Welcome to today’s hearing of the Business and Trade Committee, which is a pre-appointment hearing. Dame Jayne-Anne Gadhia, you are very welcome; thank you for coming along today and for supplying the Committee with the background questionnaire that we issued last week. Why don’t you kick us off by telling us why you want to be chair of the Financial Reporting Council?

First of all, thank you very much for having me, everyone. Thank you, Chair, for inviting me here. I am getting to the later stage of my career. I started off in a business that was then called Ernst & Whinney, it was such a long time ago, where I trained to be a chartered accountant through being an auditor. In many ways, it feels like I have come full circle in my career. Accounting, auditing and corporate governance have always been important for me. During my time at Virgin Money, where I was the CEO for a number of years, we acquired Northern Rock during the financial crisis. It was quite clear that there were a number of governance issues that were leading towards the problems Northern Rock had, so I have also seen the importance of good corporate governance. This felt like very much the right thing to go for, based on the skills and experience that I have had over the years.

So the appeal is the opportunity to use your skills?

The appeal is that I understand, I think, what the FRC is trying to achieve. As you know, I am also the lead non-executive director at HMRC. As I get to the later stage of my career, I am enjoying working more in public businesses than I am in corporate businesses. That is where I would like to be for the years ahead, so I hope that this will be something where I can add a little bit to the public agenda as well as use my experience and background.

What is it that you think the FRC is trying to achieve?

Growth and regulation, so good, safe business that reports transparently. The UK is well known for sound financial reporting. That is important for incoming investment and for shareholders, and we have to have that platform at the FRC and in UK business to make sure that we can grow. Supporting the agenda of safety for the public interest and growth for the economy is something that I think we can play our part in.

What experience have you had in your career that means that you are especially well equipped to deliver on those objectives of the FRC?

I think that because I was so involved with the financial crisis, I am able to see the balance, if you like, that we need to achieve as a system and as a country between regulation, commerciality, growth and risk to come to a good outcome. It has always been something that really interests me. To give you a little story about the Northern Rock years, I had set up Virgin Money with business partners back in the ’90s. RBS bought my business—the Virgin business—in the very late ’90s, and I stayed at RBS for a number of years before going back to Virgin in 2007. Of course, it was in summer 2007 that we first started seeing the cracks in the system where Northern Rock started to fail. Because I had run a mortgage business at RBS, I was setting one up at what became Virgin Money; Richard Branson was a trusted individual in the system at that time, and it felt to me as if we could bring something to help at the very beginning of the financial crisis with Northern Rock. We became the preferred bidder, and as a consequence, although I had not been responsible for the problems at Northern Rock, I could see where the problems came from. That led to a lot of close work with a number of regulators, the Bank of England, the Treasury and obviously with the business itself before, in the very end, post-crisis, Virgin Money acquired Northern Rock. Working out how all those different stakeholders work together was very important to me, and that is something I can bring to the FRC.

What from that experience crystalises something you would bring to chairing the FRC? I was not clear what lessons you were distilling from that story.

It is important to listen to all stakeholders and make sure that you are independent. That is of course important for the chair of any significant business, but particularly for an organisation that is in the public interest in this way. It is important to be clear on what you stand for. The problems with Northern Rock came from a lack of clarity about good purpose. Managing risk is really important—I learned that from Northern Rock—as is having good relationships with the Government, the regulators and your stakeholders to make sure that, as we drive forward on the regulatory agenda, it is something that is not being done to people, but being achieved collectively in a positive and constructive relationship.

We will get into the crisis that we think bedevils the accounting industry in a moment.

The role that we are talking about today is envisaged to be a commitment of about 10 days per month. You are currently the chair of OVO Energy, Shakespeare’s Globe, Ozone API, Moneyfarm, the audit committee of the Tate board of trustees and the Economy Honours Committee, as well as being the director of several other organisations. How will you find the time?

Certainly, in my non-executive career, I am as busy as I was in my executive career—and that is how I like it. It is an honour to do that and a privilege to be busy and to be in the thick of things. That said, I could not take on this role if I were not standing down from a number of the roles you have just identified. My 10-year term comes to an end at Tate on 17 November. It is a matter of public record that OVO Energy has been sold to E.ON. Both of those chair roles have been extremely enjoyable, but quite a heavy lift. I have also finished at Ozone, which is one of the ones you read out. There have been a number of changes, or upcoming changes, that mean I am happy to say I can manage this role within my timeframes.

