While the King’s speech was a testament to the Tory government’s ambitions on several fronts, including several elements relating to finance and industry, there were some notable omissions.
Two of the chief items left out of the speech's plans for future legislation were the introduction of a pensions bill, despite being widely reported as a means of advancing the Chancellor’s Mansion House reforms, and new rules to modernise the regulation of audit and corporate reporting.
However, while the absence of a pensions bill in the agenda caused ripples of concern in the industry, as it means there will not be a statutory basis for some of key initiatives such the consolidation of defined benefit schemes into superfunds, boosting investment in illiquid assets and enhancing value for money in DC schemes, there was an acknowledgement from some in the sector that government and regulators are expected to continue pursuing these objectives through guidance and standard setting.
But the reaction to the absence of planned legislation to modernise the regulation of audit and corporate reporting from the Financial Reporting Council (FRC) indicated there may have been some discussions behind the scenes ahead of the speech.
The FRC acknowledged the government’s restated commitment to reform, which had been restated as recently as last month.
More importantly, the regulator said it was taking the opportunity of the commission to reveal that it has decided to implement a "small number" of revisions to the UK corporate governance code, pruning down to less than half the initial 18 suggested in a recent consultation.
The main substantive change will be a revision to an original proposal on internal controls. The
The changes "streamline and reduce duplication" within the code, said FRC chief executive Richard Moriarty, emphasising a targeted and more proportionate revision, particularly regarding internal controls.
Ditched proposals include those relating to the role of audit committees on environmental and social governance; modifications to existing code provisions around diversity; over-boarding; and committee chairs engaging with shareholders, while some proposals will not be taken forward as a result of the government’s recent decision to withdraw its statutory instrument relating to an audit and assurance policy, reporting on distributable profits and resilience statement requirements..
"We intend to publish an updated Code in January 2024, but thought stakeholders would welcome early sight of what to expect at that point to aid their planning," said Moriarty.
After some concerns were raised about aspects of the UK Stewardship Code, he said a review will take place next year.
Richard Stone, chief executive of the Association of Investment Companies (AIC), said the FRC's original proposals were "disproportionate and poorly targeted" and while the details are still lacking, the regulator "seems to have changed tack accordingly".
He said, "serious misgivings remain about the government’s proposals to require larger listed companies to adopt managed shared audits, or to compel them to appoint challenger audit firms. If adopted, these rules would restrict choice in a market which is already subject to low levels of competition and increasing prices."