Balls calls for internal audit overhauls

Former shadow chancellor Ed Balls has urged for greater efforts to put internal auditing at the centre of the corporate governance process in the financial services sector.

Mr Balls, who was speaking at the Chartered Institute of Internal Auditors (IIA) annual conference last month, said the move would help ensure the problems of the global financial crisis (GFC) would not be repeated.

However, the Labour Party politician also called on all parties involved in corporate governance to get involved. He argued that regulators, the government and financial services firms have “equal parts to play” in avoiding the same risks that arose in the pre-GFC era.

“The mistakes in the handling of risk pre-2007 were primarily caused by a lack of understanding on the part of regulators, the government and senior executive and non-executive board members over what the real risks to the sector and within individual firms looked like,” Mr Balls stated.

“That kind of knowledge can only come from better regulation, cultural change, effective internal audit and closer co-operation between all stakeholders in financial services.”

The politician, who is currently a contestant on BBC1’s Strictly Come Dancing, said financial services businesses have been collaborating with the government and regulators, but more can be done to improve the process.

Internal audit code review

His comments came after an announcement that an independent review of the code for effective internal audit in the financial services sector was due to occur. The code, which was published by an IIA-established panel in 2013, sets out best-practice approaches to internal audit within the industry.

Mr Balls said the code’s review was a vital component to maximise efforts to boost corporate governance in financial services, as it encourages input from key stakeholders from the City’s risk management teams.

Chief executive of the IIA Dr Ian Peters said more emphasis is already being placed on internal audit in finance due to the code, but the time had come to make changes and attempt to improve industry standards.

Dr Peters said several industry groups have come out in support of the code, including the Bank of England, the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Financial Reporting Council (FRC).

Mike Ashley, chair of Barclays’ audit committee, will head the review committee, which will comprise senior executives and non-executives across the insurance, asset management and banking sectors. The Bank of England, the PRA, the FCA and the FRC will also participate.

A consultation period is currently underway for the code’s review, with the views and opinions of internal auditors, regulators, business leaders and other financial services stakeholders welcomed.

This period will end on November 23rd 2016, with the independent committee’s review recommendations scheduled for issue early next year.

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