That is still seven director or chair roles that you would hold, in addition to being the chair of the Financial Reporting Council. The Financial Reporting Council is 10 days a month; there are only 24 hours in a day and only so much you can do. Do you reckon those other seven roles work together with this? For example, how would you link being the lead non-exec director at HMRC and being the chair of the Financial Reporting Council for conflict of interest purposes, as well as just in terms of time?

Starting from the time perspective, I have been doing the independent non-executive director role at HMRC for a number of years, alongside all the roles you talked about there. I do not think I have ever missed anything important for HMRC, because it is important that I get involved with everything that I need to be involved with. You ask a busy person to do something, and you make sure it works. I am very fortunate to be supported by an excellent assistant who manages my diary; I would not be able to manage my diary on my own because of that business. It is important that I have that, so from a time point of view I have no concern that I will be able to give the time required to the FRC to do what needs to be done. I can make that commitment to this Committee. I understand the importance of that and have no concerns about it. From a conflict-of-interest perspective, I have spoken with both the permanent secretary of HMRC and of course the FRC about it, to make sure that everybody agrees there is no conflict of interest, and none of us see a conflict. This was something that I understand was reviewed by the DBT when I applied for the role. Everyone agrees there is no conflict there, not least because in a chair role you are not involved with the specific detail of some of the key cases, and certainly not in the world of tax. It is important, from an HMRC perspective, where the board is mainly operational, and from an FRC perspective, that we are clear on the strategy and the role of the board, rather than the role of the executive. That means that, from a conflict-of-interest point of view, I am happy. If ever anything were to arise that appeared to be a conflict of interest, clearly the FRC and HMRC have rules that mean I would be able to recuse myself, but I do not anticipate that happening.

You said that you have someone who helps with your diary, which is incredibly important in that respect. How will you balance emergencies that require your immediate attention within the FRC with the other seven important roles that you hold? How will you balance those and be there for the FRC when you are needed on last-minute occasions?

The fact that we can do that online through Zoom or Teams is so important these days. That gives us a much more stretched timeframe in terms of the hours that we can give. I will always be there when I need to be there, either in person, which is always my preference, or online if need be.

Are you planning to stand down from any of the other roles that you have? You have mentioned OVO Energy, Ozone and the Tate’s board of trustees. Are there any others that you are planning on standing down from or departing?

Certainly there are some where I will be timed out.

Can you confirm which ones those are?

Not in public at the moment, because I have not said anything to those boards, but I will be managing my portfolio in order to make sure that I have the time to be as committed as possible to the role we are talking about.

As Mr Reynolds said, this is a 10-days-a-month role. You will still hold seven posts. That is only just over one day per role. We are pretty concerned about the overload. What more can you say to put our minds at rest?

Some of the roles, as important as they are, take up much less time than that. Mr Reynolds, you pointed out my role as chair of the Economy Honours Committee, for example. That meets four times a year, just to be clear. I am the director of a US business. I go to the US three times a year and I am there for two days. Obviously, there are calls between those meetings, but these are not roles that require me to commit 10 days to anybody else, if you see what I mean. They are in the diary, very structured and very manageable, and there are roles where I am not chair. From an FRC point of view, the time commitment is something that I am very happy to commit to.

Before I answer that question, I should say that I have not started yet, and I have known that I am being considered for this role only for the last week or so. Quite clearly, there has been huge change at the FRC. So much of it has been positive, so we should definitely applaud the fact that the organisation has changed and that the profession has changed along the way. As I understand it, the quality of audits that are being reviewed has improved significantly over the last few years. I think it is important from an FRC point of view that that continues—that we continue to change, to challenge ourselves, to be better and to hold the industry to account for constantly improving audit. That is very important.

I think that is also high on the priority list. The reason for that is, of course, that it will give the FRC the opportunity to ensure that its funding comes in and that it has access to data on a statutory basis, whereas at the moment, as you know, it is on a voluntary basis. Giving us that platform is important, and it is definitely something that I will want to follow through on.

