The Role of External Auditors in Bank Supervision: A Supervisory Gatekeeper?
The International Lawyer, Summer, 2013 (Forthcoming)
Posted: 21 Nov 2012 Last revised: 26 Nov 2012
Date Written: November 19, 2012
A recent response to the financial crisis has been to reinvigorate the use of external auditors in financial regulation. The UK Prudential Regulation Authority and Financial Conduct Authority are to use external auditors in a more systematic way than was the case with the Financial Services Authority. The use of external auditors is not new. This paper evaluates the UK experience and international use of external auditors in bank supervision. It suggests the current UK approach is of a first-tier order and does not go far enough in explaining how external auditors in bank supervision will be used, and this could lead to a possible expectations gap in banking supervision. To overcome the expectations gap, the paper proposes some further ideas from international experience to improve the way we use external auditors and manage the different roles and interests such auditors have in a twin private and public role. It is suggested these second-tier issues would go some way to improve how external auditors are used in bank supervision; to better coordinate intense-judgement based supervision between the regulator-bloodhound with the auditor-watchdog.
Keywords: bank supervision, financial crisis, external auditors, regulation, gatekeepers
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