FRC Sets Out Growth-Focused Approach to UK Regulation

Key Takeaways

• FRC Puts Growth at the Center of Its Regulatory Approach: The regulator says its role is to create conditions for businesses to thrive while maintaining high standards in corporate governance, reporting, audit and actuarial work.
• Oversight Will Be More Explicitly Risk-Based: Regulatory attention will reflect factors including an organization’s size, complexity, systemic importance and potential harm to investors and markets.
• Proportionality Is a Core Principle: The FRC favors principles-based regulation and professional judgment over a one-size-fits-all approach, with the aim of reducing unnecessary regulatory burdens.
• Supervision, Standards and Enforcement Will Be More Integrated: The FRC wants findings from supervision and enforcement to inform standards, codes and guidance, creating a more joined-up regulatory model.

Deep Dive

The UK’s Financial Reporting Council set out a revised approach to regulation Thursday that places greater emphasis on economic growth, proportionate oversight and earlier engagement with firms, as the regulator looks to make its supervision more responsive without loosening standards across audit, corporate reporting and governance.

The updated “Our Approach to Regulation” lays out how the FRC intends to use standards, supervision, enforcement and guidance across the corporate reporting ecosystem. At its center is a relatively simple proposition that regulatory intervention should be concentrated where the risks are greatest, while firms should not face burdens that cannot be justified by the risks they pose.

The FRC described the UK regulatory framework as a “national and strategic asset,” arguing that predictable and fair regulation gives businesses and investors the confidence to deploy capital and take responsible risks. The council said its responsibility is to preserve that confidence while supporting economic growth and maintaining high standards in corporate governance, corporate reporting, audit and actuarial work.

“It is businesses, not regulators, that generate growth and wealth,” the FRC said in the document. Its role, it added, is to create the conditions in which businesses can thrive while avoiding unnecessary regulatory burdens.

The FRC is not proposing a reduction in its regulatory responsibilities. Instead, it is setting out how it intends to exercise them, with greater attention to the size, complexity and risk profile of the organizations it oversees.

“The UK’s regulatory framework is a strategic national asset,” FRC Chief Executive Richard Moriarty said in announcing the approach. “Our approach sets out a clear vision for modern regulation: targeted where risks are greatest, proportionate where action is needed, and responsive to a rapidly changing environment.”

The FRC has grouped its approach around four areas: enabling growth, proportionate and practical regulation, an integrated regulatory model and greater engagement with the market. Under the proportionality principle, the regulator said it favors principles-based requirements that leave room for flexibility and professional judgment rather than applying a single model across regulated organizations. The intention is to reduce unnecessary burdens without sacrificing the standards that underpin confidence in UK markets.

Risk will also determine where the FRC directs its resources. The council said it considers factors including an organization’s size, complexity and systemic importance, as well as the market segment in which it operates. Data, market intelligence and other indicators are used to identify areas where potential harm to investors, markets and other stakeholders is greatest.

The result, at least in principle, is a regulator that does not equate consistency with treating every firm identically. Organizations presenting greater risks can expect greater attention. Lower-risk firms should face oversight proportionate to their circumstances.

The FRC is pairing that approach with several programs intended to give firms more room to test new practices and address regulatory problems before they become enforcement matters. Its Innovation and Improvement Hub is accompanied by regulatory sandboxes and capability-building programs, while the regulator is developing a Growth Duty Toolkit to help its own staff consider economic growth when assessing regulatory activity.

Technology has already forced some of those questions into the open. The FRC pointed to guidance it has issued for audit firms using generative and agentic artificial intelligence tools in audit engagements as an example of its effort to provide practical guidance as new technologies enter regulated work.

The approach gives guidance and experimentation a larger place in the regulatory toolkit, but enforcement remains firmly within it.

Linking Supervision and Enforcement

The FRC also wants the different parts of its regulatory operation to work more closely together. Standards, supervision and enforcement should operate as an integrated system, the council said, allowing risks identified in one part of the organization to inform decisions elsewhere. Findings from supervision and enforcement can feed into changes to standards, codes and guidance, while risk-based supervision is intended to identify weaknesses earlier and encourage firms to improve them in practice.

The regulator describes its enforcement approach as “firm and fair.” Decisions on whether to open formal investigations are subject to governance and oversight, with the FRC saying intervention should be proportionate and directed toward matters of greatest regulatory concern.

Not every weakness needs to begin as an enforcement problem. The regulator wants supervisors to develop a detailed understanding of the firms they oversee, identify risks and use the appropriate regulatory tool according to the seriousness of the problem. Engagement is meant to provide another source of information.

“Regulation cannot be designed at a distance,” the FRC said. The council plans to use consultations, market studies, stakeholder forums, bilateral meetings and data analysis to identify emerging risks and understand how its requirements are working once they leave the regulator’s desk. It also said that engagement should help expose areas where regulation is producing unnecessary friction.

Some of that engagement is intended to give regulated firms space to raise problems before they become more serious. Through initiatives including the ScaleBox System of Quality Management Program and the Simplifying Annual Reporting Sandbox, the FRC said firms can discuss practical challenges, lessons and emerging issues without the immediate concern that doing so will trigger formal enforcement action.

That is a small but telling part of the new approach. A regulator trying to identify risks earlier needs firms willing to tell it where those risks are developing.

The framework is built around the principles of the UK Regulators’ Code, including proportionality, consistency, accountability and transparency. The FRC said the code informs its regulatory decision-making and provides a basis for assessing whether its activities remain effective and evidence-based.

The council is also examining the burden created by its own information gathering. It said information should be collected only when necessary, with unnecessary or duplicative requests minimized. Automation and streamlined workflows are being considered for data collection, while guidance is supposed to help firms comply without imposing requirements beyond those that regulation actually demands.

For firms under FRC oversight, the importance of the document will depend on how visibly those principles shape future decisions. Proportionality is easy to endorse as a regulatory principle and considerably harder to apply when supervisors are deciding how much scrutiny a particular firm deserves. The same is true of the promise to support growth while preserving market confidence.

The FRC has now put those judgments at the center of its regulatory approach. The evidence will come in how it supervises, intervenes and enforces when the principles meet actual cases.

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