Simplify financial products and boost consumer protection demands ACCA
Confusion over the regulatory role of the Financial Services Authority (FSA), combined with over-complexity of investment products, creates a double whammy of public uncertainty which the UK authorities need to address.
This is the response of ACCA (the Association of Chartered Certified Accountants) to the government’s consultation document on banking reform, financial stability and depositor protection.
ACCA argues that the financial sector’s framework of regulation has become unclear, with uncertainty over what the FSA is trying to achieve, and to what extent it is committed to protecting the interests of consumers.
By EU standards the UK’s depositor compensation arrangements are not over-generous and if this was improved, public confidence in the system might mean that there would not be any repeat of the Northern Rock queues, which would in turn solidify the banking industry.
John Davies, head of business law at ACCA, said: “Public confidence in the banking system has taken a huge knock and the current deficiencies in consumer protection need to be addressed. Fundamentally, the regulatory system should recognise that the relationship of bank and customer is one characterised by trust – customers must have maximum assurance their funds will always be safeguarded. That assurance is currently lacking.”
Other key recommendations from ACCA are:
• simplification of investment products must be urgently addressed
• procedures for paying compensation to depositors must be speeded up
• levels of financial literacy among consumers is too low and options should be explored to increase this
John Davies adds: “There are also critical accounting and internal control issues to consider. Bank valuations of assets are extremely difficult in the credit crisis – the ‘fair value’ system is falling into disrepute when there is no realistic ‘market’ to mark an asset against and this is contributing to the huge write-downs we are seeing. Yet historic cost accounting is no improvement. So we suggest the concept of ‘confidence reporting’ is worth consideration. Banks would give an idea of the degree of confidence they have in the figures they are reporting. Current financial reporting models sometimes lack the subtlety to communicate properly that the numbers in the financial statements are not as certain as they might be.”
Davies concludes: “The role of the audit committees in the governance of banks also needs to be examined as it is questionable whether all the members have the skills and experience to be able to understand the risks currently being incurred. It should be remembered that the law has recently changed and that a high level of skill and care is required by all company directors – executive or non-executive. And the growing complexity of the financial sector means that internal auditors are also under pressure to keep up with the skills and knowledge required.”
- ends -
Notes to Editors
1. ACCA is the largest and fastest-growing global professional accountancy body and has 325,606 students and 122,426 members in 170 countries.
For further information please contact:
Helen Thompson, ACCA News Room phone: 020 7059 5759/07725 498654 e mail: helen.thompson@accaglobal.com