Yacimovich proposes regulating auditing of banks

Bill to be drafted in light of conflict of interest in planned Leumi-IDB bailout; IMF concerned about Israeli oversight.

Yacimovich 521 (photo credit: GIDEON MARKOWICZ / FLASH 90)
Yacimovich 521
(photo credit: GIDEON MARKOWICZ / FLASH 90)
Accounting firms would be limited in the years they can audit a bank, preventing potential conflicts of interest, if a bill proposed Monday by opposition leader Shelly Yacimovich (Labor) and coalition MKs Reuven Rivlin (Likud Beytenu) and Meir Sheetrit (Hatnua) passes.
The country’s major institutions rely on only a handful of companies to audit and oversee their accounts, which can cause problems in two ways. Firstly, a lack of diversified oversight might mean that important issues are slipping through the cracks. Secondly, one firm overseeing multiple big companies may lead to conflicts of interest.
One such conflict of interest, which Yacimovich cited, was between Ganden Holdings and Bank Leumi. Gad Somekh audited both Leumi and IDB group, while the former planned to bail out the latter.
“[Somekh] was unable to properly measure the financial dangers and issues of stability when Leumi’s CEO planned to bail out one of his customers,” the Labor leader said.
In a 2012 report on Israel’s financial stability, the International Monetary Fund cited “group-interconnectedness” as an area of concern in the financial system’s oversight.
Yacimovich hopes that installing time limits for oversight will help bridge these gaps, by forcing big financial institutions to diversify the companies they use for oversight.
“The current system, in which one accounting firm audits four out of five of the large banks in Israel, is twisted,” she stated. “Limiting auditing to these bodies, and the concentration of information about businesses and deals with a few people is a recipe for market failure.”
According to Yacimovich, the situation goes against the public interest, and her bill will fix this “shameful reality.”