April 22, 2019

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Audit watchdog increases size of enforcement unit

It was reported last week that the Financial Reporting Council (the “FRC”), which oversees the UK’s accounting industry, has more than tripled the size of its enforcement team over the past five years. The FRC’s principle role is to regulate auditors, accountants and actuaries with its work aimed at investors and others who rely on company reports, audits and risk management. The FRC has faced public criticism recently over the failure to prosecute auditors for giving clean audits to financial institutions in the months before they were engulfed by the financial crisis. In response it has sought enhanced powers and lower thresholds for bringing prosecutions in future cases.

As part of its enforcement role, the FRC operates independent disciplinary arrangements for accountants and actuaries and oversees the regulatory activities of the accountancy and actuarial professional bodies. In terms of accountants, the FRC investigates where either (i) it considers a matter raises or appears to raise important issues affecting the public interest or (ii) it considers that the matter needs to be investigated to determine whether one or more of its members or member firms may have committed misconduct. That investigation may then give rise to a formal complaint. In the event of an adverse finding on a formal complaint there are a range of sanctions available to the FRC including:

  • Reprimand or severe reprimand
  • Condition – a member could be ordered to comply with any direction considered to be appropriate in the Tribunal’s absolute discretion
  • Exclusion as a member for a specified period
  • Fine
  • Repayment of client’s fees
  • Order withdrawing practising certificate

The FRC’s enforcement unit now employs 30 staff (there were fewer than 10 in 2012) as part of its decision to build an internal forensic accounting unit rather than instructing external advisers. The team also includes significant numbers of lawyers whose role is to prosecute tribunal cases. The increased headcount and specialist nature of the team now in place should enable the FRC to move more quickly in instigating and resolving investigations. The expectation must be that given the increased level of internal resources, the number of investigations and thereafter formal complaints will mirror the trend in FCA investigations and escalate over the coming months and years.

© Copyright 2019 Squire Patton Boggs (US) LLP

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Partner

Chris Webber specializes in resolving financial services disputes and regulatory investigations. He represents clients including banks, broker dealers, corporate trustees, bondholders, issuers, mortgage servicers, borrowers, insolvency office-holders, regulatory bodies, investment funds, and individuals. He also acts for corporate clients in contractual, investment, and shareholder disputes.

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Stephen Cole, Squire PB, Litigation attorney
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Stephen Cole is a senior associate in our Litigation Practice Group based in our London office. He has extensive experience in litigation, mediation and expert determination. Stephen also has experience with bankruptcy, winding up petitions and related advice. 

Stephen is experienced in resolving dispute for clients in a wide range of sectors and industries including pensions, manufacturing, insolvency practitioners, sports, breach of warranty disputes and employment restrictive covenant issues.

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