War rages over regulation

War rages over regulation

It is unlikely that CIMA can ever rejoin its fellow institutes afterlast week's public savaging of the consultation paper's key proposals.

CIMA last week dealt an astonishing blow to the profession’s plans for a new regulatory regime when it publicly rubbished the proposals put forward by the working party representing the six leading institutes.

The unprecedented break-down in relations between CIMA and the other five institutes – the English, Irish, Scots ICAs, ACCA and CIPFA – came at a press conference last Wednesday to launch the consultation paper containing what was supposed to be the unanimous views of the working party chaired by English ICA vice-president Chris Swinson.

CIMA’s senior vice-president Norman Lyle shocked fellow representatives by using the platform to express his organisation’s doubts over some of the key proposals.

At the often acrimonious meeting, Lyle clashed with a furious Swinson and his colleagues by questioning the working party’s fundamental premise for a Review Board to oversee the regulatory affairs of the profession and to protect the public interest.

Up to last Wednesday, the only publicly-known difference was CIMA’s objections about the future ownership of the Auditing Practices Board.

Under the proposals put forward by Swinson’s team, the integrity of the Review Board would be maintained by an independently-managed Foundation supported by a clutch of external regulators such as the SIB, the Bank of England and the DTI.

The overall cost of running the Board would come up to around u500,000 a year, which to ensure its ‘conspicuous independence’ from the profession it is hoped would be provided at least in part from outside the profession.

Lyle dismissed these plans as ‘overly complex’ and afterwards told Accountancy Age that his institute was worried about the perceived independence of the Review Board. He said: ‘If the Review Board does not get any external funding, then you have got to ask yourself the question is that degree of independence acceptable?’

Lyle said that CIMA wanted the Financial Reporting Council to be given the Review Board’s function. The FRC, set up in 1990 under Sir Ron Dearing, only receives a third of its funding from the profession, with the Government and the City providing the other two thirds. This means that the FRC already has a guaranteed independent source of income besides that provided by the profession, claimed Lyle.

‘The argument is that the FRC is already there. It’s already funded.

It could carry out the functions of the Review Board,’ said Lyle.

CIMA’s stance on the Review is politically astute. It allows CIMA to claim that because it has no interest in regulation as a professional body – unlike the other five which all fulfil a regulatory function – its prime interest is not the preservation of a self-regulation regime, but fighting on behalf of the business community and shareholders for effective oversight of the profession.

But, on a more parochial level, and embarrassingly for all concerned, the messy divorce between CIMA and other institutes is producing a series of private accusations and counter claims about each side’s behaviour that will do neither’s reputation any credit with the Government or the regulators.

The first attempts to discredit each other’s views have already been made with CIMA claiming privately that its doubts about the suitability of the Review Board to take on the public watchdog role had been persistently aired in the working party’s meetings but had failed to find its way into the consultation paper.

Meanwhile, the other five institutes have begun suggesting privately that CIMA’s volteface at the press conference, despite an initial apparent willingness to sign up to the document as long as its objections about the APB were noted, betrayed deep divisions over how it should view the regulatory proposals.

Moreover, CIMA’s critics are now pointing to the changing team of representatives sent by the institute to the working party meetings during the past year as being symptomatic of the management accountancy body’s internal splits.

The original team of Katherine Howard and Mike Jeans was changed to Roger Gray, director of public affairs, CIMA secretary John Chester and vice president Peter Layhe, culminating in the appearance of Norman Lyle at the press conference. This is, of course, hotly rejected by CIMA which says that each team was fully briefed by the other members.

CIMA’s council is meeting before the end of this month to discuss the Review Board proposals and to plan its own strategy.

The APB, the original bone of contention between CIMA and the other five institutes is bound to provide a second battleground. Under Swinson’s proposals, the APB would operate as an independent entity alongside the Review Board, but would be controlled by the Foundation.

Speaking at the launch, Swinson acknowledged that there were ‘strongly-held opinions’ on both sides over the APB, and added that it was important that differences should be ‘aired’.

He insisted: ‘The APB must be seen to be conspicuously independent and that independence is safeguarded by the proposals set out here (in the consultation paper).’

However, in a series of brusque exchanges with Swinson and Scots ICA representative Jim Gemmell (who had produced a separate report looking exclusively into the future of the APB), CIMA’s Lyle claimed that the APB would have a much higher profile sitting alongside the Accounting Standards Board under the aegis of the FRC.

He said the working party’s proposals did not show ‘clear independence’ for the APB. ‘There are a lot of dangling debits there (over the future independence of the APB under the Foundation) concerning CIMA,’ he told the meeting.

Gemmell countered: ‘We are determined that the APB should be independent and we are certain that we have a package that delivers that.’

But Lyle’s assertion that the discussion document had failed to ‘articulate’ CIMA’s position on the APB and confined the institute’s counter proposals in the secondary Gemmell report will prove more damaging to the working party which is keen to show that its proposals were reached with the consent of all institutes. ‘There’s a need to read the two reports together,’ said Lyle, adding that there was a danger that some of the 300 bodies asked to consult might not bother to read the second document.

Lyle’s suggestion that CIMA’s views were deliberately marginalised in the report was rejected by Gemmell who retorted: ‘CIMA’s words were the words CIMA put in.’ Swinson added: ‘I want to be entirely clear about this – the views of the working party are reflected in the report and all of this is represented here.’

Asked if the five institutes had contemplated moving ahead without CIMA, Swinson replied: ‘The bodies and working parties have not discussed moving ahead without CIMA. In the sad event that CIMA is not happy to walk with us then the bodies will have to look at their options but that’s in three months’ time.’

Despite the guardedness of Swinson’s remarks, it is unlikely that CIMA can ever rejoin its fellow institutes after last week’s public savaging of the consultation paper’s key proposals, whatever the outcome of the three-month consultation.

The key issue now is not so much if the six bodies will ever get together again, but how both sides will now plan their campaigns of assault for the support of the 300 bodies which have been asked to comment on the Swinson consultation paper.

Both sides have already begun to make private attempts to woo organisations such as the Stock Exchange, the Bank of England and DTI, whose support will ultimately be pivotal for either side.

The greatest danger facing the five remaining institutes is that their proposals will be undermined by CIMA, which is this week considering launching its own counter consultation document to the same 300 bodies.

In the meantime, both sides are bracing themselves for what is set to be an ugly fight for control of the profession’s regulation.

AccountancyAge Comment

By patently showing their inability to reach mature decisions about such a fundamental issue as future regulation, the six institutes on the Swinson/ Gemmell working party are in serious danger of making a mockery of the profession. After all, how can we as professionals convince powerful regulators such as the Bank of England and the SIB to take our demands for self-regulation seriously when our six lead bodies cannot reach an acceptable compromise?

Whatever the rights or wrongs of CIMA’s arguments, its display last Wednesday showed a political naivete that will return to haunt all future dealings with the other institutes. It’s one thing to ensure that your views are not overlooked by the majority, it’s another to humiliate the five organisations with which you have to deal on a regular basis.

As a sophisticated professional organisation, CIMA must have been aware for the past 18 months that its minority view was in danger of being manipulated by the majority, keen to preserve their stranglehold on regulation. To expect everyone to behave like gentlemen, shows an unwillingness to grasp the basic rules of the game. It should have gone public sooner with its concerns.

That said, it is now essential that the dispute does not develop into a series of damaging accusations against the conduct of both sides. It can serve the profession no good, nor will it add to the constructive debate that CIMA claims it is so keen on. A dignified period of silence by the six is now essential to allow the consultation to take place based on the intrinsic merits of the arguments.

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