Q186 Chairman: Sir David, 'spineless' and 'caved in'. Answer?

Sir David Tweedie: I think we experienced something that, I hope, firstly, we never see again in standards setting, but I think there was just a blunt threat to blow the organisation away. That came very, very rapidly. We heard a speech by the Commissioner saying that he had legislation prepared to have a 'carve out' from part of our standards. They cannot put words in at the moment (though I suspect that might be thought about); they can only remove words, and what that would mean was they would be able to transfer out of things like the trading account into some other account – held for maturity, or whatever else – without any controls whatsoever. So companies could have taken items out of that, not at fair value, as we require, but they could have taken them out at original transaction price, for example. There were no disclosures; you would never know what had happened, and suddenly we would see all these losses flowing back in, if they did not think they had been impaired on a permanent basis. I think accounting in Europe would have been totally out of control if they had used the option to take the 'carve out'. Our problem was we originally intended to have at least a week to find out whether, in fact, we had managed to get our standards equivalent, as far as reclassification is concerned, with the United States. We did not have a week; we had only a matter of days. What we did is we contacted the American standards sector, the Securities and Exchange Commission in America, and the major accounting firms, and say: 'We think we have done it here. Is that right?' However, when we put it through – we put it through on the Monday and, if I remember rightly, the European Commission voted on the Tuesday or Wednesday – we had no time whatsoever for consultation. We explained at that meeting: 'If we find we have made a mistake, we are going to come back again'. In a way, we have got a mistake on the transition. That is what happens when you do not consult.