In Conversation: Discussing the FRC's end-to-end enforcement process review
Published: 17 April 2025
8 minute read
In this ‘In Conversation’ podcast, Kate O’Neill, Director of Stakeholder Engagement & Corporate Affairs, Sarah Rapson, Executive Director of Supervision, and Elizabeth Barrett, Executive Counsel and Executive Director of Enforcement, discuss the Financial Reporting Council’s (FRC) end-to-end enforcement process review, as referenced in our 3-Year Strategy. They discuss the reasons for launching the review now, the key issues the review is considering, and the importance of this work to stakeholders - including plans for upcoming roundtables.
Transcript
0:10
Hello there, and welcome to another FRC in Conversation.
0:14
My name is Kate O'Neill.
0:15
I'm the Director of Stakeholder Engagement and Corporate Affairs at the FRC.
0:19
And today it's going to be a bit of a different one because I'm not going to be interviewing.
0:24
I'm actually going to be joined by fellow interviewers.
0:28
Sarah Rapson, the Executive Director of Supervision at the FRC, welcome Sarah, and Elizabeth Barrett, the Executive Director of our Enforcement Division and Executive Legal Counsel.
0:39
Welcome, Elizabeth.
0:41
And the reason we're doing a bit differently today because we're talking about a very important project that's underway at the FRC called the review of the End to End Enforcement process.
0:51
And myself, Sarah and Elizabeth are on the steering group representing ExCo for this important project.
0:58
So we genuinely are going to be in an in conversation.
1:02
But I will kick off and say, Elizabeth, let's give our listeners an overview of what this end to end enforcement process review is and why has the FRC decided to look into this area.
1:13
Now, we talk a lot about being an improvement regulator.
1:18
And of course, improvement doesn't just apply to our regulatory remit in respect to those who regulate.
1:26
It's very important that we apply that lens to ourselves as well.
1:30
So we're reviewing our regulatory approach really to make sure that it continues to be fit for purpose.
1:38
The audit landscape has involved significantly and we've seen very welcome improvements in audit quality in key areas.
1:46
But we're in a very different environment now to when the key audit procedure was introduced in 2016.
1:55
And we've got different and significant emerging challenges.
1:59
And what those will require is that we learn from experience and adapt and ensure our approach remains fit for purpose.
2:08
So what is the end to end enforcement project?
2:12
We're going to be refreshing the entire end to end enforcement process and procedures from initial case assessment to publication of outcomes.
2:22
And we're going to be looking at governance structures, key decision making and of course, operational efficiency and effectiveness.
2:30
And the aim and the objective is that our processes continue to be efficient, effective, timely and proportionate.
2:38
I think that's a really important point about the improvement regulator because nothing stands still in this world and nor should any way in which we're undertaking our regulatory remit.
2:49
So of course, we don't regulate in a vacuum.
2:51
And Kate, I'm very interested in your perspectives as to how you think stakeholders will perceive our work and this project and how it aligns with our objectives.
3:03
Thanks, Elizabeth.
3:04
I mean, there's a very clear public expectation that enforcement will remain an important part of our regulatory toolkit.
3:11
The project was specifically mentioned in our three-year strategy, which was published just recently.
3:17
And as the team have been laying the groundwork and working on what our next steps could be, some stakeholders have probably heard this mention of this project and some other projects, including the very important future of audit supervision strategy, which I know Sarah has spent some time on a podcast with myself describing how that fits into our three-year strategy and our approach to always, as you said, making sure that the way we undertake our activities remains fit for purpose.
3:47
So as part of our work on the future of audit regulation alongside the supervision strategy project, the E2E enforcement review process is going to be really key for our stakeholders to really understand not just how things fit together at the FRC, but how they're undertaken, not just in the public interest, but to reflect the environment in which our stakeholders operate.
4:11
We must constantly anticipate and adapt our approach based on the needs of the market, the public interest, but also to reduce unnecessary regulatory burdens while obviously upholding high standards, which are key to all of our work and supporting UK economic growth.
4:28
On the last point, there is obviously a lot of interest, but also commentary on how does regulation and growth kind of sit hand in hand?
4:38
Can they exist at the same time?
4:40
And it's very clear that the work of the FRC helps set the environment where people, investors, employees, pensioners and other parts of the stakeholder ecosystem can rely on well prepared accounts, true and fair, and represent a company's activities and future prospects that are signed off by a well governed board who are acting in the interest of their stakeholders.
5:07
And that they receive the assurance from high quality audit that stakeholders can rely on them.
5:13
And in creating an environment of trust and confidence, we believe companies can scale and prosper in the UK.
5:20
Sarah, I guess on that last point I made, the work of supervision in helping that environment remain robust is so important.
5:29
You're right, Kate.
5:30
I mean, don't underestimate the importance of audit as it relates to economic growth in the way that you've just described.
5:37
But maintaining the UK status as a leading global destination to build and scale a business is a shared priority for all of us.
5:43
And by prioritising fair, robust and proportionate enforcement outcomes to uphold trust in financial reporting and audit, you know, we can support confidence to invest in UK companies and therefore growth and international competitiveness.
5:58
All of this doesn't mean though that we should make changes for changes sake.
6:01
I mean, any changes to any of our proposals, whether that's the end to end enforcement project we're talking about or the future of audit supervision strategy project, which Kate, you and I talked about in a recent podcast.
6:11
You know, any proposals must be clear and realisable.
6:15
It is important that we learn the lessons from history and don't repeat them.
