closer co-operation between financial regulators, banks and
auditors in examining the published accounts and accounting
judgements of banks.
The proposals form part of a raft of recommendations to reform
current banking practices that were published in the Turner Review,
authored by UK Financial Services Authority chairman Lord
Turner.
The review stressed the importance of regulation and supervision
being based on a system-wide “macro-prudential” approach rather
than focusing solely on specific firms.
The watchdog said it needed far more intense contact with bank
management and auditors to review and compare accounting approaches
to fair value estimates and loan impairment provisions.
General support
The report has been broadly supported by the UK accounting
industry, although it was met with a mixed response from the
Institute of Chartered Accountants in England and Wales (ICAEW),
which urged against abandoning principles-based regulation.
ICAEW chief executive Michael Izza said the FSA should not
confuse principles-based with light touch regulation. Izza also
said the proposed regulatory requirements should not drive the
content of banks’ financial reports.
However, BDO Stoy Hayward financial services regulatory practice
head Fiona Raistrick said the review was “not be the frightening
paper that many thought it would be”.
The review identified the three causes of the financial crisis:
macro economic imbalances, financial innovation of little social
value and deficiencies in key bank capital and liquidity
regulations.
“Many expected that as a result of these findings… that the
level of regulation would increase dramatically, however, this does
not appear to be the case,” Raistrick said.
Ernst & Young UK GAAP advisory partner Tony Clifford was
also positive, saying recommendations will cause less difficulties
for the accounting industry than some suggestions being made by
other regulators.