I have given that quite a lot of thought, as you would imagine, and I am fortunate to come in with clarity. I know that over the last several years there has been a lot of talk, not least in this Committee, about the importance of audit reform. I know that my future colleagues—if I were to be appointed following this meeting—are disappointed that that did not happen. However, we are now clear that it has not happened. I think that focusing on what the Government have committed in terms of following through on a statutory footing is something that we should be following up on. I am also very clear that despite the fact that we have not had audit reform, the work, the role, and the delivery of the FRC have continued to improve. As a consequence, I hope that that means that we are getting the balance right between regulatory burden and growth. Going forward, we can use what we have done to achieve that so as to consistently improve.

I have spoken to some of the team about all of them, but obviously in the last week, I have only scratched the surface on those. They are all important to resolve, or to discuss and take forward, but I would not be able to comment on that now.

There was a recent article in the FT on this exact subject. It reminded me that when I started off in my Ernst & Whinney days, we were the big eight and, as you say, we are now down to the big four. Making sure that the big four are delivering to an excellent quality continues to be important. I accept that when we change auditors, you have a small population to choose from. Nevertheless, let us make sure that that population continues to be as excellent as it is. Let us then also make sure that we are helping the other audit firms to be top quality too.

I think that the method of the FRC now, which I agree with, is setting the rules, supervising and then enforcing. Those three points continue very strongly. There is also building strong relationships with stakeholders, which is something that the chair role should do.

I will have to get back to you. I can probably write to the Committee about that afterwards, but I could not answer that question at the moment.

When we look across the Kingman, Brydon and CMA reviews, we can see literally hundreds of recommendations that have been made by those three reviews that the Government have not actioned or implemented. Which are the most important outstanding recommendations that you would prioritise for action?

I was talking to Richard Moriarty about the Kingman review over the last couple of days. I might get the exact numbers wrong, but he pointed out that of the 83 recommendations, I think 56-ish applied to the FRC and we have done 55 of them. There are a lot of recommendations that have been followed through. It is the Kingman review that I have looked at most. All those reviews have contributed to the improvement of quality and, without a shadow of doubt, they are all taken seriously. We should not think that because certain parts of them have not been established in legislation that they are not being taken seriously and that they have not had an impact on the way in which the organisation has been run. They absolutely have. The Kingman review in particular has been something that, as far as I understand, my hopefully future colleagues have taken very seriously and have used as a basis for the quality improvements that they have achieved over the last few years.

Which of the outstanding recommendations would you prioritise for action?

I do not know at this point—as I say, I have not been involved yet. Do not forget that I am not appointed yet; I am subject to your appointment.

Our advice, not our appointment. If we look at some of the scandals that this Committee has reviewed over the last four or five years, starting with Carillion, what were the lessons of the Carillion crisis that you drew and how does that help you to think about the role that you have got to play at the FRC?

Carillion was a number of years ago now, although of course it still comes through—not least, most recently, in the fines that have been applied to some of the accountants there. From an audit point of view, there is a definite view that the auditors involved there—I think it was KPMG—have really learned the lessons from that and have done a very serious review of what went wrong. As a consequence, they have taken a massive step forward and are to be complimented on that. It is very important that we continue to insist on transparency for the board. The board felt that it did not have transparent information at Carillion to make decisions on. I think the role of directors is super-important in overseeing that. It is important that we, as the FRC, are really clear on corporate governance; I think the update to the UK corporate governance code has been very helpful in the last couple of years. It is very clear on what is required for audit quality. Building relationships with the important auditors—the big auditors and the small ones—to make sure that the quality of audits continues to be great is also important. However, we should not think that regulation is going to solve every problem. The executive and the board of course have a duty to make sure that they are fully transparent—in the Carillion case, I think transparency was in question—and that directors of boards are clear on their role and accountability for a failing business. We are never going to stop businesses failing, but I think that what the FRC can do is to put in place transparency and reporting requirements that mean that, in good businesses that are well audited, we can see where those failures are likely to be.

Do you think that the FRC has now put in place sufficient reforms to prevent another Carillion?

As I understand it, from the people I have spoken to, the lessons learned from Carillion have been very deeply felt and thought about, and remedial action has been implemented where there has been any weakness. I do not think that anybody would say that we could stop another corporate failure. In a sense, I feel that, in a healthy system, we are bound to have failure as well as success. I do not think our—

Audit failures were at the heart of why Carillion failed. Surely we should be trying to prevent audit failures.

