Nala Worsfold
Financial and Risk Policy Principal, UK Finance
Now is an opportune time for The Financial Reporting Council to deliver on its aims of bolstering market confidence and our international competitiveness.
I’ve spent a major part of my career working on financial regulation, but I can’t remember a time when its effect on economic growth has been so much in the headlines. Whether it’s the Financial Conduct Authority’s new approach to enforcement investigations or the Prudential Regulation Authority’s rules on bank capital, rarely has the ability of regulatory frameworks to boost or stifle growth been discussed.
Aiming for market confidence
We were pleased to see the Financial Reporting Council’s (FRC) Chief Executive, Richard Moriarty, recently highlighting the role he wants the agency to play in underpinning “market confidence and investment in the UK.” This follows on from the Government having reinvigorated the remit of the FRC to embed growth and competitiveness within its objectives.
With the new Corporate Governance Code due to come into force in 2025, it’s time to assess the burdens UK companies face and their competitiveness to ensure we’re not disadvantaging them globally.
Mr Moriarty says he hopes the FRC will come to be seen as “adding value to the public interest and supporting growth and competitiveness.” Turning these words into a framework that supports innovation and growth will need a major shift.
It’s crucial to make the UK an attractive place for businesses to grow and invest.
Closer collaboration
There are concrete reforms that the FRC could start implementing now to help deliver on its new aims. Working more closely with companies implementing the new rules, such as setting out what good might look like when it comes to directors’ disclosures on identifying material internal controls and addressing any weaknesses therein, would be a significant step forward.
Moreover, companies need to be given the confidence to come forward and engage with the FRC’s ‘comply or explain’ approach, particularly when adopting the ‘explain’ option.
Business leaders are currently, and understandably, reluctant to move first and risk revealing potential organisational weaknesses, particularly if UK companies are alone in taking this approach. A fresh signal of intent from the FRC could help to give board members the confidence to make the necessary explanations.
Boosting global competitiveness
It’s important that we don’t fixate on having a regulatory framework which aims to produce a zero-risk environment. In a fiercely competitive global marketplace, it’s crucial to make the UK an attractive place for businesses to grow and invest, deterring potential investors from seeking opportunities elsewhere.
