Accountancy and actuarial disciplinary schemes

Comments from ACCA to the Financial Reporting Council
July 2014.

General points

We support what the FRC is trying to achieve through this consultation.  There are likely to be cost savings and, on occasions, benefits to members who would otherwise be required to undergo two tribunal processes because they fall under both Schemes.  There may also be a benefit in implementing joint tribunals in order to improve public perception.

However, we feel that the two Schemes, as drafted within the consultation paper, require clarity as to why they are set out separately.  We have concerns in respect of the drafting and the structure of both Schemes.  This leads us to question whether it remains appropriate for the two Schemes to remain, rather than be combined into a single disciplinary scheme.  The consultation document includes no proposals in this area.

Anticipated cost savings have not been quantified within the preliminary impact assessment, and there is no indication of how often joint disciplinary tribunals might be expected to occur.  However, in addition to cost savings, benefits include consistency of regulation and perhaps enhanced transparency.

Improvements in drafting may help to clarify policy.  For example, paragraph 11(2) of each Scheme achieves a Tribunal with a lay majority (provided the Chairman is not an accountant/actuary as well as a lawyer).  If, the policy is intended to be that of a lay majority, then this should be stated in order to ensure the required composition.

Specific questions

Q1. Do you consider the proposed amendments to be understandable?

Although improvements in drafting may be made, the amendments tracked within the draft Schemes are generally understandable.  However, retaining the provisions in respect of accountants and actuaries within two separate Schemes impedes clarity in respect of both the objectives and the manner in which those objectives should be achieved.  For the most part, the provisions within each Scheme are identical.  In a combined Scheme, any differences could be resolved, largely by careful drafting of the Interpretations.

Benefits of a combined Scheme would include the following:

  • The Case Management Committee would be able to deal with the ‘joint’ scenario at the outset of the process, one investigation and one schedule of allegations, albeit involving both actuarial and accountancy matters.  As the regulations are currently set out, it seems that the ‘joint’ process would only commence once the matter has reached the Formal Complaint/Disciplinary stage.
  • It would save the reader having to refer to two sets of regulations, thus providing a more cohesive approach.
  • The process would be more streamlined and easier for both the member/member firm and the public to understand.
  • There would be consistency in the decision-making process ­– both at the tribunal stage and throughout the management of the case (for example, the approach to the investigation and the drafting of allegations).

Alternatively, if it is determined that a single Scheme is not appropriate at this time, we would recommend a review of the layout of each Scheme, to include separate sections on ‘joint cases’, covering case management and settlements, as well as Tribunals.

In respect of the Schemes as currently redrafted, we have the following observations:

  • Paragraph 11(5): We suggest that, instead of ‘arising out of the same matter as a Formal Complaint under this Scheme’, this could read ‘arising out of the same facts as a Formal Complaint under this Scheme and/or where there is a sufficient connection between the Formal Complaints under consideration’, which would provide greater clarity.
  • The draft schemes say that the Conduct Committee may instruct the Convener to appoint a Joint Tribunal.  On the assumption that it is not proposed to make a Joint Tribunal mandatory, the FRC should consider whether the member would have the right to request separate tribunals.  Alternatively, the schemes (or scheme) should make clear that the decision of the Conduct Committee cannot be challenged.
  • Paragraph 11(6): It would seem more appropriate that, where a decision is made by a Joint Tribunal, then any appeal also lies to a Joint Appeal Tribunal.  Also, the wording in this paragraph could follow the wording in paragraph 11(4) and say ‘the same Joint Appeal Tribunal’.  Greater clarity in paragraph 11(6) would also be achieved by referring to ‘orders of the same Joint Disciplinary Tribunal’, rather than ‘orders made by the same Joint Disciplinary Tribunal’.

Q2. Do you agree that provision for Joint Tribunals should be included in each Scheme?

In principal, we support the inclusion of provisions for Joint Tribunals. However, as stated under question 1, a single Scheme would enhance clarity for both members of the public and participants in the disciplinary process.  Alternatively, while separate Schemes remain, we would prefer to see a separate section in respect of Joint Tribunals within each Scheme, together with comprehensive cross-referencing to that section where appropriate.

While the two Schemes remain separate, opportunities to save costs and enhance efficiency and clarity remain also.  According to the current proposals, it appears that co-ordinated regulatory processes commence when Executive Counsel delivers formal complaints under both Schemes.  A single Scheme would, for example, facilitate a single Case Management Committee to oversee joint investigations, consider joint settlements, etc. While separate Schemes remain, these areas need to be included in each Scheme, which leads to excessive length of the Schemes.

Q3. Do you agree the proposed constitution of a Joint Tribunal?

ACCA is in favour of lay majorities on Disciplinary Tribunals, and we believe that the FRC also upholds this principle.  We support the constitution that paragraph 11(7) attempts to achieve, but we believe that the Schemes (or Scheme) should clearly state that there must be a lay majority, and define ‘lay’ appropriately.  Currently, the Accountancy Scheme, for example, would allow a chairman who is both a lawyer and an accountant.  This would not produce a lay majority for a three-person Tribunal.  In the case of a Joint Tribunal (which must consist of five persons), where a single respondent is both an accountant and an actuary, there would again not be a lay majority.

Q4. Do you agree that the proposed amendments to each Scheme to permit Joint Tribunals in the circumstances specified should, over time, tend to reduce the costs associated with the FRC’s disciplinary schemes?

This would appear to be a logical conclusion, although the consultation document provides no indication of the number of joint tribunals anticipated in the foreseeable future.  Moreover, we believe that Joint Tribunals are a proportionate measure, providing a fairer, more transparent and more comprehensible approach.  Further benefits would be gained by operating a joint approach from the outset of the investigation process, which supports the case for a single Disciplinary Scheme in future.

Q5. Do you have any other comments about the proposed amendments?

The proposed changes are confined to situations in which members of both the accountancy and actuarial professions are being investigated for misconduct.  We suggest that the Schemes should be reviewed to consider whether they provide for situations in which more than one person of the same profession may be joined in an investigation and/or Tribunal.  We note that paragraph 9(1), for example refers to ‘member’ in the singular (although we acknowledge that reference to paragraph 2(3) suggests that this includes the plural).  A single scheme in which the interpretation of ‘member’ is appropriately drafted could bring about further efficiencies in this respect.

As stated under question 3 above, we suggest that the meaning of ‘lay’ should be defined within the Interpretation.  Further clarity and consistency may be gained from including other terms within the Interpretation, rather than explaining their meaning within the body of the Scheme (for example ‘lay person’ or ‘accountant’).

Given the objectives of this consultation, we are unclear about the circumstances in which paragraph 11(3) or the second sentence of paragraph 11(4) would be relevant.

The provisions of paragraph 11(10) (as redrafted) undermine the provisions of paragraph 11(2)(i) and the absolute discretion of the Conduct Committee to require a Tribunal of five persons.

It appears that maintaining two very similar Schemes creates a risk of error where slightly different provisions are required in respect of each profession.  For example, it appears that paragraphs 11(2)(iii)(a) and 11(2)(iv)(a) of the Accountancy Scheme have been copied across to the Actuarial Scheme, with the result that a lay person has been incorrectly described in the latter Scheme.