LONDON (Reuters) - Britain has launched a “root and branch” review of its audit watchdog after corporate scandals raised questions about its ability to police how accountants check the books of companies.
The independent review of the Financial Reporting Council (FRC) aims to bolster Britain’s reputation for upholding corporate standards, seen as critical to maintaining the country’s attractiveness for investment after it leaves the European Union next year.
Business minister Greg Clark said the review will be chaired by John Kingman, a former top finance ministry official and now chairman of insurer Legal & General (LGEN.L). It will assess how the FRC is run, its impact and powers. It is due to be completed by the end of this year.
“The UK has a strong reputation as a dependable place to do business, but this needs to be continuously updated and it’s important to ensure all of our regulators continue to drive high standards,” Clark said in a statement on Tuesday.
“This review is part of the government’s industrial strategy aim of creating a business environment that ensures our regulators are fit for the future and our markets are working for consumers.”
FRC faced tough questions from lawmakers after taxpayers had to bail out several lenders during the global banking crisis, only months after accountants gave the green light to financial statements.
FRC Chairman Win Bischoff welcomed the review.
“Meeting public expectations means using our powers effectively, working closely with other regulators and identifying where gaps in those powers exist,” Bischoff said.
The watchdog has been criticized for being too slow to intervene, though it has repeatedly pointed out major gaps in its armory, forcing it to rely on other regulators to take action.
It can only pursue company executives who are members of a professional accounting body, such as with two ex-finance directors of bankrupt construction company Carillion (CLLN.L) last month.
The FRC writes Britain’s company governance code but it has no power to enforce it and must leave any challenges to the shareholders of companies. This gap in power was highlighted by lawmaker anger over how Sports Direct (SPD.L) was treating some of its staff.
Last week the FRC announced two initiatives to strengthen its clout by pushing for bigger fines and by vetting senior hires at the six biggest accounting firms, KPMG, Deloitte, EY, PwC, Grant Thornton and BDO.
The Kingman review will include a consultation.
Reporting by Huw Jones; Editing by David Goodman