6:19
But equally, we shouldn't be held hostage to a moment in time when the future context might demand something a little bit different.
6:25
Elizabeth, one important thing to discuss really is to unpack the project a bit and set out for listeners the main areas that we're considering in this review.
6:33
So I wonder whether you might just expand on some of the areas that we're looking at to potentially make changes or implement new processes.
6:39
So look, you're absolutely right, this had the potential to be an enormous project and we've therefore had to prioritise.
6:47
So first of all, we're focusing on one of our enforcement procedures, which is the audit enforcement procedure was originally implemented in 2016.
6:56
And that might sound a bit recent, but actually it's nearly nine years ago now and a lot has changed in that.
7:03
So it's right that we review and consider whether our processes remain effective and aligned with best practise and fit for purpose for the future.
7:15
We're going to be looking at five key priority areas.
7:18
First, our case assessment process and the key decisions associated with it.
7:25
Secondly, the decisions made whether to open an investigation or not and also the criteria applied in relation to the good reason or public interest factors.
7:40
Third, we're going to look at key decision making in the conduct of investigations and also in the resolution, whether that's through settlement or rare though it is tribunal proceedings.
7:52
Fourthly, we're going to be looking at our publication processes and that includes the discretionary announcements that we make in certain circumstances when we announce the opening of an investigation.
8:08
But it also importantly includes the mandatory announcements that we make as to the outcome of an investigation.
8:17
And I think we all recognise that whilst it's very important that our publication process is thorough and fair, it can take a long time before we're able to announce the outcome and we would like to address that if we can.
8:33
And then finally and in many ways a very exciting aspect of the work we're doing, we're going to be looking at alternative resolution mechanisms, including whether in certain circumstances it might be appropriate to introduce a new alternative fast track procedure.
8:52
And of course, as we always do within the Enforcement division as business as usual, we will be looking to see whether there are options to accelerate the resolution of investigations.
9:06
We've, as you would expect, carefully analyse the current framework and considered what principles should be in place and how these align with the principles of independence, transparency, accountability and good corporate governance frameworks as they apply to an enforcement regime.
9:27
But very importantly, this is one of a number of major change projects that we're considering at the moment.
9:35
And Sarah's already touched on the work in relation to the future of audit supervision project.
9:41
It's important to understand that the end to end enforcement review is not limited to the work carried out in the Enforcement Division.
9:51
So Sarah, can I hand over to you to give some colour on how these changes are truly end to end?
9:58
Thanks, Elizabeth.
9:58
That's a really important point.
10:00
You read the title of this project and you see the word enforcement, and you might make a presumption that all of this relates to the work of the enforcement division.
10:07
But there are some really quite significant areas that we're looking at in the Supervision division.
10:12
And I just pull out three for listeners.
10:16
The first is the case assessment process itself.
10:19
So how do we horizon scan?
10:21
How do we choose what cases to look at in the first place, the process of opening a case and working out whether we've got the threshold test for opening investigations in the right place and how we might announce those?
10:35
And then finally, other options for us to take rather than just constructive engagement or full blown enforcement action.
10:41
So is there something in between?
10:44
OK.
10:44
Of course, we've got to make sure that stakeholders remain at the heart of this work, as we are doing for Fas.
10:49
So I wonder whether you might just take a moment to explain how the FRC is ensuring that stakeholders have an opportunity to contribute to the review.
10:57
It's so important that we remain committed to maintaining the transparency that underpins the confidence for investors, businesses and the public.
11:07
And you know, that doesn't mean we're running popularity contests, getting everyone to agree with each other.
11:13
We want everyone to be heard and have those very wide consultations that really give people a chance to share their experiences and their views on our important work, as well as those who are potentially indirectly affected by the work of the end to end enforcement process.
11:30
And we need to challenge ourselves constantly.
11:33
Doesn't mean we want to flip flop around, but we want to make sure that as Elizabeth really started in her comments was we should challenge ourselves.
11:41
We want to be fit for purpose, but we can't be stuck in a certain point of time.
11:46
We've got to move and adapt to the circumstances in which we find ourselves operating.
11:51
So as part of this project, we're seeking views from stakeholders on how our approach may be developed to be more effective, proportionate and drive that confidence for investors, businesses and the public.
12:03
We've already begun engaging stakeholders in meetings to hear their initial views on how the current process works and what concerns or ideas they may have.
12:12
And later this month and into early May, we're hosting roundtables for different stakeholder groups to gather their views on our initial thinking.
12:21
And we encourage all stakeholders to sign up for these if they haven't already, the details of which are on our website.
12:29
And we'll continue this consultation process throughout the year as the proposals become embedded and are finalised.
12:36
But we'll keep all stakeholders and interested parties up to date on what's planned for that.
12:42
But in the meantime, please do look on the website for the planned round tables later in April and early May.
12:50
So I suppose it falls to me to say thank you to Sarah and Elizabeth for being so fulsome and detailed about this important work, but also for bringing to light at about how this fits into other important projects that are undertaken at the moment around the FRC and outlined in our three-year strategy.
13:08
And I guess it'll be important for us three to check back in with our listeners as the process and project progresses and also really come back and give a view of the themes that emerged through those round tables from the our various stakeholder groups.
13:24
So thank you, Elizabeth.
13:26
Thank you, Sarah, thank you to all our listeners and look forward to continuing this conversation as this important project progresses.
13:33
Thank you.
13:34
For now.
13:35
Thanks very much, Kate.
13:36
Thanks very much everyone, and we look forward to keeping in touch.