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The IASB and other relevant standard-setters should take urgent action to improve the accounting and disclosure standards for off-balance sheet entities and to enhance guidance on fair value accounting, particularly on valuing financial instruments in periods of stress, ECB President Jean-Claude Trichet said. “Moreover, the role and uses of credit ratings should be changed, the authorities’ responsiveness to risk strengthened and arrangements for dealing with stress in the financial system implemented.”
In a speech held in Milan, the ECB President set out that under the support of supervisors’ oversight financial institutions should strengthen their risk management practices, including rigorous stress testing.
Trichet noted that the Basel Committee should issue revised liquidity risk management guidelines by mid-2008, and IOSCO should revise its code of conduct for credit rating agencies. Also, meassures to strengthening prudential oversight of capital, liquidity and risk management and enhancing transparency and valuation are to be implemented by end-2008.
Concluding on the constantly changing landscape, Trichet underlined the importance to “establish market-based policy frameworks and to pursue sound domestic policies, while regularly updating the various institutions and forums that form the international financial architecture.”