We need a new regulatory structure that provides for comprehensive and consistent oversight of all elements of the financial system. This includes effective consolidated oversight of all our largest and interconnected financial institutions and oversight of payment and settlement systems. We must make sure that the people doing the regulation have the power and expertise to ferret out and bring to heel regulatory evasion as it occurs to prevent abuse and excess from building up in the financial system. In the end, the gaps, not the overlaps, have been the main shortcoming of our existing regulatory framework. A second fundamental point is that regulatory reform has to ensure that the financial system will be robust and resilient even when it comes under stress so that it will not fail in its critical role in supporting economic activity. No economy can prosper without a well-functioning financial system – one that efficiently channels savings to the businesses that can make the most productive use of those savings, and to consumers that need credit to buy a home and support a family. The fact that our financial system isn’t functioning well right now is part and parcel of our current economic difficulties. This critical link between the “real” and the “financial” is why we care so much about the systemic risks inherent in banking and finance. One critical element of systemic risk is what is known as the “too big to fail” problem.
As banking supervisors, we can leverage off the auditors’ significant experience in testing for the adequacy of an institution’s internal control environment, as we begin to implement this risk-based framework. Second, external audits help to ensure the accuracy of financial statements that are provided to the public, which in turn helps to promote market discipline and foster a safe and sound banking system. Ladies and Gentlemen, Now, I would like to present our experience with external auditors from both the regulatory and supervisory perspectives. First on the regulatory side, the value of this relationship was initially recognized in 1962 when the Commercial Banking Act provides the Bank of Thailand with the authority to accept or oppose the appointment of a bank’s external auditor. Based on this act, the framework for external auditor qualifications and reporting requirements to the Bank of Thailand was issued in 2000, after extensive consultations with the Institute of Certifed Accountants and Auditors of Thailand (ICAAT), the Securities and Exchange Commission (SEC) and other relevant regulatory bodies. Let me provide some specifics on auditor qualifications with respect to our law. First, qualifed auditors must never have had their auditing license revoked or suspended by the auditing licensing body. Second, auditors that are not authorized to audit entities under the supervision of the SEC or other government agencies are not permitted to audit banks. Third, the Bank of Thailand prohibits any external auditors to consecutively serve a bank for more than fve years.