A plea not to rush to heavy-handed regulation is at the heart of a recent policy paper by the Association of Chartered Certified Accountants (ACCA). While recognising the need for a simpler but more effectively enforced regulatory system that can adapt and evolve with changes in the financial market, the paper calls for joint action from governments, regulators, companies and other stakeholders to ensure lasting improvements. Based on research with chief financial officers, auditors and financial regulators from all the major capital markets, including Hong Kong, the ACCA has produced a set of recommendations and principles that it hopes will provide authorities across the world with a blueprint for regulation. The ACCA report reaches four main conclusions. First, with regards to competition, it advises governments and national authorities to regard the promotion of healthy competition in the marketplace as a top priority. Second, it advocates a systemic approach that should take wider macroeconomic factors into account and complement more effective monitoring of capital and leverage ratios of individual institutions. To ensure a more systemic approach for Hong Kong, the city's financial services regulators - the Securities and Futures Commission, Hong Kong Monetary Authority and the Insurance Authority - have to be prepared to work more closely with overseas regulators, according to Jack Chow, audit partner with KPMG in Hong Kong. 'More participation in global financial markets has exposed our financial institutions to risk that is not necessarily regulated under our jurisdiction,' he said. 'We have to have confidence in other regulators and assess how our local financial institutions can work together with their overseas counterparts.' The report's third conclusion was that financial institutions, encouraged by regulators, should adopt ethics-based corporate cultures on issues such as remuneration, aiming to ensure they act in the long-term interests of their stakeholders. Lastly, the paper stated that the accountancy profession must consider ways of making the processes of financial reporting and auditing more useful to shareholders. It said that enhancing the quality of reporting on risk was key but accounts must continue to be geared principally to shareholders rather than regulators. 'When we prepare a set of financial statements, we have so many stakeholders in mind. Accountants are concerned about providing a true and fair view, but this isn't necessarily as important to the regulators,' Chow said. 'I agree that accountants should work on making the information more useful to shareholders, but we can't do it alone. 'We have to work together with the regulators.'
