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The Financial Reporting Council (FRC) has published an updated letter regarding its approach to capital restructuring at UK audit firms.
The update to the letter, originally issued in September 2024, provides further clarity on the FRC’s position amid continued market interest in this topic.
In the updated letter, the FRC reaffirms that while ownership structures remain a matter for the firms themselves, the regulator is not opposed in principle to capital restructuring in the UK audit market.
The FRC acknowledges that such restructuring could, under the right circumstances, generate additional investment to enhance audit quality and potentially drive innovation, choice and growth across the sector.
However, there are important risks that will need to be carefully managed. As with any other major change within an audit firm that has the potential to affect its leadership and culture, a change in ownership structure via capital restructuring must be able to maintain and enhance over time the important public interest dimension of audit.
The letter emphasises that audit firms considering capital restructuring should engage with the FRC at an early stage, with assurance that all discussions will be treated in the strictest confidence. The FRC has also extended an invitation to engage directly with potential investors or parties considering new capital structures in the UK audit market.
In the letter, Richard Moriarty, CEO of FRC, said: “After all, good quality audit carried out by independent professionals underpins investor confidence and enables businesses access to capital to invest and grow. It also supports broader confidence in financial reporting of UK plc from a range of other stakeholders such as pensioners, employees, creditors and broader society.
“Like for any other significant change relating to a UK firm, any party interested in a capital restructuring must be able to continue to provide assurance that it will be able to support the public interest, the independence dimensions of audit and all applicable regulatory expectations. It is important to demonstrate that the legal requirements, including those pertaining to control, are met both in substance and in form.”
