UK banks face tougher reporting rules

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UK banks could be forced to disclose the value of their holdings in officially prescribed detail if they do not meet the spirit of a new reporting code.

The code, published by the British Banker’s Association onMonday, is designed to encourage banks to provide more details and was produced alongside a Financial Services Authority consultation paper seeking comments on the idea of a reporting template.

The code and discussion paper come as regulators wrestle with pushing banks to provide more detail on their holdings while also trying to reduce the complexity of their accounts.

Templates would help investors compare different banks but could risk masking the true picture of their financial situation by shoehorning different businesses into a single format.

Few investors or banks are thought to favour templates but said its inclusion in the FSA’s paper showed the regulator’s intent to force banks to provide more details.

One accounting expert said: “They’re saying ‘templates are an option and we reserve the right to hit you with them if the voluntary approach doesn’t work’”.

Banks’ annual reports improved last year but still came under fire from investors for not providing enough detail on how they calculated some valuations. The UK’s top seven banks have committed to the code, including Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland.

John Hitchins, UK banking leader at PwC said: “This paper should be seen as the FSA’s contribution to an attempt by the industry over many years to sharpen up its disclosures,”

The FSA paper goes into unprecedented detail about what it would expect to see banks include in their annual reports. It calls for greater disclosure of valuation methods and more details on how impairments are calculated, an area expected to become increasingly important as banks continue to report rising loan-loss provisions.

It also contains a tirade against boilerplate reporting, where chunks of identical text appear each year.

Paul Sharma, director of prudential policy at the FSA, said: “When applying this code to their 2009 year end accounts, the FSA expects firms to achieve significant improvement in the quality and comparability of disclosures,”

The paper comes as banks gear up for their year-end accounting and the new requirements could be a further strain on their finance departments.

Tony Clifford, a partner in the financial services practice at Ernst & Young, said: “There is an expectation in this paper that banks will apply the code from this year end.

“Banks do have much of this information and it would not be technically that difficult to produce the rest, but it could prove a nightmare to produce it and get it audited in the available time.”

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