, and that the senior officers in those roles can speak freely on issues that need to be addressed. audit committee members should have regular time in meetings to talk with the outside auditors without managers present. best practices for audit committee processes have been laid out many times, including in the 1980s by the treadway commission and in 2000 by the blue ribbon committee. beyond that, boards of directors and managers should periodically test where they stand on ethical business practices. for example, they should ask, “ are we getting by on technicalities, adhering to the letter but not the spirit of the law? are we compensating others and ourselves based on our contributions to the organization, or are we taking advantage of our positions? ” my intent today is to remind everyone of the importance of maintaining sound ethical practices to help protect the reputation of your bank. as recent events have demonstrated, if we fail to do so the market will enforce the discipline. and that discipline can be harsh. quality of accounting practices the current framework of financial reporting in the united states effectively represents the performance of most corporations most of the time. indeed the high quality of accounting standards in this country is one critical reason why capital markets are so efficient. but the lessons of the past few months remind us that accounting rules can be bent. for six years i was a member of the emerging issues task force of the financial accounting standards board. this is the rulemaking body that deals with divergence in practice. the eitf ’ s role is to provide timely financial reporting guidance where divergence in practice is developing. in the time i served on the eitf i came to understand that professionals could and did disagree on the best accounting standard to apply to a new type of transaction. that is at the very heart of the struggle to keep accounting standards current. the rapid pace of business innovations makes it impractical to have a rule in place to anticipate every business transaction. rather, the more complex and dynamic the world of business becomes, the more important it is that accounting be based on strong principles that are sufficiently robust to provide the framework for proper accounting of new types of transactions. further, we need to insist on higher professional standards and not permit financial officers and auditors to benefit from “ gaming ” the rules - based accounting standards that are increasing in complexity, particularly in the united states. the core of these basic accounting principles should be professional standards followed by every corporate accountant and every outside auditor that would insist that they can

london is playing the role of asset manager, intermediating flows between different global regions. the investment decision and risk management skills are in london but the assets may be booked elsewhere. allied to the increase in gross financial flows, it is possible that financial markets demand different inputs than in the past. for example, the market for derivatives encompasses more human capital ( in the form of law experts writing contracts ) than physical capital. given the dominance of uk law, this would tend to encourage activity in london. finally, regulatory changes may have played a role. london became the main trading centre for the eurodollar market in the 1960s. the city went through a wave of deregulation in the 1980s and beginning of the 1990s which may have contributed to its position as a global financial centre. all of these drivers are likely to have played a part in concentrating financial market activity in london. and indeed they are likely to have been mutually reinforcing. the social license for financial markets i have described at some length why concentrations of financial services develop and the economies of scale, lower costs and greater efficiency they should bring. in the case of financial markets and financial centres, however, one does have to ask the question, ‘ for whose benefit ’? financial services exist, as we would all agree, to serve the real economy by channeling savings to investment, by providing insurance and by facilitating economic activity and trade. all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx the great financial crisis and its aftermath was a painful reminder, however, of how financial markets, particularly in the international financial centres in which they have become concentrated : - can act to generate and amplify risk, rather than to spread and dampen it, - can become disconnected from the real economy and deflected into ‘ socially useless ’ activity and - can become subject to ethical drift and lose the social license on which ultimately they depend. financial markets currently face many challenges but perhaps none is as fundamental as maintaining the support of society for the functions they perform. meeting this challenge will require them to show that they are fair as well as effective. and as my colleague minouche shafik has recently pointed out, while misconduct in financial markets is older than the south sea bubble, the scale of the misconduct which has emerged since the financial crisis is unprecedented. the magnitude of the fines is indicative of the scale of the problem – since 2008 wholesale market