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FRC advocates for "comply or explain" principle

In a submission to the European Commission the Financial Reporting Council (FRC) claimed the principle of “comply or explain” plays a vital part in promoting best practice in corporate governance.

Responding to the Commission’s green paper on corporate governance the FRC warned replacing principles with a series of prescriptive regulations could suppress enterprise at a time when European economies are hoping to promote economic growth.

In their submission the FRC also called for the system to work better.

The FRC said they keen to promote a dialogue with companies and investors to seek a consensus in the UK market about what constitutes a clear explanation to shareholders if a company strays away from the UK Corporate Governance Code.

“Confidence in Europe’s financial markets will be enhanced if we can ensure that companies are properly accountable to the people who provide their capital. Good corporate governance is thus an integral part of our efforts to ensure that European businesses can raise capital at a reasonable cost to invest, grow and generate jobs,” FRC chief executive Stephen Haddrill said.

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