Of course we should try to prevent audit failures, but was it really an audit failure that was at the heart of it? I think we will find that the accounting department and the business itself created the information that was presented to the auditors. Yes, we want a better audit, but we also want better business.

Do you think that the audit profession has now made sufficient reforms to stop a repeat of the audit failures that helped to bring down Carillion?

I think we have made progress in that direction. For all regulators, we are never going to get to a place where you stop everything failing. However, I think you put in place what you can see for the future, you learn from the past, and you ensure that everybody understands what their roles, obligations and accountabilities are in the process. Does that mean it will stop all failures? Nobody can say that. Do I think we are in better shape than we were when Carillion happened? Absolutely. I have had assurance of that.

What is the key unfinished business?

For the future?

From the Carillion scandal, we drew lots of lessons. We have had these reviews that John Kingman, Brydon and others have conducted. I am still not clear enough about what the priority reforms are that you think need to be driven through the UK audit profession to ensure that we do not have a repeat of scandals such as Carillion.

As I say, only yesterday I was talking to Clare Thompson, who is the SID at the FRC, and she was making the point that with the board and the executive there is constant review of lessons that we have learned, and consideration of how we can move in a direction that is going to be helpful, to make sure both that we are appropriately regulating and that the regulatory burden is not preventing growth. We have to get that balance right. I think we are constantly learning, as I think all organisations and regulators are, not least in a changing world. Mr Maynard, you asked what I think are the key things for the future. Of course, AI is one of the key things for the future. That will change business and the audit profession, and we need to think about how that will affect the way in which we regulate and the way in which business reports. Therefore, my answer, Mr Chairman, is that I think we have learned a lot of lessons and I think there will be more lessons for the future; we need to keep ahead of it, and we need to keep on iterating to make sure that regulation is fit for purpose.

But you cannot specify precisely what lessons and reforms you would champion as the chair of the FRC?

Not at this point, when I am not appointed yet.

Okay. How will you persuade the Government to put the FRC on a statutory basis? They have promised that a succession of times under different Administrations, and they have failed repeatedly. How will you make sure that this time is not just a repeat of that?

I don’t know that I can make sure of it, but I will certainly be making sure, when I speak with Ministers, civil servants and the people who can achieve that, that they understand how important it is. I think they know how important it is.

It cannot be that important, because they have decided to defer it repeatedly. It looks like they are trying to avoid doing it.

I have not been involved with that until this point. As I understand it, they are hoping to find a way of getting it on to the legislative agenda, which as you know is very full, and I will be encouraging them to do so.

What is the case that you will make to them? What is the argument that you will give them for why this is important?

There will be more than this, but there are two key points out of the statutory footing, as far as I understand it. To Mr Maynard’s earlier point, it is about making sure that the funding for the FRC becomes something that is required rather than asked for, and that information is shared by everyone, because it is a statutory requirement. Inevitably there will be some organisations at the moment that do not pay their way and do not give the information that is required. It is important that we have a system where everybody participates equally to get an equal outcome.

Is the FRC underfunded today?

I looked at the accounts, which were published this week, as you may have seen. It has an income of roughly £69 million, and it has a positive out-turn of about £3 million. I would say it is financially stable, but not richly endowed.

Do you think it has sufficient resources for the tasks that it has?

As I said, I have not started there yet. It has 460 staff, of which 70-plus are in Birmingham, I think. That feels like a good-sized team for what we have to do, and I am delighted to see that it is on at least a stable financial footing and building reserves rather than the alternative.

Does the FRC have the right powers to seek information today?

To be honest, I do not know the answer to that question. I think that comes through the FCA; as I understand it, we have a good, close relationship with the FCA in order to achieve the information that we need.

When the FRC came before this Committee in 2024, it said that there were two priority areas of reform. One was statutory funding, which you have just referenced, but the second was that an effective regulator absolutely had to have the powers to obtain information relevant to its work. Did they oversell that case when they came before us in 2024?

I think both the funding and the access to information will be part of the statutory footing that is required; I do not think there has been any change there.

So it should have more powers to seek information?

Yes, under the statutory footing.

I mean, in your view.

Yes, for sure—so that it is equal and so that everybody knows what they have got to provide and that it is a legal requirement for them to do so.

