New Sanctions Guidance For Accountants and Actuaries' Investigations

08 March 2013

The Financial Reporting Council ("FRC") has published its first Sanctions Guidance for individuals and member firms under investigation.

The FRC had suggested in a consultation last year that it intended to base fines upon a % of a member firm's annual group turnover.  This was heavily criticised.  RPC lobbied on behalf of our accountant clients why this was disproportionate, likely to cause entrenched litigation, and could adversely impact the profession. 

We are pleased that the new Sanctions Guidance has now abandoned this proposal.  In general, the Guidance (which is intended to be advisory, not binding in nature) still provides that a member firm's revenue may be considered when assessing any fine, but the Guidance has moved away from a rigid % application. 

The Sanctions now available follow those already in place (such as reprimands, fines, costs orders and exclusions), but they also now include direction orders - for example for an individual to undergo certain training programmes, or restrict an individual from carrying out certain types of work (eg audits of public listed companies). 

It is also noteworthy that the Sanctions Guidance allow for prescribed discounts to be achieved for early settlement, in much the same way as FSA enforcement proceedings.  The greatest discount that may be applied is up to 35% if an investigation is settled before a Formal Complaint is delivered.

In general, we agree with the desirability of having Sanctions Guidance in place.  It ought to allow members and firms under investigation to predict with greater certainty the outcome of their investigations, and may encourage earlier resolution.  However, we now await how the Guidance will be applied in practice, and it therefore remains to be seen whether this will herald a different, or more rigorous, sanctions regime than before.