Governing regulation and discipline

Peter Large describes the formation of an ACCA Regulatory Board

For many years, ACCA has been at the leading edge of governance best practice in respect of regulation and discipline. It has a substantial and credible record of introducing mechanisms which demonstrate transparency and fair dealing.

ACCA has gained considerable reputation and practical benefits from measures such as:

• disciplinary and regulatory hearings being open to the public
• maintaining a separation between rule making and rule enforcement; Council members do not sit on disciplinary and regulatory committees, and individual cases are not discussed at Council
• independent assessors determining whether cases should go forward to a disciplinary committee
• an independent Appointments Committee which appoints disciplinary and regulatory committee chairs and members
• having independent 'lay' (i.e. non-accountant) chairs of disciplinary and regulatory committees
• there being parity of lay and accountant committee members on disciplinary and regulatory committees, and
• the appointment of a Lay Observer to provide independent oversight of disciplinary and regulatory processes, and consideration of Lay Observer annual reports at meetings of Council open to the public.

Past innovations

ACCA was the first accountancy body to open its disciplinary hearings to members of the public in 1996. This is a key measure for demonstrating transparency, fairness and that that the disciplinary process operates in the public interest.

Many other bodies have subsequently followed suit and the UK's independent disciplinary body for serious public interest cases - the Accountancy and Actuarial Discipline Board - was set up on this basis as part of a series of post-Enron reforms.

ACCA first appointed a legally-qualified Lay Observer to carry out oversight of its disciplinary system in the early 1980s. Initially, the role was largely focused on ensuring that the disciplinary system operated fairly. However, over the years, the role has evolved to include oversight of ACCA's statutory regulation and monitoring duties. The concept was further refreshed in 2000 when Council started to consider the Lay Observer's annual report in sessions which members of the public could observe.

'Root and branch' review of current regulatory governance arrangements

A policy of continuous improvement has similarly refreshed most of the other mechanisms set out at the beginning of this article. However, governance practice rarely stands still for long and, in recent years, bodies across a number of professions have matched ACCA's measures and have also gone on to introduce further innovations. Council therefore decided late last year that the time was right to instigate a complete 'root and branch' review of ACCA's current governance arrangements for regulation and discipline.

While noting that there was nothing intrinsically wrong with any of the current mechanisms on an individual basis, Council nonetheless felt that there were four potential weaknesses:

• the arrangements had developed incrementally over a number of years and did not necessarily form an overall coherent structure
• the fragmented nature of the arrangements meant that they lacked visibility and were not easy to explain to key stakeholders
• some of the more recently introduced measures overlapped with the Lay Observer's role and, in any case, it was not clear that it was any longer feasible for one individual to carry out the extensive oversight role associated with the Lay Observer's post, and
• it was not clear that the arrangements had kept pace with key changes in ACCA's regulatory landscape, namely the increased level of oversight of ACCA by, among other lead regulators, the UK Professional Oversight Board and Council's decision, post-Enron, to ensure all ACCA members in practice worldwide were subject to appropriate levels of regulation.

In conducting its review, Council looked at a number of recent studies of other professions' regulatory governance arrangements and noted that the key trend was towards more formal separations of regulatory activities from other professional body activities.

Such separations are increasingly being seen as essential to demonstrating effective self regulation. By way of one example, the Royal Institution of Chartered Surveyors in the UK has set up an independent 'Board of Regulation' to oversee all of its regulatory arrangements.

While the substance of what other bodies are now doing is no different, in many instances, to what ACCA put in place some years ago, the overall effect is that much more coherent regulatory governance vehicles are being established. Such structures are more readily explainable to the public at large than ACCA's somewhat fragmented arrangements.

Council therefore agreed last year that the possibility of forming a separate ACCA regulatory structure should be examined, with the aim of pulling together the many strands of ACCA's current regulatory and disciplinary governance arrangements into a single structure.

Much of the detailed review work has now been carried out and in September 2007 Council agreed to move ahead with the formation of a separate board to oversee ACCA's disciplinary and regulatory activities. In approving the plans, Council noted that ACCA's main lead regulators had welcomed this development.

ACCA Regulatory Board

Council's hope is that, from mid-2008, all of ACCA's current governance arrangements for regulation and discipline will be brought together into a single entity to be known as the ACCA Regulatory Board.

Amendments to ACCA's bye-laws will be tabled to the May 2008 Annual General Meeting for consideration by members. If approved, these amendments will replace oversight by a Lay Observer with oversight by a lay-chaired Board with a wider remit.

The new Board structure will bring together the work currently performed by the Lay Observer, the independent Appointments Committee and a number of Council committees.

The new structure will encompass all of the key features of the current arrangements, such as independent disciplinary and regulatory committees open to members of the public. They will simply be overseen by the new Board, which will report to Council - in place of the Lay Observer - on the fairness and impartiality of the arrangements.

One of the principal drivers for putting a clearer and more streamlined set of arrangements in place has been the suggestion that ACCA has perhaps not gained the recognition it has deserved for innovating in the regulatory governance area. The new Board will provide clearer lines of oversight and will help to demonstrate more effectively to stakeholders that ACCA's regulatory and disciplinary arrangements are operated at appropriate 'arm's length' from its other activities.

The proposed Board structure is not, however, just about better presentation. The change will also see further substance added to ACCA's regulatory and disciplinary governance arrangements. To this end, the Board will have a lay Chair and a majority of lay members appointed. A number of Council members will also serve on the Board.

Full implementation of the proposed changes is dependent on ACCA members approving bye-law changes at the 2008 AGM. In the meantime, a 'Transitional' Board (comprising a number of lay individuals currently involved in ACCA's regulatory and disciplinary processes, plus members of Council) is in place to advise on the development of the new structure and to plan a smooth transition from the current arrangements.

If all goes to plan, the new arrangements will add substance to and will also further enhance ACCA's reputation as an innovative and effective regulator.

Peter Large is ACCA's executive director of professional standards.