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Britain’s accounting regulator has abandoned most of its overhaul of board rules, a move it says protects competitiveness but which critics say spells the failure of long-promised corporate governance reforms.
Richard Moriarty, chief executive of the Financial Reporting Council, said on Tuesday he would drop “over half” of the 18 changes the regulator proposed in a consultation in May.
The scrapped plans include increased diversity reporting requirements and new responsibilities for the audit committee for environmental, social and governance issues – as well as regular dialogue with major shareholders.
The move follows a change of course by the British government, which wants to reduce bureaucratic burdens for companies and strengthen London’s position as a stock exchange center.
Andrew Griffith, cities minister, described the FRC’s decision as “pragmatic and proportionate”.
He added: “The UK rightly has a reputation for high standards of governance, but it is important that we do not place such a burden on our best and brightest companies that there is no level playing field with our international competitors.”
Mining group BHP, building materials group CRH and plumbing supplier Ferguson are among the companies that have left the FSTE 100 to be listed on the primary list in Australia or the US. Despite an intensive British lobbying campaign for a London share offering, British chip designer Arm also listed in the US this year.
But Roger Barker, director of policy and governance at the Institute of Directors, which represents company boards, said the FRC’s decision was “the latest stage in the unraveling of the government’s corporate governance reforms”.
Hywel Ball, UK chairman of Big Four accounting firm EY, added: “The attractiveness of the UK depends on smart regulation, not no regulation.”
The original reforms were proposed by regulators and ministers after high-profile corporate failures that cost thousands of jobs and jeopardized workers’ pensions over the last decade. These included the collapses of government contractor Carillion, retailer BHS and cafe chain Patisserie Valerie.
Tuesday’s about-face is the latest in a series of watering downs and delays in the overhaul, after companies that would have been affected by the changes resisted and the government pushed for regulation easing.
Michael Izza, chief executive of accountants’ association ICAEW, said: “The collapse of Carillion almost six years ago marked a turning point for British auditing and corporate governance, but it appears that the government’s promise of comprehensive reform will remain unfulfilled due to a lack of it.” political will.”
The FRC said it would publish an updated version of the code, which applies to companies with a premium listing on the London Stock Exchange, in January.
Moriarty said the changes would support “the UK’s economic growth and competitiveness”.
While the new version of the Code continues to require companies to report on internal controls, implementation will be delayed indefinitely. The FRC said this would help ensure that “the UK approach is clearly different from the much more intrusive US approach”.
The regulator said it had withdrawn some proposals following Business Minister Kemi Badenoch’s decision last month to shelve legislation that would have tightened corporate governance rules for large companies.
Those rules were scrapped after the financial services industry lobbied over the cost of new rules on corporate reporting, including financial resilience statements.
Ministers have also delayed separate legislation to introduce a new, more powerful accounting and board regulator. The measure was not mentioned in the King’s speech on Tuesday, which set out the government’s legislative agenda for next year.
Labor has clashed with the government over the delays and has promised to push through an audit and overhaul of corporate governance if it comes to power.
Shadow business secretary Jonathan Reynolds said Labor would “put in place an audit and governance system that businesses can trust is not subject to political scoring”.
Letter in response to this article:
Companies say: “Give us self-control instead of bureaucracy.” / By Rachel Gardiner, Director – Head of Prescribed Roles, Newgate Compliance (Channel Islands) Limited, St Peter Port, Guernsey