Financial Services Bill (Second sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 17th November 2020 Public Bill Committees

[The Chair]

I have second the shadow Minister, Abena Oppong-Asare.

[Abena Oppong-Asare]

Q Thank you, Chair. Thank you for coming to speak to us. There are four audit firms and one of the allegations is that they are very close to each other and cosy with big companies. What are your thoughts on that? In the Bill, it is not very clear that that has been addressed.

Chris Cummings: I am terribly sorry. I was having an IT glitch and I missed your question. I do apologise. Can I ask you please to repeat the question?

[Abena Oppong-Asare]

Q The four audit firms: there are concerns that they are very cosy with each other and are very close with the big companies. The Bill does not essentially address that kind of issue. It does not seem very clear to me. Do you have any thoughts on how that could be addressed in the Bill to strengthen it so that there is better transparency and the relationship is less cosy?

Chris Cummings: Thank you for the question. We take the very strong view that we, as investors, rely entirely on public information. The quality of information produced by management is pivotal to the investment decisions that we make as investors. That has led to the point now where the investment management industry has a stake in more than a third of the FTSE. We think long and hard about investing in any particular company, listed or unlisted, and that is why we believe that it is the investor who is the client of the audit. A company pays for the audit, but it is the investment community that is the client of the audit. That is why we are so outspoken in pushing for better quality audits, and ensuring that the chairs of the audit committee take their responsibilities towards their investors seriously.

We absolutely worry about too close a relationship between an auditor and the company that they are auditing. That is why we feel that audits should be reviewed and we are constantly striving to have a more competitive ecosystem in the audit world, so you raise a very good point. If I may, I will offer to review that section of the Bill in more detail, and if we see anything that strikes us as being too weak or in need of strengthening, I will write to you with our proposals on that very quickly.

[Abena Oppong-Asare]

Q I want to follow up on that, because I recently read your comments about a new audit regulator in the Financial Times. The proposals gave me the impression that you felt that it would be able to ensure better reporting, and essentially hold the governance authority accountable to Parliament. Are you able to explain further about that?

Chris Cummings: Indeed. The audit profession has been through three major reviews recently. We entirely support the proposals to bring ARGA into existence. The work the FRC has been doing to prepare for the transition to ARGA has been commendable, but we need to go one step further and actually encourage policy makers to ensure that ARGA is brought into being as quickly as possible. Personally, I have been impressed by the new head of the FRC’s ability to convene and cajole the audit companies to exercise some soft power, to encourage them to improve the quality of audit. Still, it is not the same as having that statutorily recognised independent regulator, and we encourage this Committee—and other parliamentarians —to push for the establishment of ARGA as soon as possible.

[Abena Oppong-Asare]

Thank you, Chair.

[The Chair]

I call Gareth Davies. Gareth, I think you will have to move to the microphone over there.