UK: Treasury Committee calls for radical reform of financial regulation

The Parliamentary Treasury Committee has published a report as part of its inquiry Financial Institutions - Too Important too fail? The report is divided into two volumes - see here (pdf) and here (pdf) - and calls for the radical reform in order that financial institutions face the consequences of their own actions. The Committee states (vol 1, pp. 68-69):

Given the lamentable consequences of the previous regulatory approach, the Government should be prepared to embrace radical change, rather than settling for adaptation to an existing, failed model".

With regard to governance, the Committee has once more expressed its concerns with the value of the external audit process (vol 1, pp. 16-17):

If investors are to assess properly the level of risk they are prepared to take, they need clear and impartial information about the companies in which they invest. Company audits should provide such material, but as we concluded in our Report on Banking Crisis: reforming corporate governance and pay in the City, the current audit process results in "tunnel vision", where the big picture that shareholders want to see is lost in a sea of detail and regulatory disclosures. The recent revelations about Lehman’s use of Repo 105 illustrates the extent to which audit reports can seemingly omit crucial information. We call for progress on our earlier recommendations, to ensure that audit reports are an effective tool for investors".