At the moment, the FRC does not have powers to require information as part of its investigations. Is that a change you would seek to prioritise?

Yes. I think it is important that anybody has access when they investigate things, just as we have access through FOIs as citizens. As we look into important events, it is important that we get access to full information where possible.

Could I just take you back very briefly to the question about competition in the audit market? The FRC put out a report in December, which was marking its own homework and congratulating itself on what a great job it had done. The reality in that report was that the big four—Deloitte, EY, KPMG and PwC—still held 40% of the audit engagements for public interest entities. Do you think legislation would help the challengers? Could you seek legislation from the Government to help those challengers to get a bigger slice of this?

It is not something that I have even thought about at this particular point. As somebody who consumes audit services in my corporate life, I can see some of the problems with the peak of the big four, but it is something that I will need to talk about further with the team.

It is something that you are certainly going to look at?

Oh, definitely yes. I am sure it is something we should look at.

The thing that we have heard time and again here today is balance. Businesses often argue that regulation imposes costs, and investors argue that strong governance underpins confidence. You were at RBS, and we saw what happened there, arguably as a result of light-touch regulation; things went very pear-shaped and very south very quickly there. I think you have personally spoken about your situation at RBS, where I think there was an issue with insurance products. I think you were very concerned that a lot of businesses were reliant on PPI, and you felt that was a bit of a smoke-and-mirrors situation, but you did not feel empowered to do much about that. How do we get this back to balance? How do we get the balance right? It is going to cost a lot of money. You are very entrepreneurial. You have said you want to see growth. How do we do that without stifling people—with enough rules but not too many?

Gosh, you take me back quite a long way with some of the stories that you have pulled out—all of which are entirely accurate. I will address them as we go. The issue with PPI, which I have talked about previously, is that, before it was obvious that it was a big issue, RBS was making quite a lot of profit through PPI. I do remember raising that with the deputy chief executive and asking whether that was right. His point was, “It may not be right, but we can’t be the first bank to change it.” That was much more of a stock market point than a regulatory point at that stage. You could argue that the regulators should have seen that, and I cannot comment on that, but that was the point that I was making. When I was at Virgin Money, I did not permit Virgin Money to sell PPI as a consequence of that. I think that business leaders have a responsibility to know what is good and what is bad and not to do bad things, if you see what I mean. Regulation should pick up on that, but nevertheless, I do think there is a requirement there. As far as RBS is concerned, it is really interesting that you mention light-touch regulation—I think you meant that the external environment, perhaps, was light touch on regulation. To start with, I thought you were talking about the internal environment there. The thing I often say about RBS—forgive the vernacular here—is that it went bust with all the risk boxes ticked green. There was so much process of regulation that I am not sure there was enough thought about risk. I think that it is really important that we get to a place where we do not believe that an organisation of any sort is okay because the administrative processes mean that the risk boxes are ticked, which is why I think the FRC has done very well with this. I think we need boards to be asking, “Is the process right? What’s the process telling me about the risk profile of my business, and what does that mean for the way I engage with regulation and run the business going forwards?” I may not have explained it terribly well, but that has been a recent change, which has been well accepted, that the FRC has put into practice.

Do you think the FRC has got the balance right between growth and regulation, and that one can go hand in hand with the other?

Without a doubt. I am really sure that growth and regulation can go hand in hand, but I do not think it is black and white. This is why I mentioned earlier that I think it has to be constantly iterative. Without getting myself too much into trouble with the Bank of England and financial services regulation, we are sort of seeing that now. Before the financial crisis, quite clearly there was a problem with regulation, one would assume. My chair at the time—this is just by the bye, because I always thought it was interesting—was Sir Brian Pitman, who used to run Lloyds Bank, and he always said that the reason why we had a financial crisis was because no CEO knew what a CDO was. I thought it was such a nice way of putting it. You have to understand your business, and that is why I think, back to the earlier point, that having good, fair and transparent reporting is really important. We then had the financial crisis and there was so much work going into the question of, “So what could regulation do better?”. As we now know, we are starting to move away from, “Have we overdone it a little bit, given where we are? Can we pull back? Should we do different things with bankers’ bonuses?”. Of course, the regulators are trying to work out, given the learnings from the financial crisis, where that appropriate regulation is. I am really supportive of the way in which that is reviewed. That is why I am really positive about the culture at the FRC. As I say, I have only known that I had been put forward for this role for the last week or so, but, in talking to people, their constant point is: “We need to keep iterating. We need to keep learning. We need to understand what the industry wants. We need stakeholder engagement. We need to make sure that regulation is appropriate and proportionate.” At that point, as long as we can get there, transparency is what will enable us to grow. Stating the blindingly obvious, before the financial crisis, growth had been super successful, but we didn’t half lose it very fast. I think getting that balance right is something that every regulator has to work on all the time.

