Auditors will have an increased role to play under the UK's Prudential Regulation Authority in a bid to boost the new watchdog's oversight of financial institutions.
The responsibility of third parties will be expanded under the PRA to improve the information the banking regulator will receive, as it aims to maintain system-wide financial stability.
"Auditors will play an important role in this respect, because they can identify and alert the regulator to potential weaknesses in a firm's controls and quality of financial data, which underpin the information used to supervise firms," said the PRA's deputy chief executive Andrew Bailey on Thursday.
Speaking at a conference in London where the PRA's future role was explained, Bailey stated that regular contact would be kept between the auditors of large firms and the authority in order to boost the PRA's understanding of current and future risks to the business.
This approach would boost both audit effectiveness and prudential supervision, he said.
The conference was also attended by FSA chief executive, and chief executive designate of the PRA, Hector Sants, and the Bank of England's deputy governor of financial stability, Paul Tucker.
Taking questions from the audience, the trio acknowledged that a decision has not yet been taken surrounding the five-step supervisory framework in which all banks will be placed.
Defined officially as a proactive intervention framework, this will see all banks being positioned on a sliding scale from one to five by the regulator, depending on the risk profile of the institution. Level one is the lowest risk profile on the scale with level five as the highest.
Should the PRA decide the risks facing a bank have increased, it may move it further up the scale. Moving the bank to a higher stage will increase the possible supervisory measures that could be used to help a firm recover from its problems.
It will also require strategies to be devised to make the resolution of the firm easier, ensuring an eventual wind-down could be kept as orderly as possible.
The regulator has not decided whether it will publicly publish which stage it has placed institutions at because it is fearful that this will place a greater pressure on the untested recovery and resolution plans it must file, Bailey said.
This is because markets knowing about a regulator's worries could refuse to do business with it, pushing the bank further up the risk scale.
In turn this would require a bank to initiate more short-term measures detailed in its recovery and resolution plans; while these are aimed to steady a firm's position, the impact of implementing these plans are unknown and could result in negative consequences.
"If you precipitate the thing you can't deal with [the recovery and resolution plans], you would be criticised for it," Bailey remarked.
Sants acknowledged that the regulator would have to be "very careful" in balancing issues of transparency and financial stability towards possible disclosure.
Bailey had earlier stated that the bank's resolution plans would have to "at a minimum" demonstrate that the bank could pay.
Source: http://www.gfsnews.com
The responsibility of third parties will be expanded under the PRA to improve the information the banking regulator will receive, as it aims to maintain system-wide financial stability.
"Auditors will play an important role in this respect, because they can identify and alert the regulator to potential weaknesses in a firm's controls and quality of financial data, which underpin the information used to supervise firms," said the PRA's deputy chief executive Andrew Bailey on Thursday.
Speaking at a conference in London where the PRA's future role was explained, Bailey stated that regular contact would be kept between the auditors of large firms and the authority in order to boost the PRA's understanding of current and future risks to the business.
This approach would boost both audit effectiveness and prudential supervision, he said.
The conference was also attended by FSA chief executive, and chief executive designate of the PRA, Hector Sants, and the Bank of England's deputy governor of financial stability, Paul Tucker.
Taking questions from the audience, the trio acknowledged that a decision has not yet been taken surrounding the five-step supervisory framework in which all banks will be placed.
Defined officially as a proactive intervention framework, this will see all banks being positioned on a sliding scale from one to five by the regulator, depending on the risk profile of the institution. Level one is the lowest risk profile on the scale with level five as the highest.
Should the PRA decide the risks facing a bank have increased, it may move it further up the scale. Moving the bank to a higher stage will increase the possible supervisory measures that could be used to help a firm recover from its problems.
It will also require strategies to be devised to make the resolution of the firm easier, ensuring an eventual wind-down could be kept as orderly as possible.
The regulator has not decided whether it will publicly publish which stage it has placed institutions at because it is fearful that this will place a greater pressure on the untested recovery and resolution plans it must file, Bailey said.
This is because markets knowing about a regulator's worries could refuse to do business with it, pushing the bank further up the risk scale.
In turn this would require a bank to initiate more short-term measures detailed in its recovery and resolution plans; while these are aimed to steady a firm's position, the impact of implementing these plans are unknown and could result in negative consequences.
"If you precipitate the thing you can't deal with [the recovery and resolution plans], you would be criticised for it," Bailey remarked.
Sants acknowledged that the regulator would have to be "very careful" in balancing issues of transparency and financial stability towards possible disclosure.
Bailey had earlier stated that the bank's resolution plans would have to "at a minimum" demonstrate that the bank could pay.
Source: http://www.gfsnews.com
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