Regional banks urged to consider assurance of capital numbers

The Institute of Chartered Accountants in England and Wales (ICAEW) has urged banks in the Middle East to follow its newly published framework for assuring bank capital numbers. The framework aims to deliver confidence in the resilience measures being undertaken by regional banks. Drawn up in consultation with banks, auditors and regulators, the framework can be applied to all regulatory ratios, including capital, liquidity and leverage.

According to ICAEW foreign investors are increasingly looking for their local banks to produce information to comparable international high standards. Capital ratios, which are produced alongside banks’ financial information, are regarded by many as a key indicator of a bank’s safety and soundness.

Iain Coke, head of ICAEW’s Financial Services Faculty, said: “Capital ratios are one of the most important ways to assess a bank’s stability, but they are not audited. It is absolutely crucial that people can have confidence in them. Using this framework would mean the public, regulators and banks themselves can have more trust in these numbers.”

The regulatory ratios framework, which was published in May 2017, sets some overarching principles for providing assurance in a robust way, while allowing flexibility to apply it to most risk types, whether that is operational risk, credit risk or liquidity risk. The framework was carefully designed so it can be applied worldwide, including in the Middle East.

Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA), said: “Most banks in the GCC region are capitalised well above the minimum Basel III regulatory requirements but only a few of them have audited capital ratio numbers. There is still room to improve the banking industry in the region so it can compete on the international stage and attract further foreign investors.”

The ICAEW assurance framework is designed to be modular, to allow users to tailor the scope of assurance work to meet their particular needs, and so it can be used by internal as well as external auditors. Although designed for banks, the guidance could also be applied to other businesses facing prudential regulation such as investment firms.

ICAEW prepared the framework at the request of the UK Prudential Regulation Authority (PRA) in 2014. The assurance framework can be found at http://www.icaew.com/en/technical/financial-services/inspiring-confidence-in-financial-services/banking-regulatory-ratios