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The future of financial regulation in the US needs to be transparent, innovative and global in order to restore stability, says ACCA (the Association of Chartered Certified Accountants) today in a policy paper aimed at US policy makers called The Future of Financial Regulation in the US.

But the global accoutancy body is concerned that the USA will not be ready for international standards for business, simply because US universities are not equipped to teach IFRS (International Financial Reporting Standards) to accountants.

Offering ten clear recommendations for the USA, ACCA says that new rules should evolve along with the financial services themselves. This means regulating by function rather than institution. International cooperation and global governance reform should also be key considerations.

Paul Costello, head of ACCA USA says: “The emphasis must be on transparency and accountability, with international standards guiding regulators. But these international standards are a problem looming on the horizon. Canada, Japan, China, and South Korea will join Europe in requiring companies to file financial results using IFRS by 2011. The Securities and Exchange Commission has said it will make a decision by 2010 regarding IFRS. If the SEC goes ahead, US companies would have until 2014 to begin using IFRS. But it is unclear whether the new administration will encourage the SEC to accelerate its process and introduce IFRS as part of a reworked regulatory system.”

He adds: “Whatever the SEC decides, US universities and colleges are not equipped to teach IFRS to accountants, and most existing accounting practitioners are unfamiliar with IFRS and have few places to retrain.”

Paul Costello continues: “Many questions remain to be answered as 2009 moves inevitably towards greater regulation of the financial services industry across the world - how do we cope with the increasing complexity of financial markets? How to strike a balance between financial innovation and the management of systemic risks? And what should the role be of global co-ordination of financial regulation?”

Summary of key points
1. Many aspects of financial regulation need to be reconsidered as regulators around the world stand accused of sleeping on watch. Regulatory structures need to be redesigned to increase transparency in the operation of specific markets and financial institutions.

2. The current US financial regulatory system is fragmented and complex.  Federal agencies, numerous self-regulatory organisations, and hundreds of state financial regulators have not kept up with key developments in financial markets and products.

3. Implicit government involvement and tight regulation have been proven not to be a panacea - for example, in the case of government-sponsored enterprises such as Fannie Mae and Freddie Mac. 

4. Regulators are likely to begin considering the sustainability of sectors and business models more broadly, rather than considering single institutions. They may also begin regulating large institutions than cross international borders, as unified entities. It would be productive to use forums such as the Financial Stability Forum to establish common principles for regulation and to allow each country to apply those principles, taking account of domestic circumstances.

5. A key issue is the need to separate the activities of retail (i.e. taking deposits and making loans) from all other forms of banking, although calls for an absolute separation between the two forms are unlikely to be met immediately.

6. The challenge is how to manage beneficial financial innovation without stifling it. Regulatory overbearance can kill innovation, so it is vital that the right balance is struck.

7. The priority is to ensure that existing legislative and regulatory measures are implemented and enforced effectively, rather than reactively rushing through new legislation. In areas such as accounting, being too prescriptive with global measures could backfire. Issuing guidance that result in mechanical rule-following would be a recipe for disaster. Principles-based standard setting and professional judgement have a vital role to play and should not stifle recovery.

8. On US use of International Financial Reporting Standards (IFRS), whatever the Securities and Exchange Commission (SEC) decides, US universities and colleges are not equipped to teach IFRS to accountants, and of existing accounting practitioners, most are unfamiliar with IFRS and have few places to retrain.

9. There are many and various global governance issues that need to be considered, including: the need to improve co-ordination at global level; the design and implementation of a global early warning system which will pick up on future risks to global economic and financial stability and ensure that avoidance measures are taken early; globally accepted standards of supervision and regulation applied equally and consistently in all countries; and effective cross-border supervision of global firms, possibly through international colleges of supervisors; and the need to review the role of international financial institutions.

10. Tax havens are also receiving increased international scrutiny due to the financial crisis, and Obama is likely to join with Brussels and London in regulating these more tightly.

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Notes to Editors
1. ACCA is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. We have 325,000 students and 122,000 members in 170 countries worldwide.
2. ACCA has 11 chapters in US cities, including Boston, Chicago, Houston, Dallas, New York-New Jersey-Connecticut Tri State area, Philadelphia, Los Angeles-Southern California, San Francisco-Northern California, South Florida, Atlanta and Virginia-Maryland-DC.
3. ACCA is an active member of IFAC (the International Federation of Accountants), based in New York.
4. ACCA believes that globalisation of business means that one set of reporting standards is essential. We favour the principles-based IFRS

 

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For further information please contact:

Paul Costello Head, ACCA USA & Canada Email: pcostello@sympatico.ca Tel: 416-466-9115 Cell: 416-270-4004