Julia Ivine 19 Jul 2019 10:23am

MPs grill BEIS preferred candidate for ARGA chair

The business world will see a radically different regulator by the time the Financial Reporting Council (FRC) has morphed into the Audit, Reporting and Governance Authority (ARGA)

According to Simon Dingemans – the Department of Business, Energy and Industrial Strategy’s (BEIS) preferred candidate to chair the FRC and ultimately the new body – there’s a huge appetite for change.

And that’s why the former GSK CFO was “excited” to be considered for the role, he told the BEIS Committee during his pre-appointment hearing.

“There’s an opportunity that hasn’t existed before to make very radical change and to really try and address some of the fundamentals…, to build a very different regulator, a very different organisation with skills and capabilities and, most importantly, powers and teeth that it’s prepared to us”.

He also said that he intended use the opportunity to change the FRC’s focus to serving the end users of accounts as opposed to the preparers. But most importantly of all, he wanted to “change the culture of the organisation, to make it more proactive, more energetic, more challenging”.

The key to rebuilding trust in the regulator, and through it the audit profession and corporate governance, was to ensure full engagement on the part of all stakeholders, especially investors whom he felt had been missing in the past.

“I think it’s quite interesting,” he told the committee, “when you compare the level of engagement there is between the investor community and corporate boards on remuneration, why isn’t there the same on audit matters? Should the chairs of audit committees be adopting the same sort of outreach programmes that the chairs of remuneration committees very often do?

“That’s just one small example. But I think that just having representation on the bodies of the FRC is not enough,” he said.

“We need to try and provoke much more of a debate with the portfolio managers as well as with the governance experts and the institutions,” Dingemans added.

He also told the committee that a change of approach towards regulation was required. Transparency and good communication were key, in particular about enforcement of regulation.

“In the past the FRC has been accused of a certain amount of timidity or hesitation in going after some of these issues. I would certainly like to see as part of the culture change the willingness to challenge being much more out there and upfront.

“But to do that with confidence, you’ve got to have a clearer regulatory framework. Which is why I think the changes being proposed to create the ARGA and the statutory underpinning to it are absolutely critical because part of the problem the FRC has today is that it has been built up piecemeal and that isn’t very effective. It makes it very hesitant to use powers that it is not sure it can deploy.”

He said that he was keen to implement as many of the reforms as possible that did not require legislation, such as starting to change the culture of the FRC, reshaping the executive, recruiting a wider range of people and building up the skills and capabilities “to start pushing on particular areas like the audit quality reviews and the corporate reporting reviews”.

Dingemans came under a lot of pressure from BEIS Committee chair Rachel Reeves to give his own personal views on the Competition and Markets Authority’s controversial recommendations. 

However, he would not be drawn on issues that were currently part of the BEIS consultation beyond stating that he was “not convinced personally at this stage whether joint audit, for instance, is the answer”.

“Shared audit has quite a lot to commend it,” he added, “But there are other solutions that ought to be considered as well.”

He also said he would be looking to develop more capacity and capability in the audit market.

“Ultimately, it’s a question of choice. It’s a question of choice, a question of capability and a question of innovation and dynamism in the sector and there is a role for some of the smaller firms to be able to take on parts of the market. But they have to invest and be able to invest. Exactly how that works needs testing.”

Committee member Vernon Croaker asked him how he would describe his vision of the future. He replied, “I would say to your constituents, this will be a very different ARGA going forward. It will not be afraid to use its teeth – and it’s important it’s given teeth. And actually the threat of that will allow us to drive a lot of the quality improvements.”

Croaker was unconvinced. “The million-dollar question is will they believe that?”, especially in the light of the collapses of Carillion and Patisserie Valerie.

“The proof will be in the delivery,” Dingemans said. “Ultimately, I recognise there is a journey and a battle to persuade people to have confidence in the regulator. And that’s going to be how we act, what we do and how we use those powers, which is why I am so focused on what we can do before the statutory framework that Sir John Kingman has recommended is put in place.”

He felt there was much the new team would be able to do. “Just the nature of this process and the broad buy-in to the imperative for change is incredibly powerful,” he added.

Although business secretary Greg Clark is not bound by the report that the BEIS Committee will now send him, if the MPs do reject Dingemans’ appointment outright, then given the sensitivities of the role and the hopes that are riding on the incumbent, he may have to opt for another preferred candidate.

However, given Dingemans’ performance in front of the committee, confirmation of his appointment seems the most likely outcome.

Yesterday, reports emerged that HMRC CEO Sir Jon Thompson will stand down from his role at the Revenue to succeed Stephen Haddrill as the new chief executive of the FRC and then of ARGA when it takes over as regulator.