UK watchdog confirms scrapping of tougher company internal controls

By Huw Jones

LONDON (Reuters) -Britain's listed companies have until January 2026 to show what checks they carry out on internal controls each year to ensure the accuracy of information to investors, Britain's Financial Reporting Council said on Monday, confirming that tougher requirements have been ditched after pushback from industry.

Companies are required to comply with the FRC's Corporate Governance Code, or explain publicly if they choose not to, and in November the watchdog said it would ditch the bulk of its proposals aimed at toughening up the code.

It had faced opposition from the London Stock Exchange and others in the City worried that the existing code was already being applied too harshly, putting off companies from listing in a post-brexit Britain that faces added competition from European Union financial centres as well as New York.

The FRC has also just been given a new remit to consider Britain's global competitiveness when writing new rules.

"As signalled on 7 November, the FRC has dropped its earlier proposals for revisions to the Code related to the role of audit committees on environmental, social and governance issues; expanding diversity and inclusion expectations; over-boarding provisions, and expectations on Committee Chairs’ engagement with shareholders," the watchdog said.

Existing expectations relating to internal controls at a company would remain, it said.

"The main substantive change the FRC is now making is asking Boards to explain through a declaration in their Annual Reports how they have done this and their conclusions," the watchdog said.

The FRC wanted tougher checks on internal controls to help improve the quality of auditing after a string of accounting scandals from builder Carillion to retailer BHS and cafe chain Patisserie Valerie.

The government had already ruled out introducing tough checks such as those under the Sarbanes-Oxley Act in the United States.

London Stock Exchange CEO Julia Hoggett, who also chairs a capital markets industry taskforce that had lobbied to stop tougher revisions to the code, said earlier that it welcomed the FRC's approach.

(Reporting by Huw Jones; editing by Jason Neely)