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

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’

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

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

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

‘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

‘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

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.

Related reading

PwC office 2