A slew of accounting scandals in the U.K. has led the government to launch an inquiry into the powers of the Financial Reporting Council (FRC), the government watchdog aimed at overseeing auditing and accounting practices in the country.
Reports in Reuters this week said the U.K. launched a “root and branch” review of the FRC in an effort to enhance its reputation as a watchdog that upholds corporate standards. The publication noted officials are hoping the independent review may encourage investment after Brexit.
Former finance ministry official John Kingman, who now serves as the chairman of Legal & General, will lead the review, according to business minister Greg Clark.
“The U.K. 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, according to reports. “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.”
Criticism of the FRC hit a peak following the global financial crisis and taxpayer bailouts of top banks in the U.K., despite accountants green-lighting their financial statements, reports said; adding that since, the FRC has faced additional criticism for its lag time when intervening in matters. It also faced backlash after clearing auditing giant KPMG of any wrongdoing after the auditor gave HBOS a “clean bill of health” a few months before its 2008 collapse.
More recently, the collapse of top government contractor Carillion has also led critics to question the FRC’s effectiveness.
The watchdog has noted, however, that there are limits in its ability to take action and is instead forced to rely on other regulators for enforcement, reports said. The FRC is reportedly pushing for larger fines against wrongdoers and for the ability to vet senior hires at the nation’s largest accounting companies, including KPMG, Deloitte, EY and PwC.
“Meeting public expectations means using our powers effectively, working closely with other regulators and identifying where gaps in those powers exist,” said FRC Chairman Win Bischoff in an interview with Reuters.
The FRC does not have the power to enforce the corporate governance code it writes, reports said. Company shareholders have the burden of bringing forth any challenges.
Late last year, the watchdog tripled the size of its enforcement team.