, as is reform of the audit profession. It continues to disappoint. In 2018, the fines levied by the FRC against the big four accountancy firms trebled. Last year, a record fine of £15 million was levied against Deloitte. But it does no good for the credibility of the audit profession if all of the big four firms are regularly seen to be guilty of misleading accounts, and misleading the investing public—and the public more generally.

The proposal we have seen in the White Paper is that there should be compulsory joint audits. But the original suggestion was that the smaller audit firm taking part in these joint audits should be jointly liable, with the larger firm, for anything that went wrong and resulted in action and fines. As far as I can see, that is absolutely unworkable. As my third and final question, can the Minister say whether he believes that there will be equal liability on these smaller firms—the challenger firms—that will be brought into joint audits, or that a more reasonable system of liability will be brought into play?

Lord Sikka Portrait Lord Sikka (Lab) [V]
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My Lords, I will make my comments in two parts. I will comment first on the legislative order and, secondly, taking my suit from the Minister, say a few words about the White Paper as well. On the legislative order, the Financial Reporting Council has really led a shadowy existence for far too long. Since 2004, the FRC has had the status of a public body and should therefore have been subjected to the full application of the freedom of information legislation, but it was not.

On 29 June 2018, the Department for Business, Energy and Industrial Strategy told the House of Commons, in a Written Answer:

“All our regulatory bodies are subject to the Freedom of Information Act 2000 with the exception of the Financial Reporting Council which is subject to the Act for some but not all of its functions.”

Over the years, I have put in many freedom of information requests to the FRC, some relating to the secondment of staff from the big four accounting firms, its complaints procedures and the quality of investigations. Every one of them was rejected so it is good, to some extent, to see a modicum of openness. I assure the Minister that I shall soon test this new-found openness and see how far it goes. Nevertheless, I have a number of concerns about the legislative order and, more importantly, its omissions.

First, despite the government claim, which I just cited, that all our regulatory bodies are subject to the Freedom of Information Act 2000, why are the four accountancy trade associations acting as recognised supervisory bodies not within the scope of freedom of information legislation? The four trade associations are the Association of Chartered Certified Accountants, the Chartered Accountants Ireland, the Institute of Chartered Accountants in England and Wales and the Institute of Chartered Accountants of Scotland. They carry out public functions and are named as regulators in the Companies Act 2006. They licence, monitor and discipline auditors. Their role is similar that of the FRC. So why are they totally exempt from freedom of information requirements?

Secondly, Article 4(1)(c) of the order refers to “accounting standards” but no mention is made of “auditing standards”, which are also issued by the FRC. I hope the Minister can shed some light on that omission.

Thirdly, Article 4(1)(m) of the order refers to:

“providing independent oversight of the regulation of the accountancy profession”.

No further details are anywhere to be seen. Is it reasonable to assume that in the Government’s view the FRC is now responsible for ensuring good governance of all accountancy trade associations?

Fourthly, despite claims of openness, or advances in openness, the FRC, which, as was mentioned, will soon morph into ARGA, has in fact regressed in some areas. Let me provide two examples. The first is its press release dated 2 April 2020 with the headline

“Sanctions against KPMG and a partner”

and the second is dated 6 November 2020 and headed

“Sanctions against Deloitte and a partner”.

In both cases, the firm delivering the failed audit has been named, but unlike the past practice, the identity of the company receiving the poor audit has been concealed. Why is that? Do the stakeholders of those companies not deserve to know that dud audits have been delivered? Armed with that information they can question auditors and directors, and make informed decisions about auditor appointment, fees, investment, credit, reliance on the audited information and much more. The FRC’s regression is not compatible with the Government’s claim of new openness at the FRC.

Fifthly, the so-called openness at the FRC is not accompanied by open board meetings. I am sure the Minister would acknowledge that the FRC does not discuss troop movements or the position of spy satellites, so this obsession with secrecy and keeping the people out is hard to understand. In the US, the Financial Accounting Standards Board holds all its meetings in the open and makes full minutes and background papers available to any interested party. The same is also true of the Swedish Accounting Standards Board. As we know, openness always promotes public confidence and accountability, so why are the Government afraid of writing in open board meetings in the current legislative draft or in some other ways? Why is the UK to be a laggard in such matters?

Sixthly, the FRC publishes its board minutes, but they are sanitised and have virtually no information content—I have seen them. Paradoxically, individuals sitting on its board and various committees come from corporations and big law and accounting firms and have full access to all inside information. It must inevitably inform their worldviews and policy options discussed within their organisations. Yet the other stakeholders affected by the FRC’s decisions and policy choices do not have access to the same information and must therefore be disadvantaged in any negotiations, lobbying and framing of accounting and auditing rules. Why are the Government content with this kind of information apartheid? It is almost legalised.

