Auditors (Financial Services Sector) (Hansard, 9 June 1986)

§ Mr. Howard

The work of the supervisory authorities in the financial services sector will be aided if they can develop a relationship with the auditors of authorised businesses. Such a contribution should not involve auditors fulfilling a supervisory role on the regulator's behalf and should not undermine the close relationship which should exist between an auditor and his client. I intend to bring forward amendments to the Financial Services Bill which will seek no facilitate communications between auditor and supervisor, and contribute to the development of an effective relationship between them.

The amendments will enable regulations to be made requiring all authorised persons to appoint an "auditor", whose duties and rights of access to paper and other documents will be defined in the regulations.

The Bill already enables rules to be made requiring accounts and other information submitted to a supervisor by an investment business to be reported on by the auditor of that business. An amendment will be brought forward to enable the supervisor to require a further report to be made by a separate independent accountant, if he is dissatisfied with the initial report.

I have given especially careful consideration to the definition of those circumstances in which an auditor should be expected to report on his own initiative to a supervisor.

In the light of this consideration and of the many representations which I have received from the profession, I have concluded that there should be no general duty placed on auditors in the Bill to report to supervisors. The particular circumstances in which a report should be made need to be carefully defined. I believe that this is best achieved by professional guidance and I look to the professional accountancy bodies, in consultation with the supervisors, to draw up such guidance. But an amendment to the Bill will be brought forward to give the Secretary of State a reserve power to lay down rules obliging auditors to report in certain circumstances to the supervisors. Such a power would be invoked only if suitable professional guidance was not issued. I would not propose that this power would be transferable to a designated agency.

A further amendment will be proposed to provide that no duty which an auditor owes to a company or firm should prevent him from giving information to a 46W supervisor. The auditor will accordingly not be liable for loss suffered as a result of such a report if made in good faith. Nor will he be liable for defamation as such reports would automatically attract qualified privilege.

It will also be proposed that a supervisor should be able to disclose information about a client to its auditor if such disclosure would enable or assist the supervisor to carry out his duties.

I understand that my right hon. Friend the Chancellor of the Exchequer is considering the introduction of parallel measures for banks, as described in the White Paper on banking supervision, Cmnd. 9695, and for building societies.