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Britain’s accounting watchdog has abandoned most of its overhaul of boardroom rules, a move it says protects competitiveness but which critics say marks the unravelling of long-promised corporate governance reforms.
Richard Moriarty, Financial Reporting Council chief executive, said on Tuesday he would drop “over half” of the 18 changes the regulator had proposed in a consultation in May.
The scrapped plans include increased requirements for diversity reporting and new audit committee responsibilities for environmental, social and governance issues — as well as regular engagement with large shareholders.
The move follows a change of tack by the UK government, which is seeking to reduce red tape on businesses and shore up London’s position as a listing venue.
Andrew Griffith, City minister, labelled the FRC’s decision as “pragmatic and proportionate”.
He added: “The UK rightly enjoys a strong reputation for high governance standards but it’s important that we don’t burden our best and brightest companies to the extent that it’s not a level playing field versus our international competitors.”
Miner BHP, building materials group CRH, and plumbing supplier Ferguson are among the companies to have left the FSTE 100 for primary listings in Australia or the US. Despite an intensive UK lobbying campaign for a London share offering, the British chip designer Arm also listed in the US this year.
But Roger Barker, policy and governance director at the Institute of Directors, which represents company board members, said the FRC’s decision was “the latest stage in the unravelling of the government’s corporate governance reforms”.
Hywel Ball, UK chair of Big Four accountancy EY, added: “The attractiveness of the UK relies on smart regulation, not no regulation.”
The original reforms were put forward by regulators and ministers after high-profile corporate failures that cost thousands of jobs and endangered employees’ pensions over the past decade. These included the collapses of government contractor Carillion, retailer BHS and café chain Patisserie Valerie.
Tuesday’s U-turn is the latest in a series of dilutions and delays to the overhaul, following a pushback by companies that would have been affected by the changes and a government push to lighten regulation.
Michael Izza, chief executive of the ICAEW accountants’ professional body, said: “Carillion’s collapse almost six years ago marked a watershed moment for UK audit and corporate governance, but it appears that the government’s promise of comprehensive reform will remain unfulfilled due to a lack of political will.”
The FRC said it would publish an updated version of the code, which applies to companies with a premium listing on the London Stock Exchange, in January.
Moriarty said the changes would support “UK economic growth and competitiveness”.
While the new version of the code will still require companies to report on internal controls, implementation will be delayed for an indeterminate time. The FRC said this would help ensure “the UK approach clearly differentiates from the much more intrusive approach adopted in the US”.
The watchdog said it had dropped some proposals because of business secretary Kemi Badenoch’s decision last month to shelve legislation that would have tightened corporate governance rules for large companies.
Those regulations were scrapped after lobbying by the financial services industry over the cost of new corporate reporting rules, including annual statements on financial resilience.
Ministers have also delayed separate legislation to set up a new, more powerful accounting and boardroom regulator. The measure was omitted from the King’s Speech on Tuesday, which laid out the government’s legislative agenda for the next year.
Labour has clashed with the government over the delays, vowing to push through an audit and corporate governance overhaul if it wins power.
Shadow business secretary Jonathan Reynolds said Labour would establish an “an audit and governance system that firms can have confidence won’t be subject to political point scoring.”