Seventh, the legislative order before us is full of words such as “independent” and I struggle to know what the Government mean. The FRC is not independent of corporations and big accounting firms as their personnel have colonised the FRC board, committees, working parties and its world views. Corporate thinking informs the FRC’s operation and, inevitably, there is cognitive capture. Neither is the FRC independent of the International Accounting Standards Board, which issues international accounting standards that in many cases are simply rubber stamped by the FRC. I am sure the Minster is aware that the IASB is an offshoot of the IFRS Foundation, which is registered in the US state of Delaware for the sole reason of avoiding taxes on all the income and charitable donations it receives. Is that a good way to be setting accounting standards, with somebody holed up in Delaware and keen to avoid taxes? That is not really appropriate.

It would be helpful to know what exactly the FRC is independent of. What are the tests the Government will specify we should apply to test whether the FRC passes those marks? It would also be helpful for the Minister to tell us whether any part of the FRC’s operations are not subject to the Freedom of Information Act and why they are excluded.

I will say a few words about the White Paper. For the last 20 years, the auditing industry has led a charmed life. Most of the urgently needed reforms have been postponed. The White Paper does not really tackle any of the fundamental issues. I am sure the Minister is aware that the FRC has said that up to 80% of the audits in its samples are deficient. Can you imagine if any producer of cars, aeroplanes, medicines or food had an output that was 80% deficient? That industry would be put out of business and taken into special care, not allowed to play its selfish games.

In my view, the White Paper misses the fundamental points and it does not address those things. In the White Paper there is a memorable line about share- holders being company owners. Can the Minister refer me to any economic theory, legal theory, or anything in the Companies Act which says that shareholders are owners of companies? Shareholders may have controlling rights, but they have absolutely no ownership; that is something entirely different. For the last 100 years we have been relying on shareholders. Where exactly has that got us?

I was an adviser to the Work and Pensions Committee for the investigation of BHS. Shareholders appointed the auditors and everybody else, and we all know what the outcome was. In many ways the Government are reciting the past failures and repeating the past mistakes—

Baroness Sanderson of Welton Portrait Baroness Sanderson of Welton (Con)
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Can I remind the noble Lord of the 10-minute speaking limit?

Lord Sikka Portrait Lord Sikka (Lab) [V]
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I will stop there. Thank you.

Lord Lennie Portrait Lord Lennie (Lab) [V]
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My Lords, I thank the Minister for introducing this and my noble friends Lord Davies and Lord Sikka for their comments, particularly the comment made by my noble friend Lord Davies about the monetary not the monitors, and the comments of my noble friend Lord Sikka about freedom, secrecy and independence. I thank the noble Baroness, Lady Wheatcroft, for her examination of the FRC being unfit for purpose and its gender gap issues.

The regulations impose new duties and regulatory requirements on the Financial Reporting Council, which is currently the independent regulator responsible for regulating auditors, accountants and actuaries and setting the UK’s corporate governance and stewardship code. These regulations impose specific duties on the FRC relating to freedom of information, the Regulators’ Code and the public sector equality duty. However, as Sir John Kingman’s review in December 2018 made clear, it was an institution with “leaks and creaks” and required fundamental reform.

We were first promised a new audit, reporting and governance authority in 2019, but the Government have since dithered on that promise. The Minister in the other place today published a White Paper to try to put an end to corporate scandals. We will examine it closely in due course and respond in detail, but it appears at the outset that the Government are rowing back from the proposals to tighten corporate reporting requirements. When exactly do the Government intend to legislate? The SI does not give much hope that it will be any time soon, and the White Paper consultation is set to run until July 2021.

I have some initial questions about the new proposals. The new regulator will be established as a company limited by guarantee. How was this decided? The Government note that the largest audit firms are already working with the Financial Reporting Council to implement the CMA recommendations on a voluntary basis by 2024. How is that work progressing? The Government disagree that the regulator intervening to take over the running of an audit firm, albeit on a temporary basis, would be proportionate or effective. How did the Government reach that conclusion, and what advice did they receive on that issue?

In 2017, the Department for Business, Energy and Industrial Strategy concluded that the FRC’s work should comply with all relevant public body guidelines. In 2018, the Government commissioned an independent review that recommended that the regulator be subject to the Freedom of Information Act. A couple of years ago, the FRC voluntarily adopted compliance with the codes, so the SI will not fundamentally change the FRC’s approach, but it is welcome that the compliance is to be put on a statutory footing.

However, with the disbanding of the FRC and its replacement with ARGA, are we not passing this SI somewhat too late? Labour supports the changes but wonders why they are being made now, on the very same day as consultation proposals to give birth to the new audit, reporting and governance authority are published.

Lord Callanan Portrait Lord Callanan (Con)
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I thank noble Lords who have contributed to this debate. The points that we have been discussing highlight the need for the measures contained in this order and emphasise the beneficial impacts they will have on the Financial Reporting Council and those that it regulates.

Reliable audit and corporate reporting are critical to well-functioning markets, business investment and growth. A transparent and effective regulator has a vital role in assisting the UK economy to realise these benefits. These measures will help the regulator meet the goal of ensuring that the UK maintains and advances its status as a place of the highest standards in audit and corporate reporting. They are a crucial part of the Government’s commitment to acting on the findings of Sir John Kingman’s independent review.

