Andrew Tyrie has written to Stephen Haddrill, the chief executive of the Financial Reporting Council, asking how the regulator decided on the terms of reference for its inquiries into KPMG’s conduct and whether there will be independent oversight of the FRC’s work.
The FRC said two weeks ago that it was considering an investigation into whether KPMG or its partners committed misconduct when signing off the accounts of HBOS, which almost collapsed in 2008 at the peak of the financial crisis.
The regulator made the decision after taking into account a scathing official report into HBOS’s failure published in November. The FRC considered investigating KPMG’s judgments on HBOS’s bad debt provisions in 2013, but decided not to proceed.
The FRC’s preliminary inquiries will examine whether KPMG was correct in allowing HBOS to be classed as a going concern in its 2007 accounts and whether threats to the bank’s viability should have been included in the financial statements. The FRC will use the information gathered by its enforcement chief to decide whether to launch a full investigation.
In his letter, dated 3 February, Tyrie asked Haddrill why the FRC is looking at these two elements instead of conducting a wider review of KPMG’s work for HBOS. He also asked if there was scope for the review to be broadened.
Tyrie asked Haddrill whether there would be an external monitor of the FRC’s inquiries, as there was for the Financial Conduct Authority’s long-delayed official report into HBOS. He also requested a deadline for reporting of the FRC’s findings and asked at what stage in the process the FRC decided not to launch an investigation in 2013.
“The process by which the FRC has reached this decision, as well as the approach it plans for its preliminary enquiries, both raise a number of concerns,” Tyrie wrote. “The Treasury committee will be keeping a close eye on the progress of these inquiries and the extent to which they are able to command public confidence. It is likely that the committee will want to take evidence from the FRC.”
Tyrie has been a thorn in the side of the FRC over its decision not to hold KPMG, one of the big four auditors, to account over the HBOS affair. He wrote to Haddrill in December after the HBOS report was published, demanding that the FRC re-examine its decision not to investigate KPMG.
HBOS, which traded as Halifax and Bank of Scotland, was forced to ask shareholders for £4bn to strengthen its finances in April 2008, two months after its accounts for 2007 gave it a clean bill of health. The bank almost imploded in September 2008 and was rescued by Lloyds in a government-engineered takeover. The combined bank was bailed out by taxpayers a month later at a cost of £20bn.
Tyrie said: “I have written to the FRC to seek assurances about the scope, independence and rigour of these initial inquiries. The committee will be watching the FRC’s work closely. Given the shocking delay in initiating this work, a less than thorough job would be inexcusable.”
The official report into HBOS’s failure, and a separate review of decisions taken by the now-defunct Financial Services Authority, has reopened questions over the bank’s near-collapse. Last week, the FCA said it would re-examine the role of the bank’s former bosses, who could be barred from working in the City.
This article was written by Sean Farrell, for theguardian.com on Wednesday 3rd February 2016 11.45 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010