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March 24, 2009

Report calls for more co-operation

A high-level UK report has called for 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.

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