MPs have today slammed the finance industry's watchdogs for their failings in handling the HBOS scandal.
The report from the Treasury select committee criticised the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), and, in particular, the FCA's predecessor – the Financial Services Authority (FSA) – for various shortcomings in conducting their review.
In particular, the MPs highlighted the length of time taken between the collapse of the lender in late 2008 and the publication of the watchdog's report. The committee also panned the FSA's earlier drafts of the report for barely scratching the surface of the problem.
The Treasury committee's report also expressed disappointed that they had been forced to repeatedly prod the watchdogs into action, rather than having them take the case on their own initiative.
The FCA and PRA's report was not published until November last year. The two regulators also revealed they would launch investigations into "certain former HBOS senior managers" at the start of this year.
"The regulators failed, both before and after the HBOS crisis," said Andrew Tyrie, chairman of the Treasury Select Committee. "Seven years after the bank's collapse, we now know just how badly. And not because the regulators showed a spirit to learn the lessons of the past. It took persistent pressure from the Treasury Committee to ensure these failures weren't swept under the carpet."
The FCA and the PRA were not the only watchdogs to find themselves under fire in the report. The MPs called the Financial Reporting Council's (FRC) decision to not to investigate KPMG over its audit of HBOS before the final report from the regulators had been published a "serious mistake" which suggested "a lack of curiosity and diligence" in its processes.
The FRC has since reconsidered its initial decision, announcing last month it would be carrying out an investigation into the big four firm to examine why it deemed the troubled bank to be a "going concern" for the financial year before it had to be rescued by Lloyds.
"Having seen the final PRA and FCA report, the FRC's belated decision to launch an investigation into the auditing of HBOS is welcome," Tyrie added. "Better late than never. The Committee will be keeping a close eye on the FRC's work."
In light of the findings, Tyrie will be writing to Dr Mark Carney, governor of the Bank of England, and John Griffith-Jones, chairman of the FCA, to ask if either the PRA or the FCA will be doing anything to question their independence and review their conflicts of interest policies.
An FRC spokesperson said:
The FRC statement in April 2013 made it clear we would need to see the full report from the PRA and the FCA in order to consider whether there was a case for an investigation under our powers. When we finally saw that report we identified an area of concern, rapidly undertook enquiries which have now led to a formal disciplinary investigation into KPMG's audit of HBOS.
Meanwhile, at the time the FCA and the PRA report was released last November, Andrew Bailey, who was then deputy governor of the PRA, said:
We had the choice to water the report down to get it through [the legal requirements] more quickly – or we could choose to stick to our guns and publish a true reflection of what we believed happened. We chose the latter.
The FCA had not responded to City A.M.'s request for comment at time of writing.