The FRC’s year in Enforcement
Published: 25 July 2024
3 minute read
In this episode, Elizabeth Barrett, Executive Director of the FRC's Enforcement Division joins Kate O'Neill, Director of Stakeholder Engagement and Corporate Affairs to discuss the key findings from the FRC's latest Annual Enforcement Review with a focus on our approach to proportionality, timeliness in investigations, and the impact of enforcement activities on UK growth and corporate confidence.
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Transcript
0:08
Welcome everyone to another FRC in conversation.
0:12
My name is Kate O'Neill.
0:13
I'm the Director of Stakeholder Engagement and Corporate Affairs here at the FRC.
0:18
And today I'm joined by Elizabeth Barrett, our Executive Council and Executive Director of our Enforcement Division here at the FRC.
0:27
Welcome, Elizabeth.
0:28
Hello, everyone.
0:29
Elizabeth, today we've published our annual enforcement review.
0:33
Can you share with our listeners what the key findings are from the this year's publication?
0:38
Well, there's a lot in the annual enforcement review.
0:41
Let me mention three points.
0:43
First, in our role as an improvement regulator, we've included case analysis of this year's key outcomes such as the Carillion and LCF audit investigations.
0:54
And we've also got a specific chapter dealing with themes and lessons from past cases.
0:58
Secondly, we've got a chapter explaining how proportionality runs through our work.
1:03
And finally, following last year's chapter on cooperation, I want to call out that I've been very pleased to see good examples of exceptional cooperation by firms and individuals throughout the year.
1:16
I mean, that's a really interesting point, particularly around how the FRC embeds proportionality into its enforcement approach.
1:24
Why is it important that we take a proportional approach?
1:27
What are the ways you go about doing this?
1:30
So I think proportionality is the key to achieving regulatory outcomes which are effective without being unduly burdensome.
1:38
And let me give you a couple of examples of how we do this.
1:42
First, it's very important to choose the appropriate resolution mechanism, for example between constructive engagement or investigation.
1:51
Secondly, if there is an investigation, we need to focus on issues which are serious or significant individually or collectively.
2:00
And if at the end of the investigation we do find such breaches, then we need to arrive at an overall sanctions package that fairly reflects the seriousness of the failings, helps drive future improvement through targeted non financial sanctions and takes into account the size and resources of the firm, giving credit where it's due, exceptional cooperation that really takes quite a holistic view and a holistic approach to applying proportionality in the enforcement work.
2:30
I guess one of the issues is timeliness.
2:32
It's incredibly important, but you have some KPIs about timeliness.
2:37
What are we doing at the FRC to continue to meet these timeliness KPIs?
2:43
So look, I'm really pleased that this year we exceeded both of our timeliness KPIs and we're very clear that continuing to do so requires ongoing focus on key issues, continuing to search for efficiencies and importantly, keeping an open mind as to new ways of doing things.
3:02
And what are some of the external factors because some things are outside your control that impact the timeliness of FRC investigation or these can be many and various.
3:14
We can have delays in receipt of material or responses from subjects, the availability of third parties, counsel, independent experts and also the availability of individuals for interview, for example, during the audit busy season.
3:29
But on the plus side, what can impact timeliness very positively is the readiness of increasing numbers to conduct candid self reviews, share the results with us, acknowledge where they've fallen short and that leads to a swifter outcome.
3:46
Thank you, Elizabeth.
3:47
So I mean, a lot of people don't always understand where enforcement activity fits in the whole toolkit of a regulator.
3:55
So how does the FRC's enforcement activity help to support UK growth and confidence in UK companies?
4:03
The UK has long had a well deserved reputation domestically and internationally for strong corporate governance.
4:10
Supported by trusted financial reporting and rigorous audit.
4:14
It's important to maintain that reputation and this involves keeping stakeholders up to date on what good looks like.
4:21
And I've mentioned the FRC's role as an improvement regulator, which we in enforcement support through publication of outcomes and setting non financial sanctions designed to ensure that errors are not repeated.
4:33
It also involves deterring and holding to account the small minority who commit serious or significant breaches.
4:42
And it's through those means that we in enforcement aim to uphold trust in the UK's financial reporting and audit, which support confidence to invest in UK companies and in turn, something which is very important to us all, the UK's economic growth and international competitiveness.
5:01
Thanks Elizabeth.
5:02
I guess in closing, that's so important because it is about trust and confidence in UK companies, how they report, what they report and how it's audited.
5:11
So the importance for stakeholders just cannot be ignored and is at the heart of so much of the FRC's work.
5:18
Well, I hope listeners will take a look at the important annual enforcement report.
5:22
I think it brings together so many elements that Elizabeth's described today in proportionality, how you work with companies on non financial sanctions to really improve their behaviours and approach in the future.
5:35
So thanks Elizabeth for giving us these key findings and headlines for people to enjoy when they're reading through the report.
5:42
Thanks very much Kate.
5:43
Goodbye everyone.