Industry response

Reporting on regulatory capital: choices for assurance

Our response to an ICAEW discussion paper

Summary

We have seen no demand from external users for building societies’ capital reporting to be subject to greater assurance.  Building societies are owned by their members so do not have external investor pressure in the same way banks do.  ICAEW itself reports that in 2010  it found “little demand for regular assurance on bank capital ratios or capital information.”  

While we consider there are only questionable benefits for greater assurance for those institutions on the operation of the IRB approach (the design of IRB is excluded from proposals) – and even then, only on an ad hoc basis – an extension to those on the standardised approach is excessive under any circumstance.   Advisory firms lack the definitional knowledge to judge which exposures fall into what categories.  If anyone had to do the work, far better internal audit teams that do this work already as part of their audit of prudential reporting.  There is no reason why institutions should pay for this service twice.
 
The proposals will generate additional costs for building societies on the standardised approach, and deliver no tangible benefits.  For most building societies, the capital calculations are fairly straightforward and articulated well in the ICAAP, which is itself in most instances subject to an internal audit using a co-sourcing arrangement with one of the Big 4 advisory firms.  There may be an ad hoc assurance requirement for those firms on IRB that have a more diversified lending portfolio.  But such a need can be met through the existing section 166 regime. 

Click here to read our full response.

Members and associates will find more information on the policy brief.