Accounting watchdog cuts red tape as ministers press regulators for UK growth
The City’s accounting regulator has confirmed a newly slimmed down rulebook for companies today, as it looks to ease the red tape burden on firms and “support the growth and competitiveness” of the UK.
In a statement this morning, the Financial Reporting Council confirmed a newly scaled back set of rules for companies first proposed in November when the government shelved plans for a root and branch overhaul of the UK’s corporate governance code.
Under its original plans tabled in May last year, the FRC would have piled new reporting requirements on firms including extra diversity and inclusion reporting, and higher requirements around environmental, social and governance (ESG). Bosses would have also been required to provide an in-depth financial resilience statement every year.
However, the dramatic pruning of the plans underscores the tension between regulators and the government as ministers look to slash red tape in the City and promote the UK as a place for firms to invest.
The FRC’s announcement that it would drop many of its stronger proposals in November was cheered by the Treasury, with then-City minister Andrew Griffiths describing the move as “pragmatic and proportionate” approach. His successor Bim Afolami has also urged regulators to allow more risk in the financial system.
Under the new plans, which are set to come into force in 2026, directors will have to shoulder responsibility for stronger internal controls, with the regulator expecting firms to carry out a review of their company’s risk management and internal controls at least once a year.
Top City figures cheered the newly scaled back plans today and said they would promote growth and help revive the appeal of London’s capital markets.
“We welcome the approach taken by the FRC to the Corporate Governance Code,” said Julia Hoggett, chief of the London Stock Exchange and chair of the government-backed Capital Markets Industry Taskforce.
“Fundamentally, high standards of corporate governance are one of the UK’s strengths, as are having principles-based regimes designed to be straightforward to implement to maximise compliance, efficacy and impact – the FRC’s changes to the Code reflect these very principles.”
FRC chief Richard Moriarty said the plans would enhance “transparency on internal controls, but in a way that is proportionate and minimises reporting burdens on businesses.”
The FRC also doubled down on the so-called “comply or explain” principle, which allows firms to veer away from strict adherence to the rules if they can provide a rationale. Hoggett, who has previously criticised the code for effectively becoming “comply or else”, said the regulator’s move was recognition that “boards are best placed to determine the strategies that are tailored to the specific circumstances of each company.”
The FRC’s push to beef up the reporting requirements were tabled as a response to a string of high-profile implosions at firms including Carillion and BHS, but became a point of tension with Westminster over the past year.
Ministers have looked to slash red tape around companies in the hope of re energising the City as a place for companies to list and invest.
Business secretary Kemi Badenoch changed the remit of the FRC in November to force it to embed growth and competitiveness within its objectives. Similar changes had already been put in place at the Financial Conduct Authority and Prudential Regulation Authority.