The UK government has formally abandoned its long-standing plan to establish a new, more powerful statutory regulator for the audit industry. This decision leaves a key pillar of post-financial crisis reform in limbo and represents a significant scaling back of ambitions to overhaul corporate governance.
A Major Reversal on Audit Reform
Ministers have quietly scrapped the proposed creation of the Audit, Reporting and Governance Authority (ARGA), which was intended to replace the existing Financial Reporting Council (FRC). The move was confirmed in a recent written ministerial statement, effectively shelving legislation that had been promised for several years.
The plans for ARGA were a central recommendation from a series of independent reviews, notably those led by Sir John Kingman, Sir Donald Brydon, and the Competition and Markets Authority. These reviews followed high-profile corporate collapses like Carillion and BHS, which exposed serious flaws in the UK's audit and corporate reporting framework.
The proposed regulator was designed to have stronger enforcement powers, a new mandate to oversee the largest private companies, and enhanced responsibilities for corporate reporting and governance. Its abandonment means the existing FRC will continue to operate, albeit in a reformed state, without the statutory teeth that were promised.
Government Cites Competing Priorities
The decision was attributed to constraints on parliamentary time and the need to prioritise other legislation. In her statement, Bim Afolami, the City minister, stated that while the government remained committed to improving the audit sector, it would not proceed with the legislation required to establish ARGA in the current session.
Instead, the government will focus on implementing other aspects of audit reform that do not require new primary legislation. This includes measures derived from the Brydon review, which aim to enhance the quality and scope of corporate audits. However, the core structural change—a new, powerful watchdog—has been indefinitely postponed.
This reversal has been met with disappointment from industry bodies and transparency advocates. Many argue that the FRC, even in its current evolved form, lacks the statutory authority and resources needed to effectively police the audit market and hold large firms to account.
Implications for the UK's Financial Landscape
The shelving of ARGA raises significant questions about the UK's commitment to robust corporate governance and its reputation as a global financial centre. The reform was seen as crucial for restoring public and investor trust in financial reporting after a string of accounting scandals.
Critics warn that the decision creates regulatory uncertainty and leaves the audit framework incomplete. The Big Four accounting firms—Deloitte, EY, KPMG, and PwC—will continue to be overseen by a regulator whose powers are not fundamentally strengthened, despite repeated calls for a tougher stance.
Furthermore, the promise to extend mandatory audit oversight to large private companies, a key ARGA proposal, now appears to be on hold. This leaves a potential gap in the scrutiny of significant economic entities that are not publicly listed.
The government maintains that it can deliver meaningful improvements through secondary legislation and regulatory guidance. However, the consensus among many experts is that this represents a major dilution of the original reform agenda, with the most potent tool for change now removed from the table.
