Audit reform makes rate fixing harder

INTERNAL auditors at leading banks must now report directly to an organisation’s board in an attempt to stop bad news being blocked by senior management, regulators announced yesterday.

The decision – taken by the Basel Committee on Banking Supervision – helps plug a gap highlighted by the £290m of fines levied on Barclays after the bank was found to have manipulated the Libor interest rate.

Changing the rules should also make it more difficult for board members to ignore what internal auditors say or claim they were not told about key developments.

“An internal audit function, independent from management and composed of competent auditors, is a key component of a bank’s sound governance framework,” said Stefan Ingves, chairman of the committee.

Setting out 20 principles of internal auditing, the new document places additional pressure on directors.

“The bank’s board of directors has the ultimate responsibility for ensuring that senior management establishes and maintains an adequate, effective and efficient internal control system,” it states.