The UK FRC’s latest decision: no further action… and no further information?

By Alison Kirby-Harris and Matthew Conacher

The Financial Reporting Council announced yesterday the closure of its investigation into Grant Thornton UK’s audits of Globo Plc without further action, following the FRC Executive Counsel’s conclusion that there was no realistic prospect that a Tribunal would make a finding of Misconduct (link here). 

The announcement is notable as it is the first announcement of the closure of an investigation (discontinuance) since the FRC committed, in December 2017, to be “more transparent about the outcome of individual investigations such that where there is a clear public interest and subject to any applicable legal constraints, [the FRC] will publish a summary of our reasons for closing an investigation” (included in the FRC’s Strategy paper for 2018/21).  

This commitment was made following significant criticism of the FRC’s approach to discontinuances in 2017, including by the Treasury Select Committee, and particularly in the wake of high profile discontinuances announced towards the end of the year.  At that time, as reflected in the Strategy paper, the FRC recognised that “public interest in and criticism of the outcome of our enquiries and investigation has highlighted a concern that we do not sufficiently explain the reasons for our decisions to close cases” (link here, at paragraph 1.7).

So, does the FRC’s latest discontinuance indicate a markedly different approach?  In short, no. While the FRC’s commitment to greater transparency in discontinuance reporting has been welcomed, the reporting in Globo does not appear to provide much greater insight into its reasons for closure, compared to many previous discontinuances. The FRC’s press release provides a brief description of the relevant audit. However, the description of the FRC’s reasons for discontinuing the investigation are commensurate with its past reporting on the closure in 2017 of the HBOS investigation and the investigation relating to the audit of Barclays. Both of these decisions set out that the Executive Counsel concluded that “there is not a realistic prospect that a Tribunal would make an Adverse Finding…in respect of the matters within the scope of the investigation”, and contain either little further detail of the relevant issues (in respect of HBOS) or none (in the case of Barclays) (links here and here).  This wording is almost identical to the FRC’s announcement yesterday in relation to Grant Thornton. 

The FRC may have been constrained in the information it released in this instance by particular legal or other concerns.  Will the public be provided with further, insightful information relating to the FRC’s processes and decision-making next time it discontinues an investigation, and thereafter?  Time will tell, but this case appears to hint fairly strongly at the answer.