You have obviously had extensive executive and non-executive experience across a number of different industries—importantly, many regulated industries. I am really interested in something you have touched on at a high level, but perhaps we can go more deeply into it: what are the principles that will guide your decisions on whether reducing regulatory burdens conflicts with maintaining confidence in UK markets? If we can focus on the principles that will guide you, that would be great.

Now that Mr Cooper has taken me back to my RBS days, you have made me think of a different story from a little bit later. In my experience of regulated businesses, it is definitely true that executives tend to be negative about regulation—not universally, but obviously it is always a tension. I remember a situation at Virgin Money; I cannot remember the exact point, but there was some new regulation that had come out from the PRA, I think, and my risk team came in to see me to say, “These rules are completely mad. We definitely can’t adhere to them.” Partly because of the work that I had done through the financial crisis, my view had always been, and continues to be, that regulators do want to do the right thing and we should be looking for the outcome that they are trying to achieve. But sometimes the process of getting there can be a bit clunky. I remember taking home this new consultative document, or whatever it was, over the weekend, reading it and thinking, “Oh, I can see that you could read it the way my team have read it, but I can actually see that the regulator is trying to get to this point.” I am very clear that all regulation should be focused on its outcomes. We should not have processes that people find time-consuming and burdensome. As we look for lighter-touch regulation, if you see what I mean, that can be a way of releasing or reducing the burden, but nevertheless achieving what we want to achieve. I felt that we were able to do that with the financial services regulator.

As chair, what instructions will you be giving to both your non-execs and your executives? You will obviously have the CEOs and CFOs of different businesses under your purview. How will you get them to see your point of view?

Well, it might be more about me seeing their point of view, if you see what I mean. For me, I really like when complex things can be explained simply. I am somebody who will say, “Why do we want to do that? We are doing that for what purpose?” Sometimes it is hard for people to explain the reason they are doing things, but provided that people can explain the reason that we want to achieve something, whether that is in any business, through regulation or indeed through any stakeholders, I think it is much easier to align. We know that communication can be difficult, and people can miss each other and complicate things through a lack of clarity. So I hope that it will be through a clarity of purpose and outcome.

Going back to the point about maintaining confidence in UK markets, if you felt that the regulatory burdens were actually conflicting with that, what signs would you be looking for and what actions would you be taking?

I think it would mainly come from stakeholders. You have to listen really hard as a regulator, because I do think that good businesses, good auditors and the profession, on balance, want to do a good job. It is incumbent on the regulator to listen to those stakeholders and understand where they feel there may be too much burden, and then to test that objectively so that you can come to a place where the oversight is appropriate for the challenge and the objective that we are trying to achieve. Building good relationships with stakeholders would be my particular role in that.

Before we move on to the next question, are there any other core or personal principles, or a business raison d’être, that you would have at the centre of your approach?

You make me think of the Nolan principles, which I think are really important for anyone in this sort of role.

I was not trying to guide you to that.

I know you were not, but that was the thought that popped into my mind. I think it is important to do everything that we do with openness, transparency and integrity to achieve the right systemic answer for the country.

How can the FRC contribute to economic growth while maintaining robust corporate governance?

As the regulator that we are, I do not think the work of the FRC in itself will contribute to growth; it is, of course, businesses that contribute to growth. The work that the FRC does will enable business, and does enable business through its reporting, to show why a business is thriving, successful and appropriate for investment. That is where the FRC really makes sure that growth is at the heart of the agenda. Good reporting of good businesses brings in investment and protects shareholders. That is what we need in the UK for growth—shareholder confidence and incoming investment. That will come to businesses that are well managed, operating well within the umbrella of UK corporate governance, and transparent in their successes.

