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The UK accounting watchdog has further diluted its long-awaited reforms to boardroom rules by dropping more than half of the proposed changes to the corporate governance code in what it said was a move designed to protect the British economy’s “competitiveness”.
The Financial Reporting Council’s chief executive Richard Moriarty said on Tuesday he would drop the majority of the 18 changes the regulator had proposed in a consultation in May.
He said the decision reflected the role the FRC played in “supporting UK economic growth and competitiveness”, adding it was “conscious” there was a wider debate about business reporting requirements and burdens across the economy.
The changes are the latest in a series of delays and rowbacks in a years-long process to overhaul corporate governance rules following a series of high-profile corporate failures, including the collapse of government contractor Carillion, retailer BHS and café chain Patisserie Valerie.
The FRC would drop proposals to give audit committees additional responsibilities relating to reporting on environmental, social and governance issues, Moriarty said.
It will also scrap changes to diversity reporting and proposals that would have required audit committee chairs to regularly engage with major shareholders.
The FRC said that some of the proposals were being dropped as a result of business secretary Kemi Badenoch’s decision last month to shelve legislation that would have tightened corporate governance rules for large companies.
Badenoch’s decision was part of a drive “to reduce the burden of red tape”, the government said, and followed lobbying by the financial services industry over the cost of new corporate reporting rules. These would have included a requirement for large companies to publish an annual statement explaining how they were ensuring their resilience over the short, medium and long term.
Ministers have also delayed separate, primary legislation to create a new, more powerful accounting and boardroom regulator by omitting it from the King’s Speech on Tuesday, which laid out the government’s legislative agenda for the next year.
Michael Izza, chief executive of the ICAEW accountants’ professional body, said: “Carillion’s collapse almost six years ago marked a watershed moment for UK audit and corporate governance, but it appears that the government’s promise of comprehensive reform will remain unfulfilled due to a lack of political will.”
The FRC said it would publish an updated version of the corporate governance code in January 2024.
The new version would still include new requirements for companies to report on their internal controls but this would be part of a “more targeted and proportionate” package of reforms, the regulator said.
The implementation of the new rules on internal controls would be delayed and would ensure “the UK approach clearly differentiates from the much more intrusive approach adopted in the US”, the FRC said. The code applies only to companies with a premium listing on the London Stock Exchange and companies can ignore its requirements as long as they explain why.
Moriarty said respondents to the FRC’s consultation had warned that guidance issued under the corporate governance code can have “unintended effects” on businesses and investors in the UK.
He added: “The FRC will continue to utilise its current regulatory toolkit to support UK businesses to thrive, balancing the FRC’s public interest remit while promoting UK corporate growth and competitiveness in global capital markets.”
