Financial services careers: rising tide of regulation

It’s shaping up to be the year of regulation as well as recession, with the government introducing a new regulatory framework in response to the banking crisis.

Earlier this month the government unveiled its long-awaited financial white paper, seen as the biggest shake-up in the regulation of the City since it came to power in 1997.

The plans have received a mixed reaction from the City. But experts say that the increase in financial regulations is likely to be good news for accountants as financial firms strengthen their compliance departments, boosting demand for advisory work and providing opportunities to work more closely with regulators.

Steve Ingham, chief executive of recruitment consultancy Michael Page, recently told the broadsheets: ‘There’s going to be more compliance and regulation, there will be fewer people in the risky areas. That’s good for us because we specialise in compliance and risk.

When I hear about more regulation, I think good – more accountants.’

IT system development, internal audit and risk assessment and knowledge of international accounting standards, such as IAS 39, which sets out how to value financial instruments, will all come in focus under the new regime. Regulators will rely on accountants to help police the new regulations.

Richard Thorpe, accounting and auditing sector leader at the at the FSA says: ‘Page 89 of the Turner Review sets out our intention to look more closely at banks’ accounts and we are significantly increasingly the resources we have internally. We have a number of vacancies for accountants and also expect to work much more closely with banks and other firms’ auditors.’

He outlines what skills he is looking for from accountants. ‘It’s technical expertise primarily,’ says Thorpe. ‘The people we will be looking for will be looking very closely at banks’ accounts and will be talking to supervisors who are non-specialists, so they need to be able to explain the issues.’

In particular, the FSA is looking for accountants with the ability to sift through annual accounts and compare how financial companies account for financial instruments, such as derivatives, or how they calculate ‘loan-loss’ provisions.

Thorpe adds: ‘One of the themes of the Turner review is that market discipline is an important part of our regulation and the most important document that combines market discipline is the annual report.

‘We want people who can delve into to the annual report and pick out issues that are in the accounts that would be useful as a way for our supervisors to engage with the firms.

It’s thematic work. Increasingly, we are saying “let us look at the firms we regulate against their peers”, because that’s how the market looks at them.’

A financial firm that interprets an accounting rule differently from its peers is not necessarily doing something wrong, but regulators need to be aware of variations in the market, he says. ‘Why are they making different assumptions from their peers? Things that are different are interesting and therefore worth pursuing.’

Risk assessment

Meanwhile, firms are under pressure to improve their assessment of risk; another trend that is likely to mean more business for accountants.

Under section 166 of the Financial Services and Markets Act 2000, the FSA has the power to order an external agency – often an accounting firm – to conduct a ‘skilled persons report’. This involves visiting a company to see if any systems or rules have been breached and if further regulatory action is needed.

Thorpe says he expects to use accountants ‘a lot more’ for skilled persons reports.

Accountants interested in working in compliance in financial services have lots of opportunities, but they can improve their prospects by researching how the City operates, says Iain Coke, head of the financial services faculty at the ICAEW.

‘What we find from talking to a lot of banks is that they will recruit people who are technically quite good but, when they move into the banking, they often build up their knowledge after they join,’ he says.

‘People who have IT knowledge could move towards more of the systems development type of work, working with the software people. And we may well see increased internal audit requirements. As we are likely to see stronger regulation we may well see regulators pushing banks to spend more time and effort making sure they have complied with the requirements. Internal audit is one way of doing that.’

The big accounting firms have been expanding their regulatory advisory departments over the past few years.

Many are reluctant to publicly acknowledge that more regulations will swell their profits, but, in a statement, Deloitte says: ‘As the enforcement teams at the FSA and SFO [Serious Fraud Office] focus on prosecuting breaches of law and regulation, we would expect there to be an increase in demand for the services of forensic accountants – both in terms of assisting with investigations but also in terms of helping clients to assess their risks and risk management frameworks.’

‘A good example is the area of bribery and corruption where many institutions are taking the time to re-assess their business models and operations to help mitigate against this risk and are using the services of forensic and risk consultants to do just that.’

Business scrutiny

businesses, management accountants will also be spending more time on compliance work.

Richard Mallett, director, technical development at CIMA , says internal audit and risk management will be particularly important as the new regulations kick in. ‘There is a tendency… to over-scrutinise when things are going badly.’

He adds that management accountants need to ask difficult questions and predict worst-case scenarios, such as how a business would cope if it lost a major contract. ‘You need to think about strategic risk.’

Regulation Overhaul

Financial white paper, July 09

Key announcements include: a new ‘super-regulator’ called the Council for Financial Stability. The council will regularly bring the Chancellor, the FSA chairman and the Bank of

England governor together to decide whether to impose tougher regulations on banks.

The white paper announced requirements for companies to set a bigger ‘capital cushion’ to protect themselves from future downturns and for company boards to monitor business risks more effectively.

In March, the Turner Review signalled a ‘major shift’ in the way the FSA will monitor issues, including calculation of the economic reserve cycle, the valuation of assets using ‘fair value’ and loan impairment provisions.

The Treasury Committee has recommended the FSA should meet bank auditors more often to help the City watchdog spot potential problems in the market at an earlier stage.