Obviously, the Government have taken a judgment not to pursue audit reform because they are worried about the impact on growth. It is fair to say that has provoked some outrage from the ICAEW, the ACCA, the Chartered Institute of Internal Auditors, the Association of Financial Mutuals, the Building Societies Association, the Quoted Companies Alliance, UK Finance and the IfG. Did the Government get the call wrong?

When you have an FRC that is functioning and a Government who are trying to manage the balance between regulation and growth, I can see why it may not be appropriate at this time for additional legislation to be passed. Would legislation be something that would help? Possibly. Are we operating effectively without it? I think we are.

On the point about competition, the CMA was obviously very clear that the level of concentration in the audit market was a problem. It is not just a problem for the private sector; it is a major problem for local authorities. The CMA recommendation was that FTSE 350 companies appoint two audit firms, one of which should be from the non-big four. The Government have now resiled from implementing that. Did they get that call wrong?

I am afraid I cannot comment on that one.

If that CMA recommendation is not pursued, what are the best ways to foster greater competition in the audit market?

That is something I would like to work on with the board and the executives, and perhaps we can come back and report to you on that at the time.

I hope I get this quote right, but I was talking to someone about this yesterday, and they pointed out that the recent stewardship code enabled people to reduce the reporting they had to do under the stewardship requirements by 25%. It is something that the FRC is very alive to and—again, to my point about iteration—is working hard on. I have a particular view that going through an annual reporting cycle is a very good discipline for businesses and enables them to understand their own business. That might sound slightly odd, but it is not just about presenting yourself to the world; it enables people to take stock and think about what they are doing in comparison with their peers. The vast majority of the reporting I have done in my time in the private sector has been positive and constructive. Now, could we take out some of that burden? Should the remuneration report be 30 pages or whatever it is? I completely agree that perhaps it could be more concise. By the way, please don’t take that as a specific thought from me; it is just an example. Can we constantly be more concise? Yes. But do I think the burdens are harmful? Often, for a healthy business, they can be a good way of looking at your business.

Not specifically, although I might challenge your perceived assumption that you can measure a regulator by the fines it puts out.

I don’t know the specific answer to that question, but I imagine that it is to do with supervision. There has been a lot of work to improve the quality of audits, and I hope the fact that the quality has improved is the reason why the negative outcomes have reduced. As I say, I don’t know, so I am just going on the way that you have described it. I hope I am seeing an organisation in which further investment in resource is proven to be reducing the problems that the regulator is trying to solve. That is certainly a way to look at it. When I am there, I will have a look, and hopefully that will be the case.

Could you outline the kinds of circumstances in which you would be prepared to disagree publicly with Ministers?

I would hope that communication and relationships would be sufficient for disagreements to be behind closed doors. I have no problem disagreeing with people if I believe that is necessary, but I would hope that it could largely be achieved, if it happens at all, behind closed doors. That would be the most effective and constructive way of dealing with anything. If your question is whether, in extreme circumstances, I would be prepared to disagree where I think it is necessary, I believe I would, but my preference—like everybody’s, I think—would be to do that privately.

Okay. What other steps do you think might be necessary to protect the FRC’s operational independence from Government?

I think you are right, if you are pointing that at the chair. It is important that the chair is independent, and I think I am known to have an independent spirit and mind. It is important to me that it is clear what the purpose of the FRC is—that goes for any organisation I work with—and that we hold very clearly and strongly to the stated objectives, the strategy that has been published and the objectives of the organisation. The role of the chair is to make sure that that is the case. If it is the case, and if any incoming information is contrary to that, it gives us an opportunity to push back and explore it further.

Can you describe a scenario where Ministers might want to do something that you regard as unfortunate and unwise, and could you tell us how you would handle that?

I have worked with Ministers, and I am pleased to say that I can’t think of any circumstances when I felt uncomfortable engaging with them and finding a constructive path forward. I can’t summon up an example at this point.

Let me give you an example from the CMA. The Chancellor has issued a growth duty to regulators. The CMA’s principal statutory duty, however, is to protect consumers and to conserve and promote competition. Sometimes those two things are in competition with each other as ideals. We could easily foresee a situation where the Government asked you to water down audit standards because they are a “burden on business”, but the result is that investors are kept in the dark about accounting malpractice. How would you deal with that tension when it arises? It feels to us as though it is bound to arise.

