Regulation  

KPMG and FRC in firing line over failure of HBoS

KPMG and FRC in firing line over failure of HBoS

KPMG and its regulator the Financial Reporting Council have come under fire for their part in the failure of HBoS.

Senior members of the Treasury select committee have questioned the role of KMPG in auditing HBoS, as well as the FRC for not having investigated KPMG immediately after November’s joint report by the PRA and FCA on the collapse of HBoS back in 2008.

At a meeting of the TSC on 14 December, Mark Garnier MP for Wyre Forest, suggested the failure of the FRC to explain its decision not to investigate [KPMG] undermined its credibility as an industry regulator.

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Giving evidence, Iain Cornish, specialist adviser to the HBoS review, said: “Our understanding is they (the FRC) didn’t go back to the PRC and FCA and ask for any more documentation or a discussion of any of the material. That struck us as quite shocking.”

Stuart Bernau, specialist adviser to the review, added: “My understanding from the review team is that the FRC decided to not make a referral before they received the final letter, and before they received the bundle of information from the review team from the actual report.”

Andrew Tyrie MP, chairman of the TSC, commented: “That’s a novel way of deciding whether something’s worth taking a look at, isn’t it?”

In December, Mr Tyrie wrote to Stephen Haddrill, chief executive of the FRC, about the findings of the joint report. He also called for a fresh investigation by the accountancy watchdog into KPMG’s role in auditing HBoS to restore public confidence to the audit process.

On 15 December, the TSC interrogated Sir Brian Pomeroy, non-executive director of the FCA, and Andrew Bailey, deputy governor of the PRA, over the HBoS report. MPs called for some of the FSA people alluded to in the report to be named.

Mr Bailey fought against this, telling the TSC: “We decided not to publish the names of junior staff, and need to decide what is in the public interest.” He admitted that there had been a “good deal of criticism over the FCA’s enforcement division”, but added: “Our enforcement investigation work is well underway”.

Right to reply

When the HBoS report was published last month, a KPMG spokesperson said: “It was right that a thorough review was undertaken and we have co-operated with it throughout. We also welcome the FRC’s announcement that it has reviewed the audit work performed on loan-loss provisions and concluded that there were not reasonable grounds to suspect misconduct by KPMG.”

Peter Timberlake, head of communications at the FRC, said: “When the report was published on 19 November, we said we would review the full report to ascertain whether it contains any relevant new information. We are now considering the matter further as we said we would.”