Financial Reporting Council - Changes to Governance Arrangements

The Minister for Trade (Mr. Ian McCartney)
Sir Christopher Hogg, the Chairman of the Financial Reporting Council (FRC), is today publishing proposals for consultation on measures to improve the FRC’s internal governance. The Government welcomes this consultation

The FRC is the independent UK regulator and standard setter for accounting, auditing and the actuarial profession. The FRC’s remit was significantly expanded in 2004 as a result of the Government’s review of audit and accounting regulation, following the corporate scandals in the United States and elsewhere earlier in the decade. Its responsibilities were further expanded in 2006 to include actuarial standards and regulation, as recommended by the Morris Review.

Since his appointment as Chair in January 2006 Sir Christopher has been reviewing the FRC’s internal governance arrangements. While these arrangements have operated well, Sir Christopher has concluded there is now a strong case for changes to enhance the FRC’s transparency, efficiency and independence. The Government agree with Sir Christopher’s view and welcomes the consultation document he is publishing.

The changes Sir Christopher is proposing include merging the FRC Council, which at around 30 members is a large group, and its management board, to form a single governing body of directors. The new governing body would be larger than the existing six-strong board, to enhance its balance, composition and effectiveness. The majority of the governing body will be non-executive directors, including the Chair and Deputy Chair. In addition, the chairs of the FRC’s operating bodies would become directors for the first time.

Sir Christopher is also recommending changes to the process for appointing directors to support the new arrangements and ensure the new governing body reflects the range of skills and experience required. At present, the Secretary of State makes all appointments to the Board of Directors, with the exception of the Chief Executive who is appointed by the FRC. Under the new arrangements, the Secretary of State would appoint only the Chair and Deputy Chair of the FRC. The other directors would be appointed by a Nominations Committee chaired by the FRC Chair, through an open and transparent process, following the same principles as set out for public appointments by  the Office of the Commissioner for public appointments. The committee, guided by a template of the range of skills and experience the board should include, will establish clear, objective criteria for individual appointments.

The Government believe the FRC has adapted well to its new responsibilities, and that it continues to receive strong support from companies, investors, the accountancy profession and other stakeholders. The Government are therefore confident the FRC under the new governance arrangements will continue to make an essential contribution to ensuring open, efficient and competitive markets and a strong enterprising corporate sector. Corporate reporting and governance in the UK are widely recognised domestically and internationally as being of a very high standard generally. The FRC’s integrated and market-led approach to regulation effectively underpins these standards.