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This article was first published in the September 2016 UK edition of Accounting and Business magazine.

One of the many things that was badly explained in the UK debate on whether or not to remain in the EU was where regulation comes from. In the world of accounting, auditing and financial stability, it doesn’t come from the EU but from bodies based in London, New York and Switzerland, and run by people from every continent – except Antarctica. 

Drill down into an organisation such as the International Accounting Standards Board (IASB) and you find that seats are allocated on a broad geographic basis. The latest proposed composition of the IASB (comment deadline 15 September) is four members each from Asia/Oceania, Europe and the Americas, one from Africa and potentially one ‘at large’. Europe means wider Europe, of which the UK will always remain a part. The Financial Stability Board (FSB), based in Basel, has 70 members from central banks and finance ministries in 24 countries (from Argentina to Turkey) and 12 other international organisations.

While the geographic breakdown is interesting, more important are the characteristics needed to be influential within these supranational bodies. 

The first is to have capital markets that are open to international companies, financial institutions and investors. This is why the US, as the world’s biggest, influences financial reporting and banking regulation even though it does not accept anyone else’s standards wholesale. London continues to lead the Global Financial Centres Index, compiled by the consultancy Z/Yen, followed by New York, Singapore, Hong Kong and Tokyo.

The second characteristic is substantial experience of, and expertise in, standard-setting and the professions that link regulators to the regulated. This is why countries including Australia, Canada and South Africa are well represented. Also important is the international training reach of bodies such as the ACCA.

The third is to use these credentials to get onto the boards, standing committees, taskforces etc, that develop the rules. Lord Turner, when chairman of the UK Financial Services Authority, played a leading role in the international response to the financial crisis as chair of the FSB’s Standing Committee for Supervisory and Regulatory Cooperation. Mark Carney, governor of the Bank of England, is the current FSB chairman. 

The fourth is that it often pays to show initiative at a national level when action is needed. The US, UK and Switzerland front-ran the tightening of bank regulation post-crisis. At a more micro level, the UK is now a testbed for the development of auditors’ reports. Whatever works will attract international attention and feed into
rule-making. Indeed, the UK should be proud of the international influence it has long exerted.

Finally, if push comes to shove over which version of standards to adopt, the UK should pick the international version. The 2006 Companies Act stipulates that quoted companies should follow IFRS ‘as adopted by the European Union’. At present this is helpful because of the importance of equivalent regulation in retaining access to the EU market. But if the EU refused to endorse a standard like IFRS 9 (hopefully very unlikely), the UK should amend the law. Having standards at least as high as the EU’s should be a non-event compared with the really tricky issues of free movement of people and budget contributions. 

And if the EU really wants to develop its capital markets, it will do so in the context of global capital flows, not in the narrow sense of EU membership.

Jane Fuller is a fellow of CFA UK and serves on the Audit and Assurance Council of the Financial Reporting Council