Hi °C | Lo °C The City watchdog has threatened to step in and regulate the way high street banks report the state of their finances, if the industry's "tough new code" fails to lift investor confidence.
The UK's seven largest lending institutions, including Barclays, HSBC, Lloyds and Ulster Bank's parent Royal Bank of Scotland, have committed to a new code for financial reporting disclosure, drawn up by the British Bankers' Association.
The BBA said the banks will draw up their annual reports for 2009 according to the new guidelines "as part of their ongoing efforts to ensure disclosures continue to provide the market with high quality, decision useful information about their financial positions".
The Financial Services Authority (FSA) included the code as part of a discussion paper released yesterday.
The consultation invites comment on the BBA's draft code as well as on the introduction of a mandatory standard disclosure template for all UK banks, should the code be inadequate.
A spokeswoman for the FSA said: "We will look at the annual reports when they are published, and judge whether the BBA's code is sufficient. We will decide whether it needs to be transplanted by more detailed disclosures."
Paul Chisnall, BBA executive director for financial policy and operations, is backing the code to "provide users of financial reporting with more useful and meaningful information than one size fits all FSA disclosure templates which, by their very nature, will only have limited relevance to the business models and mixes of each institution".
The draft rules are part of the response to Lord Turner's review over a regulatory response to the global banking crisis, in March.
He identified investor confidence in financial reporting was low, despite several overhauls to the rules since 2008. "Investors were having problems reading and understanding what they were seeing in annual reports," a spokeswoman for the FSA said. "We knew there was a need for simplification."
Paul Sharma, FSA director of prudential policy, said: "In the Turner Review we set out our view that the financial crisis had raised questions as to the adequacy of financial disclosure by banks throughout all the major economies and the level of confidence that investors could place in their financial reports.
"The tough disclosure code published today puts UK banks further ahead of the game internationally in addressing these concerns."
