Sanctions against Directors

1) Power to investigate and sanction PIE directors

• ARGA will have the necessary powers to investigate and sanction breaches of corporate reporting and audit-related responsibilities by PIE directors.

2) Enforcement regime to be similar to that for auditors

• the enforcement regime will follow similar principles to the FRC’s audit enforcement regime, in line with the recommendation of the FRC Review. If this is so, this will mean that it is based on failing to apply standards rather than the higher bar of misconduct.

 3) Enforcement regime to apply to all PIEs whether or not companies

• where appropriate, the scope of the regulator’s enforcement powers will also apply to PIEs which are not companies

4) ARGA to set out what is reasonably expected of directors

• ARGA’s new enforcement powers will apply to breaches of the directors’ statutory duties relating to corporate reporting and audit. The Government has indicated that,  for civil regulatory enforcement to work effectively, ARGA will need to set out what it reasonably expects of PIE directors by way of compliance with their legal duties.
• the above is intended to reassure directors, and individuals who are considering taking up a position as a director of a PIE, that they will be accountable only for what could reasonably be expected of a person in their position
• the intention is that PIE directors may be held to account if they fail to comply with well-established values that are already embodied in directors’ existing general duties in statute. It is considered that these are values that directors of PIEs would already be expected to understand and subscribe to and that this will maximise the effectiveness of the new directors' enforcement regime as the regulator will be able to investigate the nature of directors’ decisions and take action in cases where the directors have complied with the letter of the law but are nevertheless engaged in dishonest or improper conduct.
• the Government believes that there may be exceptional cases where it is in the public interest for ARGA to investigate and enforce directors’ duties even though the entity in question is not a PIE and is considering how and whether the behavioural aspect of the new directors' enforcement regime should apply in such cases. It is thought such instances may be considered, for example, where it is felt a corporate structure has deliberately been established in such a way to avoid it having any PIEs within it.

5) Aim to extend clawback provisions in directors’ remuneration arrangements

• the FRC will seek to develop the existing malus and clawback provisions in the UK Corporate Governance Code in order to deliver greater transparency and to encourage consideration and adoption of a broader range of conditions in which executive remuneration could be withheld or recovered, beyond that of ‘gross misconduct’ or ‘material misstatements’ (which account for the majority of malus and clawback conditions currently). It is suggested that the Code, for example, could set out an illustrative set of malus and clawback conditions which remuneration committees should consider in developing their own arrangements