Financial Reporting Council (Miscellaneous Provisions) Order 2021

Lord Davies of Brixton Excerpts

Thursday 18th March 2021 Grand Committee

[Lord Davies of Brixton (Lab) [V]]

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.