UK authorities botched handling of business scandals, Carillon, Thomas Cook — Financial Reporting Council

The head of the Financial Reporting Council, the UK regulator overseeing financial reporting, told the Financial Times that it had botched the handling of a series of business scandals that have unleashed a far-reaching overhaul of audit and corporate governance.

Sir Jon Thompson, chief executive of the Financial Reporting Council, said that he agreed with criticism of the regulator following company collapses including Carillion in 2018 and Patisserie Valerie, and Thomas Cooke in 2019.

Asked whether the FRC was “asleep at the wheel” during corporate failures, Thompson said: “The answer is yes. Let’s be straightforward about it. The FRC is the custodian of the UK corporate governance code that applies to listed companies, and also regulates auditors, which were criticised for failing to sound the alarm ahead of collapses such as Carillion,” according to the report.

“It’s probably arguable that as a regulator we weren’t anywhere near as strong enough, we weren’t big enough, and we weren’t transparent enough to make a difference to the system,” said Thompson.

He added that a review of the FRC by Sir John Kingman, which described it as a “ramshackle house” and recommended the watchdog be replaced by a stronger regulator, had been “generous” in its findings.

The FRC is due to be replaced by an independent regulator called the Audit, Reporting and Governance Authority (Arga), which will be led by Thompson.

More large private companies, including those owned by private equity groups, are set to be brought into the scope of the FRC’s jurisdiction under the government’s reforms. Thompson said these companies would not be expected to meet the same standards as listed businesses, but there would be “accountability for those who run the largest privately owned companies in the UK”.

However, there is concern in the financial services industry that this increased corporate governance could drive some companies away from listing on the London Stock Exchange.