UK investor fears seem overdone, regulator says

It is right that regulators look hard at the UK’s regulatory regime to see whether improvements are needed to prevent a fraudulent attempt to inflate corporate earnings for personal gain, the UK’s chief financial regulator said today.

But UK investor fears nevertheless seem overdone, Financial Services Authority (FSA) chairman Howard Davies told the FSA’s annual meeting in London today. The FSA is the UK’s principal financial market watchdog.

Davies said many investors have been shocked by a series of unpalatable revelations from US companies, in particular.

“Some of the previous comfortable certainties about corporate earnings and the integrity of company accounts have been thrown into question,” Davies said.

The UK cannot afford to be complacent - the prudent assumption must be that similar frauds could happen in Britain, he said.

That is despite UK accounting standards differing from those in the US, with UK accounting approaches often preferable to US ones. There is also a greater degree of independence built into the UK accounting and auditing regime, Davies said. But he added that a paper on options for auditing reform in the UK, to which the FSA is contributing, will be published shortly by the UK Treasury and the Trade and Industry Department.

“But while ‘it’ could happen here, so far it hasn’t,” Davies said. “We do appear to be buffeted by winds from across the Atlantic, rather than by any domestically generated bad weather,” he added

Davies said it was “slightly odd” that the fall in the FTSE 100 index of UK share prices was greater than that of the US Dow Jones index. The Dow has fallen by only 27% from its peak, compared with 40% for the FTSE, he noted.