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Directors could face 'disciplinary action' for financial reporting breaches, under FRC plans

Out-Law News | 17 Feb 2017 | 4:18 pm | 1 min. read

Company directors could face "disciplinary action" over breaches of financial reporting rules under new plans announced by the Financial Reporting Council (FRC).

The audit watchdog said it would recommend an extension to its enforcement powers in a response it will submit to the UK government's 'green paper' on corporate governance, which was published late last year. Those recommendations will seek "to ensure that disciplinary action can be taken against all directors where there have been financial reporting breaches", it said.

The FRC also opened a "fundamental review" of the existing UK Corporate Governance Code.

In a speech, Sir Win Bischoff, chair of the FRC, said "good, globally respected corporate governance" can help attract the "flow of capital to the UK". He said the body's review will "consider the appropriate balance between the Code’s principles and provisions". 

"In pursuing any changes, the current strengths of UK governance: the unitary board, strong shareholder rights, the role of stewardship and the ‘comply or explain’ approach, must be preserved," he said. "We must not throw out the baby with the bathwater."

"Any changes to the regulatory frameworks and to the Code will be done carefully and through full consultation with a wide range of stakeholders. We have established a Stakeholder Advisory Panel with high profile representatives from a range of sectors so we can gain insights to inform our decisions. It is worth noting that, if anything, the bias in the US is towards de-regulation and we in Europe and the rest of the world will need to be mindful of that," he said.

The FRC plans to consult industry on its proposals for reform later this year, it said.

Public listed UK companies are required by law to comply with the UK Corporate Governance Code and its reporting requirements, or to explain why they are not. No such requirements apply to private companies. However, earlier this month the UK parliament's Work and Pensions Committee recommended extending compliance with the Code to large private companies and those with more than 5,000 defined benefit pension scheme members.