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ACCA calls for principles-based approach to avoiding future financial shocks
Financial regulation across major capital markets must be overhauled only after a comprehensive review of the factors which contributed to the global financial crisis, says ACCA (the Association of Chartered Certified Accountants) in an international policy paper published today.
The report, The Future of Financial Regulation, urges global authorities not to rush to introduce heavy-handed regulation. Instead, it calls for joined-up action involving governments, regulators, companies and other stakeholders to ensure lasting improvements which will address both the current problems and anticipate future threats to the integrity of the financial systems and broader economy.
Helen Brand, chief executive of ACCA, says: “We have spoken to chief financial officers, auditors and financial regulators from all the major capital markets and have produced a set of recommendations and principles which we hope will provide authorities across the world with a blueprint for regulation. It is important that governments co-ordinate their approach to restore confidence in the markets, though we are clear that this does not equate to a 'one-size fits all' policy.
"It is vital that the apparent failure of 'light-touch' regulation does not become synonymous with a victory for rules over principles. The most important issue is not so much the description of the system, but that all parties understand and respect the purpose of regulation and that effective enforcement takes place. And those being regulated - banks and other businesses - have a crucial role to play in establishing a workable system."
Amongst the report’s conclusions are:
· Competition: Governments and national authorities should regard the promotion of healthy competition in the market place as a top priority. Policy must be geared to preventing the creation of institutions which are 'too big to fail'. This is anathema to effective regulation. Competition of ideas also benefits regulators and the welcome sharing of knowledge and best practice between countries should not extend to uniform requirements being adopted regardless of local market conditions.
· Systemic approach: the regulatory system must take wider macro-economic factors into account and this should complement more effective monitoring of capital and leverage ratios of individual institutions. All relevant entities should be brought into the regulatory net. It is also crucial that regulators have sufficient numbers of staff with first-hand knowledge of their industries.
· Governance: Financial institutions, encouraged by regulators, should adopt ethics-based corporate cultures on issues like remuneration which aim to ensure they act in the long-term interests of their stakeholders. The weaknesses in corporate governance and risk management practices shown up by the crisis must be addressed, with a specific review of whether the presence of non-executive directors on a company board remains an effective means of exerting supervision over the executive in large and complex institutions.
· Accountability: The accountancy profession must consider ways of making the processes of financial reporting and auditing more useful to shareholders. Enhancing the quality of reporting on risk is key here. But accounts must continue to be geared principally to shareholders rather than regulators.
For further information please contact:
Helen Thompson, ACCA Newsroom +44 (0)20 7059 5759 +44 (0)7725 498654 helen.thompson@accaglobal.com
Ainul Ibrahim Manager, Business Development and Communications +603 2713 5051 ext 17 ainul.ibrahim@my.accaglobal.com