Senior Sponsorship Essential for IAS 39 Compliance to Succeed, Says New Research

Urgency of regulations understood by company leaders, but reality check needed on involvement in compliance projects

LondonNew research on leading financial institutions from NetMarkets Europe and sponsored in part by SAP UK has revealed that inertia and lack of support amongst senior management towards IAS (International Accountancy Standards) 39 has the potential to be a major impact on business.

The research highlighted that the comprehensive and complex requirements of IAS 39 make senior sponsorship of the project critically important because effective IAS compliance involves the entire organisation. Such a wide-ranging commitment is generally only possible and executed effectively with clear leadership from the top.

Lloyd O’Keefe, Business Development Manager, Financial Services, SAP UK commented, “The IAS 39 compliance project is one of the most important issues facing banks and financial institutions in the next year. This research indicates that significant steps need to be taken to confront and change the mind-set of financial institutions that believe IAS 39 is mainly an accounting problem for the finance department. In reality, IAS 39 will impact all areas of the business – risk management, solvency ratios, hedging policy, investing and financing policy. Clear signals and commitment from the top will encourage adoption throughout the business and allow adequate allocation of resources.”

The research also cited that efficient and effective IT systems are integral elements to any IAS 39 implementation programme, and 50-65 percent of overall IAS budget allocation should be attributed to IT. Full integration of IT in the implementation programme will result in the creation of robust systems able to capture all requirements of the standard. Furthermore it will be important to have major interrelationships with other major projects such as Basel II and financial institutions should dovetail implementation where appropriate.

Lloyd O’ Keefe added, “It is vital that banks look at its systems requirements for IAS project implementation in the context of the overall management process – getting suitable people and cash resources so that the right IT solution can be put in place. Internal technology staff in many organisations are already employed on other projects and would need to be reallocated. Furthermore IAS projects must not be subordinated to other ones and neither overlooked because it is considered too expensive. After all a short term ‘cheap solution’ will in the longer term be more costly”

Other Key Findings of the Research:

External communications: The importance of explaining the impact of IAS 39 to investors, analysts, and stakeholders is imperative. Investor expectations should be managed as soon as possible to minimise surprises to post implementation.
Internal communications: The need to involve the entire organisation in its implementation highlights the importance of providing a training package, with the emphasis on common understanding of the standard on business.

Notes to Editors:

The research was carried out among Business Decision Makers within key banks and financial institutions including Abbey National plc, Barclays Bank, Bristol & West, Britannia, Merrill Lynch, Nationwide, Northern Rock, Portman Building Society, Royal Bank of Scotland, Standard Chartered bank and West LB Panmure. NetMarkets Europe carried out fieldwork and analysis. In addition to SAP UK, Atos KPMG Consulting and Sun Microsystems were part sponsors of the research.