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'light-touch' Reforms Raise Fears Of New Bank Disaster

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* Business * Regulators 'Light-touch' reforms raise fears of new bank disaster

Controversial reforms of major companies' accounts threaten to unleash a new wave of financial calamity, experts have warned.

Proposals by the Financial Reporting Council, the regulator responsible for promoting confidence in corporate governance and reporting, have raised the possibility that the accounts of wholly owned subsidiaries of major banks need not be audited.

The plans appear to indicate that the financial community is intent on returning to the days of light-touch regulation. The City is also resisting demands to create a European financial regulator.

The FRC is asking the financial industry whether subsidiaries should be required to file audited accounts with full disclosures. "Is a more simplified reporting regime more appropriate? Would it be desirable to eliminate the UK requirement to prepare, have audited, and file wholly-owned subsidiary accounts in the case of a parent company guarantee?" it asks.

Critics point out that it was a subsidiary of Northern Rock, Granite, that contained the liabilities that led to the collapse of the bank: Granite owned £49bn of mortgages that were sold by Northern Rock and moved offshore to the tax haven of Jersey. Likewise, a series of banks crashed last year because their subsidiaries loaded up on asset-backed securities that plummeted in value.

Richard Murphy, an influential forensic accountant, said: "We have seen how subsidiaries have led parent companies into liquidation. HMRC and the public should have a right to get high quality audited information on every company. If this goes through, it will mean complex financial transactions will become harder to detect, so tax avoidance will increase."

A senior City figure said: "On the one hand, we're aware of the size and complexity of report and accounts. But on the other, if we abandon audits of wholly owned subsidiaries we are potentially not getting access to important information. We need investors to think carefully which side of the argument we're on, but I don't think we've reached a view."

The proposals are contained in a 16-page document from the FRC entitled, "Louder than Words - principles and actions for making corporate reports less complex and more relevant".

An FRC spokesman said, if adopted, the proposals would require government legislation. He said the FRC was attempting to reform company accounts to make them simpler and easier to understand.

Meanwhile, there are many in the City who are taking comfort from the recent declaration by a leading thinktank, the National Institute for Economic and Social Research, that the recession is over. This, combined with banks paying billions of pounds of bailout money back to governments, and rising equity markets, has buoyed confidence.

Earlier this week, US treasury secretary Tim Geithner rowed back on limiting bankers' pay after he was persuaded that the initiative would see an exodus of Wall Street financiers to Dubai.

A senior fund manager said: "Entrenched vested interests are putting up a sufficiently good rearguard action that they're forestalling any significant changes in the regulatory environment. The general improvement in financial markets is possibly covering up the cracks."

These banking cockroaches hate being in the light, just like their insect equivalent.

Just look at what Geithner and Paulson did over in the states...they allowed these broken banks to re-classify their toxic assets in order for them to start reporting profits again. Sick!

This story, however, is about Gordon Brown's legacy. Corruption.

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