Financial Reporting Council (Miscellaneous Provisions) Order 2021

Lord Lennie Excerpts

Thursday 18th March 2021 Grand Committee

[Lord Lennie (Lab) [V]]

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.