The review will be led by Sir John Kingman, a former senior Treasury official who is currently group chair of Legal and General and chair of UK Research and Innovation (UKRI), supported by an advisory board which he will convene.

It will report by the end of the year, and will include a public consultation. The terms of reference state there will be engagement with significant stakeholder groups, including those involved in preparing financial accounts, the users of accounts and those affected by other aspects of the FRC’s work, including governance and stewardship, in order fully to understand the range of issues, and provide constructive challenge.

The review will consider whether the FRC is sufficiently independent both within government and from those whom it regulates, and in respect of its funding arrangements, with a particular focus on whether there are sufficient safeguards in place to ensure and assure that independence.

It will also look at whether the practices, structure, culture and functioning of the FRC’s activities and operations are safeguarded against conflicts of interest, or a perception that there may be conflicts of interest, and whether existing mechanisms and practices for the prevention, detection, and resolution of conflicts of interest are adequate. In addition it will consider whether the procurement of legal and consulting services are suitable.

In providing context for the latest review, the Department for Business, Energy and Industrial Strategy (BEIS) says the FRC and its remit have developed considerably since it was initially established, and since the last review in 2011/12.

In a statement BEIS said: ‘Since then, there have been changes both in regulation, and in expectations of regulators and how they operate. The FRC is a public body. Some stakeholder groups have called for the FRC to demonstrate greater independence from those they regulate.

‘The government’s expectation is to see the UK at the forefront of corporate governance internationally, including in terms of regulation. In the context of the UK's exit from the EU, it is even more important that our regulatory structures are fit for the future.

‘With reforms to the UK’s corporate governance code in hand, it is also appropriate to make sure that the governance of the FRC as the body with responsibility for the code, is best in class.’

Scope

The review’s scope will include the FRC's governance and transparency; the avoidance of conflicts of interest, as well as its independence, oversight and accountability; and finally its impact, resources and capacity.

Specific areas to be covered include whether current governance arrangements and their transparency are suitable given the FRC’s status as a public body; the increasing span of the its functions (including in relation to large private companies); and in comparison to the increasing expectations on companies, including those that will flow from anticipated changes to the corporate governance code, and especially so as to promote confidence and emulation.

The review will also consider whether current arrangements for the FRC’s accountability to stakeholders and the public are appropriate, including on the specific matter of Freedom of Information.

The review will consider whether the current legal bases for FRC activities are adequate; or whether there is a case for an underpinning statutory architecture. In addition, the review will look ahead to consider whether any extension of powers is necessary, advisable, or otherwise recommended.

Business secretary Greg Clark said: ‘The UK has a strong reputation as a dependable place to do business but this needs to be continuously updated and it’s important to ensure all of our regulators continue to drive high standards.

‘I am pleased to appoint Sir John who has a rigorous approach to bring to bear in leading this comprehensive review of the FRC. This review is part of the government’s industrial strategy aim of creating a business environment that ensures our regulators are fit for the future and our markets are working for consumers.’

Sir Win Bischoff, chair of the FRC, said: ‘We welcome this independent review of the FRC’s governance, impact and powers and look forward to contributing positively to it.

‘Meeting public expectations means using our powers effectively, working closely with other regulators and identifying where gaps in those powers exist.

‘The review will ensure we are best placed to support UK efforts to attract investment in business for the long term.’

Independent Review of the Financial Reporting Council (2018) terms of reference are here.

Report by Pat Sweet