MPs pile pressure on the accounting watchdog and KPMG over HBOS failures

Billy Bambrough
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The Treasury select committee has been looking into the role of auditor KPMG in the collapse of HBOS in 2008 (Source: Getty)

An influential group of MPs have renewed calls for the accounting industry watchdog to investigate KPMG’s role in the collapse of HBOS.

Steve Baker MP, a member of the Treasury select committee, called the auditing of banks by accountancy firms around 2008 “the great uncovered scandal of the financial crisis”.

In last month’s report into the failure of HBOS the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) passed responsibility for KPMG's role in the collapse of the bank to the accountancy watchdog, the Financial Reporting Council (FRC).

Baker told City A.M. he would like to haul the FRC in before to committee to be asked why it decided not to pursue investigations.

Baker said:

I would hope we can get them in for a grilling from the committee as quickly as possible.

In 2013 the FRC decided not to investigate the big four accountant over its auditing of HBOS.

In 2008 KPMG gave the bank a clean bill of health shortly before HBOS had to be rescued by the taxpayer and Lloyds Banking Group.

Andrew Tyrie, the chairman of the Treasury select committee, has this week written to the chief executive of the FRC to begin an investigation into KPMG “without delay”.

Read more: Fall of a giant: A blow-by-blow account of HBOS' collapse

Andrew Bailey, chief executive of the Bank of England's PRA, and Brian Pomeroy, non-executive director at the FCA were yesterday questioned over their report into the failure at HBOS, and what action will now be taken.

The pair were quizzed over the relationship of the financial regulator with the accounting industry, and Bailey said that when he returned to the previous regulator, the Financial Services Authority, in 2011 “a relationship between the FSA and the auditors did not exist.”

Baker has not limited his criticism of the accounting industry to KPMG, claiming the industry should be broadly better regulated, and pointing to the loan loss provision model and mark to market as problematic for auditors gauging the value of companies.

I believe banks are as a result overstating profits and capital and are far more vulnerable as result, Baker added.

The FRC said it has looked to improve the quality of auditing since the financial crisis.

At the heading Bailey and Pomeroy both expressed their agreement with the conclusions Andrew Green reached in his separate report, to investigate further HBOS directors over the bank's failure.

To date only HBOS’ corporate division boss Peter Cummings has been sanctioned. He was fined £500,000 and banned from senior positions in the financial services industry.

Bailey said:

Senior management in any organisation need to take responsibility for a business.”

Bailey did however express his dissatisfaction with the process.

“In the future these reports should all be done by independent people,” he added.

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