Radical new bid to clamp down on scandal in City

Code of conduct will hand more power to internal auditors in the fight against rogues

The internal risk controls of banks and financial firms will be overhauled by a radical new industry code of conduct that aims to prevent a recurrence of the rogue trading and interest-rate fixing scandals that have gravely damaged the reputation of the City of London in recent years.

Internal auditors will be given far greater powers under the new code, and will report to chairmen rather than chief executives to safeguard their independence. A draft version of the new code, which has been drawn up by the Chartered Institute of Internal Auditors (IIA) with input from regulators at the Bank of England and the Financial Services Authority, is published today and promises "significant change" for the internal auditing processes of financial firms.

Among the provisions, which will now go out for consultation, is an explicit requirement for internal auditors to have regard to the reputation and values of the organisation as they go about their work. The code also says auditors should be given free rein to assess the risks being run by any part of the business.

Inspectors should report to the company's chairman, rather than chief executives, in order to guarantee their full independence. According to the IIA, the new code is designed to furnish company boards and regulators with a "benchmark" against which they can judge the effectiveness of internal audits.

Andrew Bailey, director of the Bank of England and managing director of the FSA's prudential business unit, welcomed the draft code, arguing that banks and other financial firms had been guilty of expecting too little of internal audits in the past.

"The regulatory authorities expect firms to have robust internal audit functions capable of providing genuine challenge to management," he said. "I hope that this guidance will help internal audit functions position themselves to achieve that."

Roger Marshall of the IIA, who chaired the committee that drafted the code, said it would help firms establish "proper control" of the risks they are running. "[They] are likely to lead to significant change for some organisations and are likely to affect all internal audit functions of UK financial institutions to some extent" he added.

The City's standing has been severely dented in recent years by a host of activities that should have been picked up by effective internal risk audits. Last week, Royal Bank of Scotland was fined £391m by regulators in the US and the UK after traders attempted to manipulate Libor. This followed a £290m fine for Barclays for the same offence last year. Other scandals have also thrown light on the deficient risk controls in financial firms in the City.

Last year, the FSA fined the Swiss bank UBS £29.7m for "systems and control failings" that allowed London-based rogue trader Kweku Adoboli to lose £1.4bn. The regulator is also investigating how a trader at the London office of JP Morgan lost £6bn last year.

The IIA will be seeking comments on the draft code until April 12.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Client Services Assistant

£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor