The chairman of the UK’s Financial Reporting Council (FRC) has called for “greater independence and transparency” from auditors and a renewed engagement with long-term investing, in a keynote speech this morning.
Sir Win Bischoff, the former chairman of Lloyds Banking Group, called on auditors to improve their performance in what he called a “key role” in the investment process.
He said: “While the quality of auditing was not on its own a cause of the meltdown of the financial sector there is a feeling that auditors could have done more to raise the alarm when things were going wrong. Investors were entitled to expect that auditors, boards and regulators would work together more effectively to identify, mitigate and report on risk. Greater independence and transparency from auditors is key to achieving this.”
Sir Win was addressing the FRC’s first annual conference this morning and urged investors to focus on the delivery of “long-term, sustainable returns” in order to rebuild public trust in the financial system.
Citing Professor John Kay’s review of the UK’s investing culture, published in 2012, Sir Win said: “Two years have gone by and there is some evidence that investors are stepping up to the challenge.
“Equally, the FRC’s Stewardship Code… calls on institutional investors to be more involved in how the companies they invest in are managed. It is important that investors and companies live up to their responsibilities in this area.”
The FRC is currently considering feedback on changes to the UK’s Corporate Governance Code, which Sir Win said was aimed at “raising the bar for risk management” and forcing boards to communicate more with shareholders.
“If progress is made in these areas, investors will have greater confidence in listed companies, attracting more capital to UK markets,” he added. “This virtuous circle of long-term, sustainable returns attracting capital that creates demonstrable value for the real economy through increased employment and innovation is probably the most powerful way in which markets can win back the support of the public.”
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