Accountancy watchdogs decided not to conduct a full investigation into the auditing of HBOS before they received all the information about the near-collapse of the bank, MPs have been told.
During evidence given at the Treasury select committee on last month’s report into HBOS, MPs were also told it was obvious that Andy Hornby, the former chief executive who now holds a senior role at bookmakers Gala Coral, should have been investigated.
They also heard that Sir Hector Sants, the former boss of the Financial Services Authority, should bear responsibility for the narrow scope of the investigation which led to only Peter Cummings, the former head of the HBOS corporate bank, being banned and fined £500,000 in 2012.
Andrew Green, the QC who scrutinised the decision by City regulators to only take action against Cummings, said: “In the circumstances where you have the CEO of a systemically important bank that fails – and is failing across multiple areas … it seems it’s pretty obvious and in the public interest that he [Hornby] should have been investigated in early 2009.”
Last month, Green concluded it was in the public interest for regulators to widen their investigation beyond Cummings.
Iain Cornish and Stuart Bernau, the two financial experts who acted as independent scrutinisers of the HBOS report, also expressed surprise that the accountancy body, the Financial Reporting Council (FRC), had not investigated KMPG.
Andrew Tyrie, the Conservative MP who chairs the committee, said he was “flabbergasted” after being told by Bernau that the FRC had taken the decision before it had all the evidence. Cornish said it showed a “lack of curiosity”.
Green blamed a “perfect storm” leading to the “misguided and wrong” decision to investigate only Cummings. He said there had been “a real concern within enforcement about losing cases”.
He also said it was “somewhat unsatisfactory” and not in the public interest that the City regulator had prevented him naming the four individuals who decided to focus only on Cummings. The four are named in his report as Ms Williams, Mr Johnson, Mr Smith and Mr Walker – none are real names.
The FSA – whose responsibilities have since been handed to the Financial Conduct Authority and the Bank of England – had argued that only senior individuals should be identified, Green said.
According to Green’s report, Sants had told FSA staff to take a tough stance when considering regulatory action against former HBOS officials but did not know that there were grounds for a full investigation into Hornby.
“Somebody was taking their eye off the ball,” said Green, referring to the communication between Sants and the FSA’s enforcement division.
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