The U.K.’s Local Authority Pension Fund Forum’s (LAPFF) recent criticism of the Financial Reporting Council (FRC) is just the latest in a growing avalanche of attacks faced by the regulator.

It’s not the only body criticising the FRC for not doing its job properly, or indeed at all. That is also a position taken by the Business Secretary Greg Clark, who called for an independent review of the organisation after the two parliamentary committees he sits on, the Work and Pensions Committee and the Business, Energy and Industrial Strategy determined that the FRC had been too slow in launching an investigation into collapsed construction firm Carillion.

Meanwhile, the FRC has been given new and wider powers to prosecute accountants, auditors and actuaries, with increased fines of £10 million (U.S.$14.2M) or more and bans of a minimum of 10 years. These changes are based on the recommendations of an independent review of the Council’s powers undertaken in 2017 by former Court of Appeal judge Christopher Clarke. The FRC’s largest financial fine up until these changes was £5.1 million (U.S.$7.3M) for PwC’s misconduct over an audit of professional services firm RSM Tenon.

It’s an odd situation. FRC, under a spotlight with threats of an independent review, is given sweeping new powers to do a job that it is accused of not doing very well. Of course, criticism from members of parliament over the Carillion collapse, over which audit firms have been accused of “feasting on the carcass” by those same MPs, is fraught with hypocrisy. Since the government was the company’s main customer, it should have been overseeing the contracts it was taking out with the firm and assessing whether it was capable of undertaking them. It is—as are a number of other public bodies—as culpable as the FRC for allowing the firm’s collapse.

The LAPFF criticisms were couched in its submission of comments for revisions to the U.K.’s corporate governance code, oversight of which is the FRC’s other main job. The LAPFF called for the FRC to be abolished, or at the very least for chairman Sir Win Bischoff and CEO Stephen Haddrill to be replaced. It questioned the independence of the FRC’s board, its diversity and transparency, and its implementation of international accounting standards. It also, along with an increasing crowd of legislators, accused the regulator of having too many ex-accountants overseeing their former colleagues still working in accounting. Such criticism was only helped when, again following criticism by MPs, the FRC admitted last November that it was too slow to investigate why accounting firm KPMG approved HBOS accounts just seven months before the bank had to be rescued by a competitor during the global financial crisis.

So broad and vicious was the LAPFF criticism that the FRC took the unusual step of issuing a public defence “so that others have a more informed understanding” of how the regulator works. The FRC’s five-page, 17-point rebuttal relies heavily on responses like, “your assertion is a matter of opinion not fact.” But there are other areas in which the LAPFF criticism is based on facts about the early days of the FRC that are no longer true. 

Simultaneous to the demands for its review, the FRC is calling for yet more powers because it is currently only allowed to investigate members of accounting professional bodies, which could make it difficult for it to investigate finance directors who were not accountants, though it is pursuing two former finance directors of Carillion. Clark, however, does not see this as a problem, claiming that the FRC can work with other regulators to take action “against any individuals or practices that are found wanting” using its current powers.

Clark announced on March 21 that “we intend to commission a review of the Financial Reporting Council’s operations and will announce further details in due course. I think we should look at the operation of the FRC to see whether there are changes that are required. That should be done independently and I’m sure the committees will want to play a role in examining that.”

The FRC has said that it welcomes the review. There are rumours that it will be led by Sir John Kingman, who now chairs Legal & General, but had a long career at the Treasury. But even here there are potential conflicts of interest: Sir John was also instrumental in placing FRC chairman ?Sir Win as chairman of Lloyds Banking Group when it was part-owned by taxpayers in 2009.

There is certainly an argument that the FRC’s investigations should have been more prompt and more rigorous, that it should not have waited until other agencies’ investigations were over before it took up its own, that it is too reliant on using people with long careers at the very firms it is bound to investigate. 

Its claims of inadequate powers, however, have some justification. Prior to the implementation of the EU Audit Regulation and Directive (ARD), the bar for misconduct was set too high, and sanctions were too weak. But with its increased powers and increased manpower, the regulator may be able to take swifter and more severe action against misconduct. And this is something that might actually act as a deterrent, because little seems to have deterred bad actors thus far. 

More transparency and more disclosure about its findings should help restore public trust in the FRC. Let’s just hope that it doesn’t also teach bad actors how to fool it again.