FRC fines treble to £43m as regulator sends “clear message”

The Financial Reporting Council (FRC) dealt out a record £43m in fines during the past year for misconduct and breaches, as the regulator accelerated cases to conclusion.

The regulator’s Annual Enforcement Review, published at the end of July, shows the FRC almost tripled its fines in 2018/19 – to £42.9m from £15.5m in 2017/18 – as the watchdog beefed up resources and concluded more legacy cases against auditors and accountants.

Along with a spike in the value of fines, the FRC has stepped up
regulatory intervention in the year to 31 March 2019, striking off six
individuals from memberships of professional bodies and ramping up
non-financial sanctions by nearly 250% – to 38 from 11 the year before.

The watchdog also increased headcount in its enforcement division by
25% and escalated the use of horizon scanning techniques to identify issues
which required new investigations. Some 15 new probes into auditors and
accountants were opened.

“The significant increase in the number, range and severity of
sanctions sends a clear message that where behaviour falls short of what is
required, we will hold those responsible to account,” said Elizabeth Barrett,
executive counsel of the FRC.

The FRC’s action in 2018/19, along with the annual review, could signal
a tougher regime ahead for audit and accountancy firms. The review’s details on
fines and sanctions provides a baseline against which the FRC’s future
performance will be measured. This will be significant as the watchdog
transitions into the new regulator, the Audit, Reporting and Governance
Authority (ARGA), which will have a bolstered range of enforcement powers.

But the review also indicates a collaborative regulatory approach – for
those who engage with the watchdog. A total 16 cases were concluded through
constructive engagement in the financial year, although the FRC still has 41
ongoing investigations.