The noble Lord, Lord Davies of Brixton, asked about the timing of the SI given that the FRC is on the way out, and wanted to understand what we might not be applying to the regulator. He also asked how the Government enforce the Regulators’ Code. Establishing the new regulator, ARGA, requires primary legislation, and the Government intend to introduce that when parliamentary time allows. We think it is right to ask the FRC to start now, as we mean the new regulator, ARGA, to go on in this vein.

Lord Faulkner of Worcester Portrait The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
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My Lords, there is a Division in the Chamber. The Committee will adjourn for five minutes.

Sitting suspended.

Lord Callanan Portrait Lord Callanan (Con)
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To resume, the FRC did not start out as a public body. Since its creation in the 1980s, it has slowly accumulated public functions to the point that it has more recently been classified as a public body. Certain statutory functions of the FRC are already subject to the FoI Act. As the FRC is now a regulator acting in the public interest, we think it is right to extend the FoI Act to cover all the FRC’s public functions.

The noble Lord, Lord Davies, and the noble Baroness, Lady Wheatcroft, asked whether the Government have a system for monitoring the work of all regulators. In monitoring these regulators, the FRC is required to report annually to the Secretary of State on its activities relating to the oversight of statutory auditors, and that report must in turn be laid before Parliament. We have proposed yet stronger arrangements in relation to ARGA.

I answered the question the noble Baroness, Lady Wheatcroft, asked about when we might realistically see legislation. The answer to that is, I am afraid, the standard one: when parliamentary time allows. Now that we have published the White Paper setting out our intentions for the new regulator, the Government will recruit a permanent chair of the FRC. We are making these changes as laying the foundation for the new regulator, not extending the FRC’s house.

The noble Baroness, Lady Wheatcroft, and the noble Lord, Lord Lennie, also asked why we are still waiting for these changes. We are intending to legislate as soon as parliamentary time allow us, and ARGA will of course come into being thereafter. However, I cannot give any guarantees as to when it is likely that will be.

The noble Lord, Lord Sikka, raised a number of comments about the order. The FoI Act obliges public authorities to publish certain information about their activities, and entitles members of the public to request information from public authorities. As RSBs are independent professional bodies rather than regulators, we do not believe it would be proportionate to subject them to the Freedom of Information Act.

On the point about referring to accounting standards rather than auditing standards, the new UK endorsement board, not the FRC, will be the body to endorse and adopt international financial reporting standards in the UK. The FRC has exercised some oversight of the RSBs, hence this function should be subject to freedom of information. The Regulators’ Code will promote openness at the FRC. Access to the FRC’s board meetings is, of course, a matter for the FRC itself. Although the FRC has staff from companies and the industry, its chair is appointed by the Secretary of State.

In response to the noble Lord, Lord Lennie, who asked why we disagreed with the regulator taking over the running of a failing auditor, we think this would be a fairly major step and we are not totally convinced of its likely effectiveness.

The noble Lord, Lord Lennie, also raised the point that ARGA will be a company limited by guarantee. The creation of ARGA will be achieved by renaming and reconstituting the FRC, which is a company limited by guarantee at the moment, at the same time as making substantial changes to its functions. The Government will legislate to rename the existing body and make provision for its internal governance, as will be set out in its articles of association. We are clear that ARGA will be a regulator with teeth, backed by legislation. It will be funded by a mandatory levy on industry and given much stronger enforcement powers. The Government consider that this approach has the advantage of minimising the transitional costs which would be involved in setting up a new, statutory corporation.

The important measures in the order ensure that the FRC will be designated as a public authority in respect of its public functions for the purposes of the Freedom of Information Act; that all the FRC’s regulatory functions will be subject to the Regulators’ Code; and that the FRC is added to the list of public bodies which are explicitly subject to the public sector equality duty. As a result, its responsibility for adherence will be clear. Compliance on a statutory level with the Freedom of Information Act, the Regulators’ Code and the public sector equality duty will ensure that the FRC is made more transparent and accountable to those that it regulates. It will support the FRC’s effective operation and bring the regulatory requirement in line with similar public bodies. It will also further strengthen its regulated status as a public body.

Establishing the new regulator will, of course, require primary legislation. As I said, the Government will introduce this when parliamentary time allows. In the meantime, the FRC has made some progress on the recommendations from Sir John Kingman’s review and those proposals can be implemented without legislation, in parallel with this order. The FRC recognises the significant role that it has to play in paving the way for the new regulator. Building trust in the UK’s audit, accounting and corporate reporting regulator is an essential part of the Government’s programme of work to reform audit and corporate reporting. Our proposals, published today, set out how we will achieve this.

Meanwhile, applying the measures in the order now to the FRC builds on other progress, and it does so through statute. It shows that the Government are committed to putting in place the right degree of transparency and oversight for the work of an important regulator. I recommend this draft order to the Committee.

Motion agreed.

Lord Faulkner of Worcester Portrait The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
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That completes the business before the Grand Committee today. I remind Members to sanitise their desks and chairs before leaving the Room.

Committee adjourned at 6.17 pm.