Regulation  

Regulators back report demanding greater auditor freedom

Internal auditors of banks and other financial institutions could be given more freedom to investigate, according to guidance published today (8 July) by the Chartered Institute of Internal Auditors that has been backed by the UK financial services regulators.

According to the CIIA, the new code will provide UK financial services firms with a “sector-specific benchmark against which boards and regulators can assess the effectiveness of their internal audit functions”.

The new code states that the chief internal auditor should have “sufficient standing and authority to challenge the executive”, in line with concerns raised by a report previously published by the Parliamentary Commission on Banking Standards.

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Key recommendations in the CIIA code are:

• the scope of internal audits should be unrestricted so that internal auditors are able to assess the management of any risk in any part of the business;

• internal auditors should assess whether the organisation’s processes and actions are in line with its values, ethics, risk appetite and other policies;

• the primary reporting line of internal auditors should be the chair of the audit committee; and

• internal auditors should be adequately resourced, skilled and quality assured.

Martin Wheatley, chief executive of the Financial Conduct Authority, said: “Internal auditors must be front and centre of ensuring their firm acts with integrity and will be alert to potential risks. Sadly we have seen what happens in both the retail and wholesale markets when the right arrangements are not in place.

“I welcome this guidance which makes clear internal auditors must have the power and confidence to examine thoroughly that products and services are in line with the interests of customers.

“This will play a vital part in restoring the confidence and faith of consumers and the market alike and we are ready to play our part in helping that happen.”

Dr Ian Peters, chief executive of the CIIA said: “The new code gives internal audit the potential to play a much more significant role in supporting better management of risk in financial services organisations.

“The importance of this role is recognised by the Banking Standards Commission and others, including the financial services regulators, who see the need to strengthen internal audit’s independence, role and scope.”