UK accounting watchdog warns he is ‘sheriff for only half the county’

The UK’s accounting watchdog has warned that he is “sheriff for only half the county” and forced to “beg” for funding without long-delayed legislation to create a stronger audit regulator.

Richard Moriarty, chief executive of the Financial Reporting Council, said on Tuesday that there were “serious gaps” in its regulatory toolkit and asked for more powers to bring it in line with watchdogs for other sectors.

“At the moment, I’m sheriff for only half the county . . . and my arsenal is weaker than other regulators. I’m not asking for much more than what other regulators have today,” Moriarty told the House of Commons business and trade select committee.

The comments came after ministers last year delayed legislation to set up the Audit, Reporting and Governance Authority (Arga), a new, more powerful accounting and boardroom regulator.

Proposed in a government white paper in 2021, the measure was omitted from the King’s Speech in November, which set out the government’s legislative agenda for the year.

Establishing Arga was regarded as a key part of the government’s attempt to reform Britain’s audit industry after a series of high-profile corporate failures, such as outsourcer Carillion, retailer BHS and café chain Patisserie Valerie.

Moriarty on Tuesday listed five problems that he said were hampering the FRC without enhanced powers.

These included companies and individuals providing information to the FRC only on a voluntary basis during investigations; being required to “effectively beg” for 40 per cent of the regulator’s funding from the industry it oversees; and its lack of powers in relation to competition in the audit market.

Moriarty, who took the helm in October after previously leading the UK’s aviation watchdog, said the FRC was in an “anomalous position”.

“Having run other regulators, and being able to compare and contrast, they have all got statutory powers to demand and request the provision of information. At the moment, I’m beholden to the goodwill of firms and individuals to provide that information,” he said.

Moriarty added that the government should “modernise” the definition of “public interest entities” (PIEs) and give the FRC the ability to go after company directors for financial wrongdoing.

Plans to expand the definition of a PIE to cover larger private groups — instead of just mostly listed companies, banks and insurers — have also been delayed, while the FRC has powers to investigate directors only if they are chartered accountants.

Speaking at the same session on Tuesday, Kevin Hollinrake, enterprise and markets minister, said the government was “not against” establishing Arga and that it was “keen to legislate when we get the time to do that”.

He also said there had been a “significant improvement in audit quality” over the past five years, adding: “We’re not anti-regulation. We are always conscious about red tape and making sure businesses aren’t burdened by red tape.”

In November, the government gave the FRC a new remit to promote economic “competitiveness” amid a push by ministers to reduce red tape on businesses and shore up London’s position as a listing venue. 

Sir John Kingman, who chaired one of the three government-backed reviews into the UK audit market that first proposed Arga, told the committee that the FRC was contending with “large vested interests” and being forced to operate “through persuasion rather than through power”.

“We would never accept that with the banks, why accept it with the audit firms?” he added.