New regulatory regime for directors

Original recommendations

The Kingman Review recommended that the Government, working with the new regulator, should task the regulator to develop detailed proposals for an effective enforcement regime in relation to Public Interest Entities that holds relevant directors to account for their duties to prepare and approve true and fair accounts and compliant corporate reports, and to deal openly and honestly with auditors. The Review recommended that this should apply to: a company’s CEO, CFO, chair, and audit committee chair. (Source: Kingman 36)


The Government intends to legislate (Section 5.1) to provide the Audit, Reporting and Governance Authority (ARGA) with the necessary powers to investigate and sanction breaches of corporate reporting and audit-related responsibilities by PIE directors. The proposed regime will give the regulator new powers to take civil (not criminal) enforcement action against PIE directors in relation to breaches of existing PIE directors’ duties relating to corporate reporting and audit (and any new duties which are introduced further to this consultation, for example in relation to internal controls). Under the proposals, directors’ disqualification proceedings would remain with the Insolvency Service, so ARGA would continue to refer cases to the Insolvency Service where appropriate.

The proposal is aimed at all PIE directors rather a specific sub-set of the board following concerns that if the proposal were to focus on four specific director roles, as suggested by the Review, this would undermine the collective responsibility of the board.

The new power would apply to enforcement of the following existing duties:

  • the duty to keep adequate accounting records;
  • the duty to approve accounts only if they give a true and fair view;
  • the duty to approve and sign the annual accounts;
  • the duty to approve the directors’ report; and
  • the duty to provide a statement as to disclosure to auditors and to provide information or explanations at the request of the auditor.

ARGA will also be given the power to impose more detailed requirements as to how certain statutory duties relating to corporate reporting and audit are to be met by directors.

The Government believes that this regime can be complemented by giving further attention to contractual provisions in directors’ remuneration arrangements concerning malus and clawback to ensure that remuneration can be withheld or recovered in the event of serious director failings. Initially this will be done by asking ARGA to consult on changes to the UK Corporate Governance Code to include provisions which recommend that certain minimum clawback conditions or “trigger points” are included in directors’ remuneration arrangements and that these have a minimum period of application of at least two years after an award is made.

Government response

The Government will give the new regulator, ARGA, powers to enforce all PIE directors’ statutory duties relating to corporate reporting (front half and financial statements) and audit. The new civil enforcement regime will be targeted, proportionate and transparent, and directors will only be accountable for what could reasonably be expected of a person in their position.

The Government wishes to avoid overlap or duplication of enforcement, so ARGA will work closely with other regulators to manage this. The Government will also work with the FRC to consider the best way to hold directors of PIEs to account if their conduct falls short of certain behavioural expectations, such as engaging in dishonest conduct, where this relates to their duties around corporate reporting and audit. ARGA will set out what it reasonably expects of PIE directors by way of compliance with their legal duties.

The Government will also invite the regulator to consult on changing the UK Corporate Governance Code to provide greater transparency about the malus and clawback arrangements that companies have in place so remuneration can be withheld or recovered from directors for misconduct, misstatements, and other serious failings.

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