Large audit firms can help banks avoid future meltdowns by meeting the
Financial Services Authority regularly to discuss ‘systemic’ risks facing the
industry, according to one of the profession’s most senior figures.
Last month, a report by the Treasury select committee into the causes of the
banking crisis called for the FSA to meet bank auditors more regularly to better
supervise the banking industry, which has been rocked by bank collapses,
multi-billion pound losses and government bail-outs.
The Treasury committee said the City watchdog’s ‘piecemeal approach’ to using
auditor knowledge about individual banks was a ‘wasted opportunity’ to improve
the effectiveness of bank supervision.
Before the introduction of the Financial Services Authority in 1997 bank
auditors had regular discussions with Bank of England officials.
Peter Wyman, head of professional affairs at PricewaterhouseCoopers, said:
‘One of the advantages of conversations with large [audit] firms is that you get
an overview of a large number of financial institutions. It might give the FSA
an edge and pause for thought.’
‘We need to have a sensible debate about the totality of knowledge audit
firms have about systemic risk.’
Wyman said such a dialogue might help avoid repeating past mistakes.
However, Iain Coke, head of the financial services faculty at the ICAEW, said
it wanted to have ‘ongoing dialogue’ with the FSA, but said the regulator would
need to reassure auditors that they can talk to it in confidence.
Discussions could involve audit partners of a bank or the accounting firm
itself and a supervisor at the FSA, or collective discussions between leading
audit firms and the regulator, Coke added.
One audit partner said progress on agreeing more frequent discussions between
the FSA and bank auditors had been ‘slow’, although a meeting about the issue
had been arranged for the next few months.
An FSA spokeswoman said that it had outlined its position on the issue of
discussions with bank auditors in the Turner report on banking regulation,
published in March.
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