Thread by @ifgevents

🚨 Our event with Sir Jon Thompson of the FRC has just kicked off! 🚨

You can watch and ask questions online or follow our live tweets, with the thread starting under this tweet. 🧵

#IfGregulation

instituteforgovernment.org.uk/event/sir-jon-…

Sir Jon will talk about 5 connected issues:

1) how does light-touch reg deal with failure?
2) how can you use your available levers to drive change?
3) How can you use your eco-system?
3) how much regulation is enough?
4) how have I managed to turn around FRC?

#IfGregulation

Talking of failure first, Sir Jon says: vast majority of companies perform well most of the time, but always small minority don't.

Always cries of "how was this allowed to happen" when company fails. But ministers always drawn to light-touch reg

#IfGreguation

Ministers try and use legislative change in response to failures - but improved standards don't necessarily help that small minority as they are the exception anyway to standards.

So regulators need to be better equipped to intervene rather than attempt to change whole system.

Such an approach would be light-touch for the majority of companies - but heavier for minority of failing companies.

Civil servants should consider this approach rather than changing whole system.

Moving on to a regulator's available levers, Sir Jon says:

Negotiation can be a lever - used to persuade big 4 to separate audit from other practices, even if not backed up by legislative power.

#IfGregulation

Another available lever: promoting other organization's codes of best practice. You don't necessarily have to have your own.

Thirdly, most companies want to be seen as responsible. Your power to label companies as non-performing can be effective.

Next, what about the wider system around the regulator? Sir Jon says:

Companies and other stakeholders have a place in ensuring quality of audit, and auditors can place pressure on companies as well. Other institutions have a place here too.

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As a regulator, you can use these interconnections to deliver your goals.

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Fourthly, how much regulation is enough? Sir Jon:

Can't check every regulated entity - we look at 300 annual reports, 15% of total. Can't definitively say if this is too little or not enough. Left with nagging feeling that if we did more we would find more. But not sure.

Finally, how to turn around the FRC? Sir Jon:

There could have been many more recommendations for change in the FRC. We are now a different org. Key changes: real clarity on our purpose, changed leadership and better connection with wider stakeholders.

But we are not finished - we need primary legislation to create ARGA and we need investors to be better involved with corporate culture and change. These will be for my successor.
#IfGregulation

@DrMatthewGill asks the first question: How can the FRC ensure that judgement of when to intervene is correct?

Sir Jon: We changed our approach to focus more on risk-based intervention working on our intelligence and information.

How should you be held to account by ministers and parliament?

Sir Jon: I have never appeared in front of parliament in4 years - this is unusual. Not helped by high churn in ministers during this time. But we are completely independent and never been pressured by ministers.

Why is it taking so long to set up the ARGA?

Sir Jon: Primary legislation is needed to fully implement the recommendations of FRC reviews. The ARGA needs to have some concrete powers to deal with exception of companies that are doing poorly.

Sir Jon: but there are some controversial powers within the bill. Parliamentary time has not allowed ARGA to be brought forward - has had other priorities. All we can do is keep advocating the change - but ministers may have other priorities.

What does the FRC do internationally?

Sir Jon: We are quite influential - but also a lot for us to learn from other jurisdictions.

Audience questions:

Been a while since penalties and interventions first discussed, why is it taking so long to provide regulators with powers they need?

Sir Jon: We can decide what fines are appropriate or not - come under pressure to increase them.

Cont: how can fines be enough scale to change behaviour? Minded that fine scales to change to achieve this - especially on corporate level. I think that if you want to earn £700k a year, you ought to do a good job and be held to account.

Online question: how to improve the provision of tax advice?

Sir Jon: At HMRC, my view was that personal tax advisors should be regulated. Corporate tax advice is different.

Online question: how should regulators respond to tech change? How does the FRC?

Sir Jon: fundamental question. We could have AI checking AI soon - how can a regulator understand this? How can we have capacity to do this? I can't get my head around it at the minute.

Audience questions:
1) is the FRC under pressure to support growth?
2) How do you reconcile your light-touch approach with increased powers?

Sir Jon: In reference to competition, we only have competitions over audit market. But overall, higher regulatory standards can increase growth as it makes us a more attractive investment option.

Problem with light-touch regulation is that you get blamed when it goes wrong.

Something sometime will fail - and you will want to know why the regulator didn't stop it. It is a hard question for parliamentarians to wrestle with.

Online questions: how did you change the executive team while preserving morale? What advice would you give to a small regulator on reform?

Sir Jon: When I joined, it looked like I had the team that had led the FRC to Kingman Review. So I had to change it.

Leadership coalition has to be on same page and heading in the same direction.

On reform, we were lucky in terms of funding - basically unlimited funding due to funding levy. So can't answer this question as we were lucky.

What was your biggest achievement and what advice for successor?

Sir Jon: Kingman review was generous - could have been worse. So responding to this was my achievement. But the area we need to crack is getting investors more involved.

And that wraps up the event! Thanks for attending and following along.