AN MP has told a hearing into the HBOS scandal that he was “flabbergasted” that the FRC had failed to launch a formal investigation into KPMG’s work as the collapsed bank’s auditors.
Andrew Tyrie, who chairs parliament’s powerful Treasury Select Committee, has long campaigned for the audit and accounting watchdog to reassess the case for a probe into the Big Four firm’s auditing of HBOS in the interests of public confidence.
Tyrie’s exasperation was made after he heard from two specialist advisers appointed to examine the issues surrounding the bank’s fall from grace.
Stuart Bernau, a non executive at Metro Bank and ex-CEO of Chelsea Building Society, said: “My understanding from the review team is that the FRC made their decision to not make a referral and before they received the final bundle of information from the review team from the actual report.”
This happened in November 2013, said Bernau.
His fellow special adviser Ian Cornish, chairman of Shawbrook Bank, said the FRC’s decision not to ask for more documents from the Bank of England’s PRA and FCA for a discussion “struck us as quite shocking really – just a lack of curiosity, apart from anything else, given a situation of such obvious public interest”.
He said he “fully appreciated” that the FRC was now “reviewing its final decision” but it would be “very disappointing” if it “reached the same conclusion without at least doing a lot more investigatory work”.
“I struggle to see why, and on what basis, at least an investigation can’t be merited – even on the public interest test.”
Tyrie said he was “flabbergasted” at the disclosure and dubbed the FRC’s judgement as “a novel way of going about deciding whether something is worth having a look at”.
Cornish added that there “seemed to be enough in what we did see to suggest that it had not been most diligent of processes.
The FCA and PRA report, which covers the years between 2004 and 2008, found that HBOS had “kept its auditors under pressure” in an attempt to keep the provisions for bad loans down and tried to defend impairment figures which were later increased to levels that KPMG viewed as “just within the acceptable range”.
The 500-page tome, which took over three years and £7m to compile, revealed that the bank’s management took an upbeat and optimistic view of the funds it had set aside to cover possible bad loans, a scenario flagged up on several occasions by KPMG.
The FRC has agreed to review the decision not to investigate KPMG.