[LONDON] Draft European Union rules requiring accountants to tell regulators about problems they uncover at banks are likely to be far costlier than expected and difficult to apply at global lenders, a hearing heard on Tuesday.
The EU's European Banking Authority (EBA) has proposed the bloc's first formal guidelines on how regulators and auditors of the biggest banks must maintain an "effective dialogue" to spot problems early by meeting at least once a year.
The guidelines, due around the end of this year, supplement a new EU law prompted by banks being given the all clear by auditors only months before taxpayers had to bail them out in the 2007-09 financial crisis.
But Chris Spall, a seconded partner at KPMG, one of the world's so-called Big Four accountants, told Tuesday's EBA hearing that the watchdog's proposals could be complicated by auditors being subject to confidentiality rules covering parts of a European bank that are outside the bloc.
The EBA has estimated the cost of an annual meeting between an auditor and a regulator, which already takes place in some form in most EU states, at 5,400 euros (US$5,800).
However, Mr Spall said that if a regulator asked for an in-depth look, it could cost 100,000 euros or more because data from a bank's operations across the world could be required.
The proposed guidelines aim to help regulators to check that banks comply with a tougher accounting standard from 2018, which forces lenders to make provisions for bad loans much earlier than they do at present.
The EU provides legal protection for accountants on disclosures to regulators that could breach confidentiality, but Alisdair McIntosh, a policy director at the Chartered Institute of Internal Auditors, asked the EBA to publish examples of how such challenges could be addressed. "This will be an exercise in learning by doing," McIntosh said.
An EBA official said that regulators across the world have agreements with each other on information sharing.
The Bank of England has proposed its own version of the EU guidelines, which allow for it to request a closer look at some parts of an audit, such as loan-loss provisioning.
The EBA guidelines are the latest example of how regulators are taking a closer look at accounting after the financial crisis raised doubts about the willingness of auditors to challenge what banks tell them.
A senior UK lawmaker has called for a formal investigation into how KPMG checked the books of HBOS before the bank's collapse in 2008.