FRC and FCA Investigations: Managing expectations, and Blancco news

This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Peter Parry and I now have regular meetings with the FRC and FCA to discuss topics of interest. We met Jen Sisson of the FRC on 23 Sep and got some pretty direct feedback about cases of this type (e.g. Blancco) and managing expectations. I was told I was being unrealistic in expecting a quick decision.

The Blancco background, readers may recall, is that in January of this year, Bruce Noble wrote, on behalf of ShareSoc, to the Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC), requesting them to investigate the accounting and reporting of Blancco Technology Group plc, in light of the severe loss incurred by shareholders owing to the restatement of previously audited accounts. Each organisation acknowledged receipt of the letters and the FRC said that, while they would consider the matters raised concerning the company’s report and accounts, the audit issues should be referred to the Institute of Chartered Accountants in England and Wales (ICAEW), as Blancco does not fall within the large AIM category. Bruce then wrote in February to ICAEW asking them to investigate the audit, a request that was also acknowledged.

I said in the meeting with the FRC that we all realise that much of this is out of scope of the FRC remit: that we have separately reported Blancco to the FCA on other issues; and that the audit is out of scope of the FRC’s remit and has been passed to the AIEAW.

We were told that the FRC cannot comment at this stage on whether the FRC are or are not looking at the point we have raised about the accounts (but see below). The FRC KPI for dealing with enforcement cases is 2 years*. The reason it is so long is that the FRC have to prepare the case to the same standard as a High Court case, as the FRC may be taking someone to a tribunal case. So it needs a full investigation and due process. The FRC have to prove misconduct which is a significant test, higher than negligence.

I understand their point that the FRC cannot make public announcements as this might be prejudicial to individuals or companies/firms. So, we don’t know if the FRC has an ongoing review of Blancco or if it does not.

There is however some comment in the Blancco annual report on page 29, from which it clear that there has been an FRC CRR review, and if one reads between the lines then it seems that the FRC have looked at the accounts and taken appropriate action to get the company to make necessary changes, although it is not explicitly stated what the FRC have done and what the company have done voluntarily.

FRC Review

During the year, the Group received correspondence from the Financial Reporting Council (FRC). As a result of this correspondence, the prior year adjustment recorded in the financial statements to goodwill, intangible assets and accruals was identified, as well as the prior year reclassification of cash flows for share subscription transactions with non controlling interest shareholdings that did not result in a change of control, which have been moved from investing to financing activities. In addition, the Directors have provided additional disclosure around a number of accounting items in the notes to the accounts.

When reviewing the Company’s 2017 Annual Report and Accounts, the FRC has made clear to us the limitations of its review as follows:

  • its review is based on the 2017 Annual Report and Accounts only and does not benefit from a detailed knowledge of the Group’s business or an understanding of the underlying transactions entered into;
  • communications from the FRC provide no assurance that the Company’s 2017 Annual Report and Accounts are correct in all material respects and are made on the basis that the FRC (and its officers, employees and agents) accepts no liability for reliance on them by the Company or any third party, including but not limited to investors and shareholders; and
  • the FRC’s role is not to verify information provided but to consider compliance with reporting requirements.

Per Blancco’s June 2018 Annual report, p29 annual-report-and-accounts-30-june-2018.pdf

*It is important to note that the 2 year KPI is for enforcement cases, and not quite the same as the process of a CRR review.

CRR operating procedures: see

Enforcement: see

There is also a helpful video explaining the enforcement process:

We discussed with both the FRC and FCA our response to Kingman (and subsequently sent them both a copy) and drew attention to our suggestion on page 5:

The FRC should introduce two new categories of possible censure, private concern and public concern.

  • Private concern would be where the FRC is aware of concerns about a particular company and when it raises the issue with the company, the FRC is not 100% comfortable with the response. Such discussions would remain private between the company and the FRC and would not be disclosed. This would enable the company to take steps to rectify the problem/potential problem.
  • Public concern would be when these concerns are such that the FRC wishes to make it public that it is aware of the concerns. This would not necessarily mean that the FRC had launched a full scale case review.

It was very good to catch up and a most useful exchange of views.

Subsequently, I was told that the SEC has dealt with the Tesla case in two months, thereby setting a benchmark for others? If the US SEC can do it, why cannot we?

SEC settles case in two months.
Read the full article at:

Of course, a high profile case like Tesla is one of the things that influences people’s expectations of what is achievable and realistic.

But we should not criticise the people at the FRC. They are merely following their brief and operating within the parameters they have been set. The Tesla case is about securities fraud, which in the UK would be in the scope of the FCA, not the FRC. It is not at all the same as an investigation into an accounting or auditing misconduct case or a review by the Corporate Reporting Review team (CRR).

There are two elements to what the FRC might do in the event of an accounting complaint, firstly they can look at the accounts via CRR and correspond with the company on necessary changes / questions etc. If there is a misconduct case to answer, their enforcement team can take action under the Accountancy Scheme.

The FRC also stressed that ‘It is not that we are “unwilling” to discuss particular cases, we are legally not able to.’

The parameters are set by the Government, so if we don’t like them, we must lobby the Government to change the rules for the way the FCA and others operate.

Peter Parry and I also met the FCA, on 25 October, where we met Henry Postlethwaite (Enforcement) and Nike Trost (Senior Manager, Markets Policy).

We explained our concerns about the flaws in the nominee system as exemplified in the Beaufort administration and the Unilever vote counting for the scheme of arrangement. They listened with interested as we explained why the name on register is so important to shareholder democracay.

Like the FRC, they were unwilling to discuss particular cases. The groundrules for the meeting that what was said was within these four walls. Hence my only general reporting of the meeting.

We also discussed with the FCA our response to Kingman and drew attention to our suggestion on of 2 new categories of possible censure, private concern and public concern. We did however mention our concerns about Nighthawk (a 2010 case), Blancco, Redcentric and Patisserie Valerie.

We also discussed the key points of our responses to the FCA consultations on Investment Platforms, Duty of Care and Illiquid Assets.

This was another useful meeting. 

On the Blancco trading front, the results are looking better and I attended a company presentation to investors at Equity Developments on 26 September, click here to view it There is a new management team and the outlook according to Equity Developments is good. I subsequently bought some Blancco shares.

There is always a danger that the negative press, that FRC, FCA and ICAEW investigations may create, will depress the share price. It has certainly dropped hugely since the problems were identified. We know from discussions with the company that they would like to move on and forget about the legacy issues. As such we are a nuisance to them. However we maintain that it is importance that alleged malfeasance is investigated and addressed promptly and transparently.

By Cliff Weight, Director, ShareSoc

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.