Written evidence submitted by the Financial Reporting Council

Written evidence submitted by the Financial Reporting Council

Thank you for seeking the FRC's views on the Government's proposal to merge the UK Listing Authority with the FRC. The FRC is the UK's independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. The FRC and UKLA have much in common in terms of their principal objectives. Both seek to promote trust in the capital markets to encourage investment, whether through risk capital or other securities.

If the Government decides to pursue this proposal, the FRC believes it could make it work and that there would be important synergies between the FRC's operating boards and the UKLA. For example:-

· The FRC publishes the UK Corporate Governance Code while the UKLA monitors the quality of governance and financial information of companies seeking to raise capital in the market;

· The Accounting Standards Board (ASB) provides guidance on narrative reporting in annual reports whilst the UKLA provides guidance on narrative reporting in listing documents;

· The Financial Reporting Review Panel (FRRP) addresses narrative reporting in annual reports and the UKLA addresses narrative reporting in listing documents;

· The Auditing Practices Board (APB) provides guidance on the role of auditors in relation to listing documents which are then relied upon by the UKLA in assessing suitability for listing.

Success would, however, require co-operation between the CPMA, the Bank of England and the FRC/UKLA in two areas: on joint access to market monitoring and on a co-ordinated approach to representing the UK in EU discussions. We believe such co-operation is achievable, and will in any event be necessary between the Bank of England and the CPMA.

However, whilst the proposal can be made to work, we believe a much better option would be for the Government to create a UK securities regulator focussed on the wholesale markets, and to separate this from the protection of consumers throughout the whole range of financial services, which is an essentially different function. A new Securities Regulator would bring together the functions of the FRC and much of the Markets Division of the FSA. It would secure the synergies of an FRC/UKLA merger without the same boundary problems. The market monitoring issues would be reduced. The EU problem would be largely eliminated as the new body would closely match ESMA.

The FRC would oppose the merger of its functions with the CPMA given that the proposed structure of the CPMA combines consumer protection and markets responsibilities. The FRC is concerned primarily with the governance of, and reporting by, listed companies to shareholders. In the CPMA, consumer interests must dominate the agenda. A combination of these would create the same confusion of purpose as existed in the FSA before the crisis, and replicate one of the most serious regulatory weaknesses the split-up was supposed to address. The FRC strongly believes that this would be to the detriment of its work and indeed of other market-related activity.

14 October 2010