Investor groups have warned that the UK government’s decision to drop proposed audit reforms could weaken the country’s governance standards, undermining and transparency and investor confidence.
Caroline Escott, Chair of the £150 billion (US$202 billion) Governance for Growth Investor Campaign (GGIC), urged the government to reconsider plans to scrap a long-delayed audit and corporate governance bill.
“Eight years after Carillion’s collapse and only a few months after audit and controls issues wiped off almost £600 million of shareholder value in one day at WH Smith, we’re disappointed that these necessary and important audit reform measures have been shelved,” she said.
“High-quality audits and sensible corporate governance standards are vital for healthy capital markets and act as a foundation for growth, confidence, and resilience in the UK economy.”
The UK Department of Business and Trade said audit quality had improved sufficiently since 2016, adding that it would focus instead on reducing unnecessary burdens, including by modernising corporate reporting.
The UK’s Labour government included the bill in its 2024 King’s Speech. But its plans to increase oversight of the largest firms – to be rebranded as ‘public interest entities’ (PIEs) – as well as boosting director accountability and forcing the ‘big four’ auditors to share major accounts, were already being watered down.
“Streamlining corporate disclosure is no substitute for implementing sensible and widely welcomed measures on PIE status, director accountability and audit market oversight that would have helped protect people’s savings,” said Escott, also Head of Investment Stewardship and Co-Head of Sustainable Ownership at Railpen.
Formed last year, the GGIC is a coalition of UK pension funds focused on promote effective corporate governance and investor rights. Members include Brunel Pension Partnership, the Church of England Pension Board, the People’s Pension, Brightwell and Railpen.
Richard Moriarty, Chief Executive of the Financial Reporting Council, the UK’s audit regulator, reiterated his support for the reforms last week.
James Alexander, CEO of the UK Sustainable Investment and Finance Association, said the decision to abandon the reforms was a “huge missed opportunity” to strengthen governance and audit standards, which could undermine the UK’s growth and competitiveness in the long term.
“We could see the consequences of this decision felt ultimately by businesses, investors, employees and consumers in the future, and we would urge the government to look again at this,” he added.
UKSIF represents more than 300 members of the UK’s sustainable investment and finance community, with a collective £19 trillion AUM, include investment managers, pension funds, and banks.
