The UK’s Financial Reporting Council (FRC) has published the findings of a survey of its stakeholders in which many call for more transparency in its internal processes and state that its current enforcement activities are too slow.

The FRC said it recognised that it needs to make improvements and accepted that investors wanted the regulator to be more stringent in the way it enforces standards. Following an independent review of sanctions, the FRC said a new regime would be implemented that strikes a balance between enforcing standards and encouraging businesses to improve the quality of their audit processes and corporate reporting. The FRC said it had also invested to enhance its enforcement division.

Meghan Oliver, associate director of ComRes which conducted the survey, said in the foreword of the report: “One thing that has been clear in conducting this research for the FRC is the difficulty in uniting the attitudes, experiences and recommendations of a varied group of stakeholders. Given the variety of areas that the FRC covers, stakeholders represent a diverse array of professions with a diverse array of interests. Bringing together the views of these individuals – who sometimes only engage with one part of the FRC – appears to be a unique challenge.”

The survey noted that stakeholders tended to be familiar with the work of the FRC in their specific professional area, rather than in its full remit.  The FRC noted that stakeholders who expressed greater familiarity with the FRC were also more favourable, This suggested that there was room, the FRC said, to increase communication and engagement with key groups – particularly company directors, NEDs and institutional investors.

While 69% of survey respondents believed the FRC was effective in its communications 25% felt it was ineffective and this was confirmed in more in-depth interviews with stakeholders. Many commented that the FRC’s communications were inconsistent. Unsurprisingly, the FRC said, company directors and NEDs were the least likely to think the FRC communicated effectively (57%-60% and 65%, respectively), perhaps as a result of the more limited engagement with these audiences.

The FRC said that stakeholders were broadly positive about the FRC’s work in corporate reporting, corporate governance, reporting and audit. Nearly nine in 10 reported being familiar with the FRC’s work in corporate governance (87%) while four in five perceived it to be effective (80%).

A respondent commented: “What we have is recognised globally as the best practice, so lots of other countries
adopt a very similar approach to us. Lots of other companies in the UK who are not subject to the code will nevertheless adopt it as best practice.”

Amongst stakeholder groups, it was found that institutional investors were least likely to be confident in most of the areas tested in comparison to NEDs, in particular in corporate reporting (79% vs. 97% respectively), audit (67%
vs. 94%) and actuarial work (31% vs. 58%). However, institutional investors were more likely than auditors
to be confident in the quality of investor stewardship (71% vs. 46% respectively) and corporate
governance (95% vs. 73%).

Investor stewardship had a lower profile than corporate governance, reporting and audit, and stakeholders were less convinced of the efficacy of the FRC’s work in this area, the regulator said. Institutional investors were most familiar with the work – with 90% of this group saying they were familiar compared with 50% of company directors. There was also a call for improvements in investor stewardship with stakeholders hoping the FRC would be more forward and international looking.

However, there were positive comments – one institutional investor said: “On the Investor Stewardship Code, it was progressive to the point where every market around the world now is using the UK standard as the gold standard that they’re copying.“

Last Updated: 12 January 2018