On 20-21 October 2002, the FSF hosted a Roundtable discussion on weaknesses in market foundations and the reforms underway to address them. A wide range of market practitioners and professionals, regulators/supervisors, standard-setters, and academic participated in the Roundtable discussion, for which an issues paper and a compendium of recent initiatives were prepared.

Amongst the main points made in the discussion were: 

  • Many factors contributed to the erosion of internal and external discipline that led to recent corporate governance and reporting failures. Amongst these, the asset price bubble and its nexus to management remuneration played an especially important role in eroding governance standards and dulling judgment all around. 
  • Reforms need to recognize complex interdependencies amongst the incentive structures that underpin the various checks and balances in the system.
  • Well-targeted, balanced, “bite-sized” reforms may be better suited to take account of these interdependencies than “big” changes in individual areas.
  • Restoring confidence in the quality and integrity of external audits is regarded as the single most critical element in reestablishing trust in the financial reporting framework. 
  • The role that international coherence in reform efforts can play in contributing to the restoration of confidence in markets should not be underestimated. 

There is a need to guard against creating expectations that reforms lessen investor responsibility for due diligence and investment decisions. Some challenges for the financial reporting framework (e.g. complexity) will not abate even with reforms.