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Failure to investigate HBOS audit process ‘a serious mistake’ – Tyrie

  • 14/12/2015
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Failure to investigate HBOS audit process ‘a serious mistake’ – Tyrie
Chairman of the Treasury Select Committee Andrew Tyrie MP has urged the Financial Reporting Council (FRC) to revisit whether an investigation into the auditing process behind failed bank HBOS should be carried out.

In a letter to the FRC, which regulates the UK’s accounting, audit and actuarial professions, Tyrie criticised the decision not to undertake an investigation into auditors at KPMG, branding the shortcomings of the audit process as ‘serious’.

KPMG worked as HBOS’s auditor in the run up to the 2008 financial crisis, and was criticised for signing off risky loan books in the years leading up to the bank’s collapse.

Reports published by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in November recommended that former senior managers at the bank should face a ban from working in the financial services sector. Prior to the publication of its report, the FCA said it was powerless to pass on any fines to those involved in wrongdoing due to the time taken to complete the investigation, which was launched three years ago.

Tyrie said it was ‘essential’ that the FRC proceeded with an investigation in the interest of public confidence.

“The shortcomings of the audit process were serious. As a result, parliament’s specialist advisers concluded that the circumstances surrounding the audit, conducted by KPMG, deserved ‘thorough scrutiny by the FRC’,” he wrote.

“In the course of the investigation by the regulators, the FRC was invited, but turned down, the opportunity to launch an investigation into HBOS’s auditor. That was a serious mistake. Given the findings of the full report, the accompanying report by Andrew Green QC into enforcement and the report of parliament’s specialist advisers, confidence in the audit process will have taken a knock.”

In another letter to the Institute of Chartered Secretaries and Administrators, Tyrie highlighted the issue of poor record keeping at the bank, which has already been identified in recent reports concerning HBOS.

Tyrie wrote: “A major area of concern was the poor state of HBOS’s Board minutes. This matters. It was HBOS’s Board that set the bank on a course of uncontrolled growth. More accurate and detailed Board minutes could have provided the regulator and parliament’s independent reviewers with the material needed better to assess how the Board came to its decisions – including whether the non-executive directors were performing their roles to the required standard,” he added.

“The public need to be assured that the seriously deficient minute taking practices of HBOS, exposed by this report and that of the TSC’s [Treasury Select Committee] specialist advisers, will not be repeated. Banks, particularly large banks, carry considerable conduct and prudential risk.”

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