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The Global 100: Raters & Regulators

The most influential central banks and financial regulators in the world.

17Jun

(Editor's note: This is part of a larger story on the 100 most important and influential people, ideas and organizations in finance. To view the rest of the "The Global 100," see the box accompanying this story.)



European Central Bank

The youngest central bank in the world, the ECB is also the second most powerful. Created in 1998 to first oversee the transition of its 12 member nations to the euro, the ECB's role now is to set monetary conditions and key interest rates in participating countries. Its ultimate goal, of course, is for the euro to give the dollar a run for its money.


At the ECB's helm is Willem "Wim" Duisenberg, the former head of The Netherlands's central bank, who has guided the bank — despite several verbal blunders — through a very difficult transition period for itself and Europe. As one economist recently noted, "The one thing that is essential for a central bank's success is establishing credibility. Despite his many critics, Duisenberg has contributed markedly to this end."


These days, with the transition completed (euro bank notes and coins were introduced in January), Duisenberg, 67, is most concerned with curbing inflation, which is expected to average 2 percent this year. And as the EU slowly recovers economically — the ECB is looking for growth of about 2.5 percent this year — he is making plans to retire in July 2003.


Who the next president will be is not certain, although it definitely will be a Frenchman. Jean-Claude Trichet, governor of Banque de France and a current member of the ECB, is said to be first in line, provided he isn't sucked into a fraud case related to his previous life at Credit Lyonnais. Otherwise Christopher Noyer, an ECB vice president known for his consensus-building, may get the nod. Noyer's term, however, expired last month, and ECB rules may prevent him from returning to the top post.



China
Laura Cha
Vice Chairman, China Securities Regulatory Commission


In trying to scrub China's securities markets, the 50-year-old, U.S.-educated Cha has grabbed a dragon by the tail. Her recent anticorruption efforts included China's first-ever stock delistings, several major fraud crackdowns, and new audit requirements for domestic IPO prospectuses. It doesn't help that China's two major stock market indices each fell more than 20 percent last year after rising more than 50 percent in 2000. The only market open to foreigners, the B-share market, is particularly sickly, with nary an IPO in more than 18 months, and daily trading volume at about 10 percent of last year's activity. But Cha's track record — she cleaned up Hong Kong's stock market — and her recent comments about giving foreigners broader investment opportunities in China have won her the confidence of many foreign investors.



United Kingdom
Sir Howard Davies
Chairman, Financial Services Authority


In shepherding the consolidation of 10 banking, insurance, and securities industries overlords into one superregulator, the 51-year-old Davies has recently brought oversight of stock-exchange listing standards under the FSA's domain. With the power to levy unlimited fines on any noncompliant company, he initially used this position to spotlight Reg FD-style corporate disclosure laws. But that created such a stir in the industry that he had to promise not to "take scalps," and decried lawyers' dire warnings as "high-priced, high-octane nonsense." But make no mistake: if the former central bank official doesn't end up replacing current central banker Sir Edward George when he retires next year, Davies is likely not only to scalp a few executives, but also extend his reach to encompass such standards as auditor rotation and independence as well.



United States
Robert Herz
Chairman, Financial Accounting Standards Board


Yes, we know that Herz doesn't take office until next month, but by the nature of his new position at the rule-making body he qualifies for the list. In fact, with the foibles of generally accepted accounting principles causing many to question the very existence of FASB, Herz will have all sorts of fires to put out when he takes over.


Many say the 48-year-old native New Yorker is the ideal candidate for the task. Known as a consensus-builder, the former PricewaterhouseCoopers senior partner brings technical expertise, particularly in derivatives and fair-value issues, to the job, as well as some serious international savvy, including UK GAAP certification and a year on the 14-member International Accounting Standards Board. He'll lean on the IASB to sort out the treatment of stock options, and may even try some imports at FASB. "I think some of the standards developed internationally could be applied to the U.S.," he says. "I see it as a two-way street."



United Kingdom
Mary Keegan
Chairman, UK Accounting Standards Board


A yacht-racer in her spare time, the 49-year-old Keegan is enthusiastically steering UK companies toward international accounting standards compliance — and also championing her own national standards; namely, a tough new pension accounting regime that doesn't allow for smoothing. Right now, it's just UK companies like GlaxoSmithKline that are feeling battered, but many say the standard is likely to spread across the globe, given the former PricewaterhouseCoopers partner's deep ties to other influencers. IASB head Sir David Tweedie, for instance, was the architect of the pension standard as Keegan's predecessor at ASB, and new FASB chairman Robert Herz, a fellow PwC alum, recently co-authored a book with Keegan arguing for better disclosure of intangible assets.



IASB

Arguably the greatest beneficiary of U.S. GAAP's recent humbling, this nascent 14-member board is toiling to reconcile national accounting standards from around the world with international accounting standards (IAS) created by its predecessor, the International Accounting Standards Committee. While full convergence is a long way off, IASB chairman Sir David Tweedie's insistence on putting the most sacred cows on the block first is already putting the scare into U.S. CFOs. Of the nearly 300 comment letters on IASB's stock option treatment, for example, the majority are from U.S. finance executives pleading for the American way to be adopted. Pension smoothing, currently allowed by FASB but not by its UK equivalent, is likely to be another incendiary topic.


