Friday, 3rd August 2018 10:30 - by Eric Chalker
In 7 years of dealing with the FRC on behalf of the UK Shareholders’ Association, it was at best a disappointment. Over time, I came to see it as wholly unhelpful to the needs of private investors and even hostile to them. Now, at the request of the government, it is being examined by Sir John Kingman.
This is the body that wanted to do away with printed annual reports – an initiative which appalled the great majority of private investors, including those who use the internet. We were able to kill that idea, but to most of what we sought it turned a polite but completely deaf ear.
Over the years, UKSA lobbied the FRC repeatedly for its assistance in improving the lot of private investors. Of greatest importance were our representations on the disenfranchisement of increasing numbers because shares have been driven into nominee accounts by government requirements (ISAs and SIPPs) and by stockbroker practice. Shockingly, when I mentioned at an FRC open meeting, in the context of the EU’s Shareholder Directive, that changes to shareholder rights would do nothing for investors in nominee accounts because in English courts they don’t qualify as shareholders, the FRC chairman, Sir Win Bischoff, said to me afterwards, “I didn’t know that.”
Despite the fact that private equity investments now exceed in value those of insurance companies, pension funds and the like, the FRC refused to lift a finger to facilitate, let alone increase, the ability of individual investors to hold company directors to account. Despite the fact that, mostly, it is only private investors who put their own money at risk when buying company shares, the FRC consistently preferred to focus solely on the concept of ‘stewardship’ exercised by intermediaries, mostly with none of their own money at stake. Stewardship is a blanket that has worn thin and become riddled with holes.
A failing relationship
In February 2016, after years of trying but failing to persuade the FRC to respond to its concerns, UKSA decided to make them public, with a statement on its website, still there, headed, “The Financial Reporting Council is failing private investors.” Attached to this was the letter sent by UKSA to comment on the FRC’s draft plan for 2016/17, calling on it yet again to include action to enable and improve private investors’ ability to exercise the rights given to all shareholders by the Companies Act. Both items can be found here: http://www.uksa.org.uk/2016/02/financial-reporting-council-frc-failing-private-investors .
In November last year, the FRC gave a roomful of private investors a lengthy and comprehensive presentation on its activities. ‘Lifting the lid on the FRC’ it was called. Numerous questions and observations were made by those attending, many of them critical. Unsurprisingly, a lot of these related to audit quality, an aspect of its responsibilities in which the FRC has conspicuously failed over many years, as a result of which investors continue to lose money because certified accounts have subsequently been shown to be false. Despite these comments being recorded, there is no evidence yet that the occasion was in reality anything more than a public relations exercise.
Sir John Kingman’s Review
Sir John Kingman’s approach to the review is to be applauded. His call for evidence can be found here: https://www.gov.uk/government/consultations/financial-reporting-council-independent-review-call-for-evidence. As I am no longer in a representative capacity, I have not tried to answer specific questions, but have sent him the following observations.
A striking example of this was the regulatory requirement for directors to produce a strategy report, occupying just 3 pages in the regulation itself, turned by the FRC into 30 pages of ‘guidance’ plus 4 appendices: how to turn something simple into something complex.
Eric Chalker, UK Shareholders’ Association Policy Co-ordinator & Director, 2012-2016
The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.