EU heads of state urge reform of IASB

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11 Nov 2008

The heads of state or government of the EU member countries met in Brussels on 7 November 2008 to discuss a coordinated EU response to the credit crisis.

The meeting was also, in part, preparation for the upcoming Meeting of the G20 heads of state in Washington on 15 November. In their Report of the EU Leaders' Meeting (PDF 101k), the leaders reaffirmed their resolve to 'devise long-term ways of reforming the international financial system'. The leaders also agreed that Europe should introduce a set of 'principles on which to build a new international financial system' for discussion at the upcoming G20 meeting. The principles are:
  1. No financial institution, no market segment and no jurisdiction must escape proportionate and adequate regulation or at least oversight
  2. The new international financial system must be based on principles of accountability and transparency.
  3. The new international financial system must allow risks to be assessed so as to prevent crises.
  4. Give the IMF a central role in a more efficient financial architecture.

Relating to principle 2 above, the EU leaders said:

2. The new international financial system must be based on principles of accountability and transparency.

  • Transparency of financial transactions must be ensured by means of a more comprehensive information system, which no longer omits vast swathes of financial activity from auditable, certifiable accounts.
  • Arrangements conducive to excessive risk-taking must be overhauled, particularly debt securitisation procedures and pay policy.
  • Both prudential and accounting standards applicable to financial institutions will have to be revised to ensure that they do not contribute to creating speculative bubbles in periods of growth and make the crisis worse at times of economic downturn.
  • Standards bodies, in particular in the area of accountancy, will have to be reformed to allow a genuine dialogue with all the parties concerned, in particular prudential authorities.

The EU leaders also urged that the G20 adopt 'adopt the principle of convergence of accounting standards and review the application in the financial sector of the fair value rule in order to improve its consistency with prudential rules'.

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