Firmer, faster, more transparent action needed by FRC, we tell Kingman

UKSA and ShareSoc responded jointly to Sir John Kingman’s review of the Financial Reporting Council (FRC). We summarised our assessment of the FRC’s current strengths and weaknesses and made suggestions for addressing the weaknesses. The main points we made were:

Our main desired outcome is firmer and faster action against those who violate the integrity of reporting standards. It seems to us (and to the general public) that in practically every financial scandal or financial crisis, the FRC seems to have taken far too long to decide and too often has concluded that nothing has gone seriously wrong. We have the following suggestions about achieving our desired outcome of firmer and faster action:

Companies and auditors should be told and know that concerns about doubtful behaviour and practices will be publicly exposed at an early stage.
A more principles-based approach to regulation is necessary. Rules cannot account for every eventuality and are easy to ‘game’.
A lower bar for regulatory action is required. This could be greatly reinforced by:
1. providing immunity from prosecution for the Regulator;
2. shifting the burden of proof to the producers of reports, rather than the users;
Introducing a new category of regulatory “concern”, where the FRC is aware of concerns but has not necessarily started a detailed case investigation;
Continuing to encourage better standards of governance and behaviour.
A clearer role and remit should be set for the FRC. We believe that the overall mission (to promote transparency and integrity in business) is consistent with our overall desired outcome. However, greater clarity is needed in terms of what this involves and how the FRC will go about achieving it.
Change in culture and organisation.
1. The FRC’s board is currently dominated by the producers of reports, namely companies, auditors and lawyers. The balance needs to be towards the users of these reports in the broadest sense (investors, analysts, customers, suppliers and employees) and the majority of board members should be drawn from those communities.
2. The FRC needs to recruit executives who clearly understand that their role is to make decisions so as to achieve the goal of firmer and faster action, transparently. The current culture of delay and obfuscation must change: the current behaviours of seeking more information, of trying to be 100% sure and allowing cases to drift on must change and those executives who fail to change should be counselled and if necessary asked to leave.
The power to hold company directors to account and take action against them regardless of whether they are qualified accountants or members of an accountancy body.
More resources should be provided, if required, in order to meet the above outcomes.
A proper remit should be included to address the current weakness in capital maintenance standards (almost entirely lacking in IFRS, for example).
The FRC should review the industry concentration and potential separation of the audit function out of the Big Four professional services consultancy firms.

The FRC should be given 3 more years to prove that it has changed; if not, it should be abolished and its duties allocated to other bodies. There are arguments that this should be done now, but to do so would ensure massive disruption and there is no guarantee that the new body would be any better. The FRC already does much work that is good or very good. There are also signs that it is already addressing certain weaknesses. With sufficient help and encouragement it should be able to achieve the desired result of firmer and faster, transparent regulation with lower risk than other solutions.

Our proposals are discussed in more detail in the responses which are attached to the links below.

Peter Parry, Policy Director of UKSA, did most of the work on our joint response and I would like to thank him for his hard work.

Cliff Weight, Director, ShareSoc

FRC Kingman covering letter FRC Kingman Review – Questions and submission

Post Date: August 12, 2018

Group description:	SIGnet Taunton is a new group with around 10 keen members at present, with a range of investment styles and experience. We welcome new members.
Meeting Type/Venue:	In person meetings at a golf club near to the centre of Taunton.
Meeting Frequency/Timing:	We meet on the first Monday of every month at a golf club near to the centre of Taunton, 11am until 3pm with a lunch break.

Group description:	An online group for those who are new to investing, or have only been investing for a few years. Including topics such as: – What is a share or a bond, why and how to buy them. – Comparing funds, unit trusts, Investment trusts and exchange traded funds. – Portfolio management and diversification. – ISAs, pensions, SIPPS and how to save tax. – How terms such as PE ratio and dividend yield are used to value a share. – How to use technical analysis or charting.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Monday of the month at 7:00pm.

Group description:	An online group for those who already have some experience in investing. Covering topics such as finding companies to invest in, financial statements and ratios, valuation / margin of safety, analysis of companies and investment trusts and exchange traded funds.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Wednesday of the month at 7:00pm.

Group description:	The Equity Income Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on dividend paying Investment Trusts, though there is also discussion around individual shares.
Meeting Type/Venue:	Meetings are held online.
Meeting Frequency/Timing:	Meetings are held every 6 weeks on a weekday between 7 and 8:30pm.

Group description:	The Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on all types of income generating financial instruments, from stocks through Trusts and Funds and ETFs to retail bonds. Meetings involve presentations from members, who are also expected to lead discussions from time to time, as well as discussions on what has been bought and sold since the last meeting.
Meeting Type/Venue:	Meetings are in-person in a venue in Central London.
Meeting Frequency/Timing:	Meetings are usually held on the last Thursday of every other month, starting with an informal lunch around 1pm followed by discussions until around 5pm.

Group description:	A welcoming group open to all types of investors. Typical meeting content is to have a deep dive presentation on a topic selected by the participants and a session on buy/ sell/ key lessons learnt last month.
Meeting Type/Venue:	In person at a friendly pub close to Piccadilly Circus
Meeting Frequency/Timing:	Monthly during the evening on the first Wednesday of the month.

Group description:	Our group is a broad church that contains investors of varying experience. Our members’ backgrounds are diverse and include corporate banking, engineering, teaching and the leisure industry. We generally pick a discussion topic for every meeting, e.g. housebuilders or the defence industry, and members are invited to research and discuss different aspects or companies within that industry. We also discuss stocks and investment trusts that we have bought, sold or are interested in and the reasons behind our decisions, and try to make sense of the ever changing investment environment. Discussions are robust and challenging but we are a friendly and approachable group who welcome investors of all levels – we just ask that you contribute, at whatever level you can.
Meeting Type/Venue:	Our meetings are held in a private room at a nice pub near to South Ealing tube station (Piccadilly Line), not far from Ealing Broadway (District, Central and Elizabeth Line).
Meeting Frequency/Timing:	We meet every 2 months, usually on a Wednesday morning at 11am.

Group description:	All levels of experience welcome. A typical meeting agenda includes: – Macro Environment – Trades: Members review existing positions and identify securities with promising TA entry patterns or setups and with suitable risk/reward. Any security, long, short, futures, options may be considered. The convener takes actual positions in trades and maintains his own detailed ledger, accurately measuring performance of individual securities and cumulative activity. Members are notified by e-mail prior to the entries or exits that are decided upon. Following each meeting an updated copy of the ledger is circulated together with the next meeting agenda. Members may wish to maintain similar ledgers of their own but there is no obligation to do so. – Technical Analysis: Techniques and systems used in trades. Members can request discussion of particular aspects of TA.
Meeting Type/Venue:	Online via Zoom
Meeting Frequency/Timing:	The first Tuesday of every month from 7 to 9pm

Group description:	Open to all investors / people with an interest in investing. Typical meeting will involve members talking about recent purchases, successes, failures and possible future purchases. Also with occasional visiting speakers or members making presentations on a topic of interest.
Meeting Type/Venue:	We aim to meet on the last Tuesday of each month in a private room at a pub in Playhatch. Start time 7pm with members encouraged to meet up around 6pm for a bite to eat / drink before hand, if their diaries allow.
Meeting Frequency/Timing:	7pm on the last Tuesday of the month. Meetings likely to last about two hours but with informal ‘overspill’ before / after.

Firmer, faster, more transparent action needed by FRC, we tell Kingman

Leave a Comment Click here to cancel reply.