There are two things. I do not believe we have a Government who would be satisfied with accounting malpractice, but let us assume that might be a risk. It is then entirely consistent with the answer I gave to a previous question: as long as we are clear about our purpose, which is top-quality reporting, good standards and transparency, I would of course be very motivated, in every sense of that word, to push back and stand independently to ensure that we are issuing quality statements.

Even if the price is a public spat with Ministers?

I would always prefer to avoid that. However, if your question is, “In extremis, would you go there?” then of course. If I had to protect the quality and independence of the organisation, I would reluctantly feel that that would have to be the case.

First of all, thank you for being here and putting yourself forward. Congratulations on being nominated. It is a very impressive CV. When I told a group of high school children that I was coming to do this this week, they immediately asked, “Is that like the BBC and HBO drama series ‘Industry’?” I said it probably was not going to be quite like that, but they were very excited about what I was coming to do. Obviously, the performance of the FRC is what we are really here to discuss, as well as how you can take that on. Investigations are averaging 33 months to complete. Should the target be a lot lower, and do you foresee being able to make that happen?

I would have to find out why it is taking that length of time. I did not know that was the average length of time for an investigation to close. Although I cannot give you a specific answer, my modus operandi, if you like, in all things is to say, “Let’s try to do this in a sensible length of time.” For a number of reasons, we need to ensure that people remain acutely aware of the importance of that work, and over a long period that may drop away—I do not know. That is important. It is also really important that teams are actively engaged in resolving issues. I do not know why it takes that length of time to resolve some of those complex issues. Again, we are back to balance, aren’t we? Do it properly, but do it in the right period of time. That is something that, of course, every organisation wants to look at.

On learning that the average completion time is 33 months, is that something that concerns you, or is it something that you would want to dig a bit deeper into to find out why it takes that long?

Certainly, and thank you for raising it. I will certainly dig more deeply into it and find out what that is about.

It is important for all regulators to be trusted, isn’t it?

Measurable improvements? The risk register is important. It is published in the annual report and accounts which, as I said, came out earlier this week. It would be good to see positive, constructive progress against a number of those risks, including cyber-security, which everybody is, of course, looking at. Without a doubt, AI, as I mentioned earlier, is also something I am sure we will look at during my first term, and I would like to be able to see the progress we have made internally and externally on that. Who knows? It may very well be that we go back to Mr Bloore’s point and look at the time that it takes to resolve cases. Let me come back to you with KPIs when we have agreed them.

My apologies. I thought we had discussed all those. I agree with you that all those are important and key for the FRC, and not just for my term—they are what the FRC is going to be working on for the foreseeable future. At the moment, I cannot prioritise them without talking to the board and the executive. Having not started yet, I would not know how to prioritise them at this point.

Is there anything else you would like to say about your vision for the FRC that you think we should be aware of?

We have touched on most of it. It is an important regulator. It is important for it to be a trusted regulator. It has made significant progress since Carillion and the Kingman review. It has good relationships with stakeholders. To the earlier points, like all organisations there are obviously new things to do, whether on the statutory footing—that is absolutely important—on AI, or on the growth of trust. I will be very proud of work on all those things as part of the FRC.

You have mentioned AI several times. I am also particularly interested in your reference to cyber-security. You know as well as I do that we have had problems getting the boards of a wide range of businesses to really engage with that. How do you think the FRC can lead on that through audit processes or other types of leadership?

Again, I am speaking without knowledge of what the FRC does at the moment in this particular area. It was interesting to see it in the FRC’s accounts. All leaders should model the way and the FRC, as a leader in reporting, has included it in its annual report—that is important for all organisations. My own experience of audit firms is that they are very focused on cyber-security; that should continue. I would be disappointed if every board in the country is not considering cyber-security on its own merits for the board’s business. As I said at the beginning, although of course the FRC is the regulator of corporate governance and reporting, businesses themselves have the responsibility and accountability to make sure that they are safe, and that very much relates to cyber-security.

If there are no further questions, that concludes this hearing. Thank you very much indeed for appearing in front of us, and for answering all our questions so comprehensively and with such candour. We are grateful to you. The Committee will now meet in private and conclude our recommendations.