FRC sets out public interest principles

The Financial Reporting Council (FRC) has published a set of principles that it will use to assess whether the public interest is best served by carrying out regulatory, supervisory and enforcement work that is outside of its primary regulatory perimeter as it transitions to the Audit, Reporting and Governance Authority (ARGA).

In its response to the white paper on restoring trust in audit and corporate governance, the government committed to expanding the definition of a public interest entity (PIE) to also include companies with over 750 employees and a turnover of over £750m.

Among the principles, the FRC said will ask itself:

• Is there a need to take regulatory action to maintain justifiable public confidence in the regulated professions and activities (i.e. accountancy, audit or actuarial); corporate reporting as a whole; and/or corporate governance as a whole?
• Does the nature, extent, scale and gravity of the matter give rise to a serious public
  concern and does it currently or potentially: concern a body of systemic importance or one whose shares are traded publicly; affect a significant number of people; cause (or have the potential to cause) significant financial loss or other harm; and/or relate to criminal, illegal, fraudulent or unethical behaviour?
• Is it proportionate to undertake the action or activity, and has consideration been given to whether relevant regulatory action is being taken by another regulator?

The FRC said that much of the scope of ARGA’s work is expected to be determined by this new definition, however, the government also recognised there will be “exceptional circumstances” where ARGA should take regulatory action in areas of public interest that are not within this regulatory focus.

The FRC has also committed to producing a yearly report explaining how its regulatory scope applies to each of its functions and highlighting where it has taken any decision to go beyond it.

CEO of the FRC, Jon Thompson, said: “Acting in the public interest to uphold high standards of audit, corporate reporting and corporate governance underpins everything we do at the FRC, and will continue to do so as we transition to ARGA.

“These principles will help to protect all of our stakeholders, including investors, employees and pension holders, and provide greater clarity on when ARGA will take decisive action in the public interest.”