What is it about?
This paper highlights how the role of the external auditor has evolved over the years in respect of regulation and supervision of banks. As an efficient system of accountability would also help prevent regulatory capture, the issue of accountability will also be discussed. A consideration of developments leading to the adoption of a single regulator in the UK, will illustrate how the type of regulator can contribute to knowledge of how the external auditor can assist the regulator. Furthermore, not only does this paper consider how the introduction of the FSA has improved transparency and accountability within the banking regulatory and supervisory system, but also the claim that the external auditor could further employ his expertise to help the regulator avoid regulatory capture.
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Why is it important?
This is important in order to illustrate why the systems and structures of financial regulation are crucial to addressing and mitigating new forms of risks that have evolved with a changing financial environment.
Perspectives
Even though the FSA's tenure resulted in reduced reliance on external auditors, risk based supervision has become an important factor in bank regulation - as well as in respect of the financial sector (and particularly the securities sector) - as typified by Securities Financing Transactions (SFTs) - which have prompted the need for introduction of leverage ratios, supplementary leverage ratios - as well as enhanced supplementary leverage ratios over the years since the GFC occurred.
Prof Marianne Ojo
Northwestern University
Read the Original
This page is a summary of: The External Auditor's Role in Bank Regulation and Supervision: Helping the Regulator Avoid Regulatory Capture, SSRN Electronic Journal, Social Science Electronic Publishing,
DOI: 10.2139/ssrn.1407193.
You can read the full text:
Resources
Facilitating Artificial Intelligence and Block Chain Systems, Partnerships and Technologies: Emerging Global Actors and Players in the Financial Reporting Framework
This resource highlights developments that have taken place over the years - impacting the financial environment. It also illustrates the facilitating role of automation in respect of audits, internal controls and the financial reporting framework.
The External Auditor's Role in Bank Regulation and Supervision : Helping the Regulator Avoid Regulatory Capture.
The incoming Labour administration in 1997 caused a stir when it gave the Bank of England additional monetary policy powers but removed the Bank’s powers to regulate banking. Up till 1997, banking regulation had been the function of the Bank of England while other areas of financial services had been regulated by bodies such as: The Securities and Investment Board (for investment business) and the Department of Trade and Industry (for insurance). Section 21 of the Bank of England Act 1998 effectively transferred banking supervision to the Financial Services Authority (then known as the Securities and Investments Board). This paper amongst other objectives, aims to explore how the Financial Services Authority ( the FSA) as a regulator, could benefit from the expertise of the external auditor as a middleman, to avoid regulatory capture. As an efficient system of accountability would also help prevent regulatory capture, the issue of accountability will also be discussed. A consideration of developments leading to the adoption of a single regulator in the UK, will illustrate how the type of regulator can contribute to knowledge of how the external auditor can assist the regulator. Furthermore, not only does this paper consider how the introduction of the FSA has improved transparency and accountability within the banking regulatory and supervisory system, but also the claim that the external auditor could further employ his expertise to help the regulator avoid regulatory capture
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