New EC proposals for improving corporate
governance in the financial sector include introducing a stricter
duty for auditors to flag anything serious to boards and
supervisors.

The EC ‘green paper’ also suggests
investigating whether auditors should have an enhanced role to
check risk systems.

This enhanced role would be in addition to a
planned review by the EC of auditors’ existing role.

Institute of Chartered Accountants in England
and Wales financial services faculty head Iain Coke said interim
findings from the institute’s stakeholder research shows that many
believe that auditors could play a bigger role in risk
reporting.

“However, it is fundamental that this
exploration of the auditor’s role does not create an expectation
gap between what auditors can and cannot achieve, especially as
regards to predicting future economic events,” Coke said.

“More may need to be done to explain what the
audit process entails and what goes on behind the final audit
report, including the discussions between auditors and audit
committees.”

 

Crisis response

The EC green paper forms part of its work to
strengthen the financial system and prevent future financial
crises.

The full list of proposals in the paper
are:

  • Limit the number of directors’ memberships in
    boards;
  • Require more expertise on boards;
  • Widen the ‘fit and proper test’ to include
    evaluation of expertise and individual qualities of
    candidates;
  • Enhance the role of supervisors in the review
    of corporate governance structures;
  • Mandate risk committees at board level tasked
    with setting policy on risk appetite to be disclosed publicly
    through a risk statement;
  • Strengthen the legal liability of directors
    via an expanded ‘duty of care’;
  • Strengthen the authority of the risk
    management function potentially giving the chief risk officer equal
    standing to the CFO;
  • Regulate or restrict stock options and golden
    parachutes;
  • Separate the functions of the chairman and
    the CEO;
  • Put in place a stricter duty for auditors to
    flag anything serious to boards and supervisors, and to look at
    whether they should have an enhanced role to check the risk
    systems; and,
  • Mandate that institutional investors publish
    their voting and engagement policies and records, and adhere to
    stewardship codes.

The consultation is open until 1
September.