FSA chief questions convergence

Penny Sukhraj

The agenda to converge international accounting standards with those in the US could prove to be the biggest stumbling block to the banking regulator’s suggestions to limit the use of fair value.

In an interview with «Accountancy», Lord Adair Turner, chairman of the Financial Services Authority, raised concerns over the US Financial Accounting Standards Board commitment to the fair value approach.

«I think we are going to have to think clearly going forward as to how vital the convergence agenda is», – said Turner. – “One of the complexities is the relationship between the engagement with the IASB (International Accounting Standards Board) and the convergence agenda with the FASB, because to be honest, there is less intellectual engagement with the FASB on this, and yet the IASB is simultaneously trying to engage the regulators and central banks in terms of our concerns, while also pursuing a convergence agenda. This is one of the most complicated things to do – we probably need to do far more to effectively open up the debate with the FASB as well as with the IASB.

I do think it may be a debate that we may have to have in the future – about whether the convergence agenda has to take a back seat to getting an IASB standard that everybody can agree that that’s the one that balances these different considerations”, – said Turner.

Earlier in the day, the FSA chief had addressed a gathering of bankers and accountants at the ICAEW, where he highlighted the tension which existed within the regulatory community, amid discussions to resolve banks’ accounting questions over whether accounts were for investors or regulators.

«And indeed the tension exists within the accounting standards-setting bodies, complicating any progress towards the convergence of international accounting standards. The International Accounting Standards Board, under David Tweedie’s leadership, has been sympathetic to the idea that it must be involved in close dialogue with the prudential regulators. The Financial Accounting Standards Board has been more wedded to the ‘accounts are for investors only’ philosophy, and to the philosophy that banks, in their accounting, should be treated no differently from anybody else», – said Turner.

He warned however, that these agendas may come into conflict: «It may be that between the IASB and the regulators, there is a joint point of view on what is a sensible balance on the way forward on the expected loss element within provisioning, readjustment of the coverage of fair value and clearer criteria for that. But the FASB won’t agree to that. The complexity is then, do we go with what we think is sensible or do we go with what enables convergence or do we go with a mixture where there are two systems, but lots of attempts to reconcile. I think that probably will be the way that we’re going to have to end up going».