Commenting today on the report of the Parliamentary Commission on Banking Standards, the Chartered Institute of Internal Auditors (IIA) welcomed the report's focus on increasing accountability and improving control in the banking sector.
Dr Ian Peters, Chief Executive of the IIA said: "This incisive report goes to the heart of why the banking system in the UK came so close to collapse. Blurred lines of accountability combined with poor controls presented a major threat to the banks and must be the focus of reform in the banking sector. The report recognises that internal audit must play a central role in that reform and we welcome its recommendations to support that role"
The Commission's report criticises the banks for blurring the 'three lines of defence' against risk and failing to ensure clear lines of accountability. It concludes that "officers in risk, compliance and internal audit have lacked the status to challenge front line staff effectively" [para 20].
It recommends that preservation of internal audit's independence should be 'the responsibility of a named individual non-executive director, usually the chairman of the audit committee' and that 'dismissal or sanctions against the head of internal audit should also require the agreement of the non-executive directors' [paras 133 and 741].
The IIA has commissioned an independent committee to produce a new code of practice for internal audit in banks and the financial services sector. It will report shortly and will address the Banking Commission's recommendations regarding the role and status of internal audit directly.