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

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.