MAGAZINE - Realview

REGULATION
Financial regulation:
A blueprint for change
Many have predicted the inevitability of a regulatory surge in the
wake of the GFC, but to date any detail on the desired future
direction of financial regulation has been fairly thin on the ground.
Against this backdrop, the Association of Chartered Certified
Accountants has just released a blueprint for effective change.
Risk management must be paid more than lip service
to protect the Australian economy against future financial
shocks, the Association of Chartered Certified
Accountants (ACCA) has warned.
The comment comes as the ACCA releases the Future of
Financial Regulation report following extensive consultation
with financial experts across its 57 global accounting partnerships.
Significantly, the report provides nine key principles
for regulators, boards and professionals to use as a
blueprint for effective regulation (see opposite page).
“Financial regulation is a global issue and Australia is not
immune to its failings,” says Australian ACCA panel member
Chris Campbell. “While the Australian market has not
been hit as hard as other nations around the world, there is
always room to improve and strengthen the sector against
future financial shocks.”
He believes the three key principles Australia should
look to improve are risk management and internal control,
incentives, and business conduct.
“Australian companies have risk management policies in
place, however, most are not transparent in how these are
governed, implemented and reviewed. Companies need to
elevate the importance of risk management and internal audit
to safeguard against financial threats and corporate failure,”
he maintains.
According to Campbell, adopting ethics-based corporate
cultures on issues such as remuneration and incentives will also
ensure financial institutions continue to act in the long-term
interests of stakeholders.
“Remuneration and incentive schemes should be structured
to match the long-term interests of a company to remain
fair and effective,” he says. “Recent scrutiny of executive
remuneration schemes and boards has demonstrated that getting
it wrong can be detrimental to a company’s reputation
and long-term financial stability.”
Notably, he says organisations should go beyond the
minimum when it comes to disclosure.
“Transparency is imperative to maintain ethical business
conduct. Efforts to improve the disclosure of fee structures
to consumers and increased scrutiny of new financial products
by regulators are examples of how the market is building
momentum towards better regulation and responsibility
to stakeholders.
“The accountancy profession plays a key role in ensuring
the quality of financial reporting and auditing to restore faith
with stakeholders.”
However, some of Australia’s existing regulations are
already in line with the ACCA’s recommendations, such as
“ensuring fair competition in the marketplace”.
“Australia’s ‘Four Pillars’ policy, which forbids mergers
between the Big Four banks, is one example of promoting
healthy competition in the market,” Campbell says. “Regulations
such as these have helped to shield Australia from
the worst of the global economic downturn.”
The Future of Financial Regulation report also warns that
the failure of “light touch” regulation and its role in the
global economic downturn does not mean a “heavy-handed”
approach is the answer.
“Many corporate failures have not been the result of
insufficient regulation, but, rather, inadequate enforcement
of the rules,” Campbell notes. “Authorities need to consider
whether increased disclosure will improve compliance before
making unnecessary changes to regulatory policy.
“The nine principles put forward in the report provide
a blueprint to strengthen regulation. The adoption
of these recommendations will maintain Australia’s position
in the global marketplace for when the market
picks up again.”
20 RISK August 2009