Tweedie, a feisty Scot who made his name building up the UK's Accounting Standards Board in the 1990s, typically pushes for progress over consensus at the monthly, multiday meetings — a style that rankles some members. Japan nearly withdrew its liaison, PricewaterhouseCoopers subsidiary partner Tatsumi Yamada, on the IASB's decision to eliminate pooling (and Tweedie's pointed declaration that mergers of equals did not exist, even in Japan).


More conflicts are almost certain. Warren McGregor, liaison to Australia and New Zealand, is already well known as a vocal critic of FASB's lease-accounting methods, which are likely to be the starting point for the IASB's rules. Members are all over the map on accounting for derivatives, a project that the UK standards-setting board is spearheading (or stalling on, as U.S. liaison Jim Leisenring has charged). European countries, meanwhile, are struggling to hold on to the current IAS, since they are already obliged in principle to convert to those standards by 2005. In other words, don't hold your breath waiting for the revise.



Belgium
Baron Alexandre Lamfalussy
Chairman, Committee of Wise Men


EU regulators are not known for speed — after all, it took them 20 years to create a central bank. But they are moving faster, thanks to the 72-year-old Lamfalussy, chairman of the so-called Committee of Wise Men and an author of its influential 2001 report on developing a pan-European market. By goading his colleagues about the superiority of the markets in the United States, and setting the project on a "fast-track" schedule, Lamfalussy may succeed in pushing the EU to hash out a framework by next year. If it flies, companies would be able to use the same prospectus to raise capital in any EU country. By 2005, they could also trade continent-wide via a single exchange listing. If the project tanks, however, it may be another 20 years before a pan-European market is achieved.



European Commission
Mario Monti
EU Commissioner, Competition Policy


Everybody's favorite villain after he blocked the General Electric/Honeywell merger last year, Monti has continued his international interloping — but to much more favorable reviews from the U.S. business community. So far this year, he's dropped an investigation into Intel, unconditionally OK'd the controversial Hewlett-Packard/Compaq deal, and pressed to consolidate all European national merger examinations into his office — a move that business lobbyists applaud for its efficiency. Plus, the 59-year-old Italian promised a report by year-end that will illuminate the EU's mergers-and-acquisitions guidelines for executives and lawyers. So is Mario a superhero? Don't bet the ranch on it — the next player up is Microsoft.



United States
Leo O'Neill
President, Standard & Poor's



United States
John Rutherfurd
CEO, Moody's Investors Service


Perhaps the only organizations complaining that they have too much influence, the ratings agencies are still reeling from pulling the trigger on Enron, whose demise highlighted the dangerous practice of using rating triggers — obligations set in motion by a downgrade — in financial covenants. Both agencies decried the use of triggers. Moody's warns of "mutual assured destruction" for borrower and creditor from the practice — it now figures the presence of triggers into its rating analysis. S&P is more cautious, noting that lowering a rating because a rating trigger exists presents a bit of a chicken-or-egg paradox. Despite their protests, the quasi-regulatory powers of ratings agencies continue to grow, as ratings are used by both the private sector and government regulators to define everything from financial-covenant compliance to the risk-adjusted capital that banks must hold against loans.


Ratings agencies don't seem to mind all the trappings of power. Both now offer to provide a rating judgment before a company makes a major financial move — for a price.



United States
Harvey Pitt
Chairman, Securities and Exchange Commission


Hoping to initiate a "kinder, gentler SEC" — a phrase he's come to regret — Pitt has been forced instead to demonstrate a tougher approach to enforcement. As former chief counsel for the accounting firms in their battle with his predecessor Arthur Levitt, the 57-year-old Pitt must step delicately between the auditors and Congress in the post-Enron environment. So far this year, the SEC has opened nearly three times the number of financial fraud cases it handled last year, and brought others to dramatic conclusions, including a record $10 million fine for Xerox, with ongoing probes into the company's executives and auditors (KPMG). Pitt has requested a $15 million budget increase for staffing, partly earmarked for enforcement, and his recent reporting pronouncements are bulking up annual reports. The question now is whether he, too, will become a casualty of Enron.



European Commission
Karel van Hulle
EC Head of Financial Reporting and Company Law


Convert — or else! That's the key message this Belgian lawyer, aka Mr. International Accounting Standards, has the task of promoting to EU companies. Although a regulation requiring mass conversion to IAS by 2005 has been approved by the European Parliament, individual members are arguing that the EU should wait for the International Accounting Standards Board to conclude its efforts before making any changes. Van Hulle, a single-market zealot, will have none of it — he won't even entertain the idea of extending the deadline. "Financial reporting will continue to develop; the art of communication must not drown in its wake," he wrote in a recent article. So much for that excuse; on the side, he's even pushing for the Securities and Exchange Commission to accept IAS from foreign companies listing in the United States.

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