“If we are going to prevent another financial crisis or another Libor scandal, it is essential not only that we change the culture in banks but also that the board knows what is going on”, said Ian Peters, the institute’s chief executive. “This code is intended to make sure that internal audit is positioned so that it can be the eyes and ears of the board.”
Internal auditors have traditionally focused primarily on fraud prevention. But there is a growing view that the department should also monitor the way banks measure and manage a variety of risks, including credit risk, market risk and even environmental issues.
Corporate governance experts have also called for increasing the independence of internal auditors by having them report directly to the chairman of the audit committee, rather than through the chief executive.
“Analysis of the financial crisis and more recent problems in the banks emphasises the need for internal audit to be at the heart of corporate governance. To enable this, all parties with an interest in the governance of financial institutions need more specific guidance on the role of internal audit”, said Roger Marshall, who will chair the code committee.
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