During a Treasury Select Committee (TSC) meeting, TSC chair Andrew Tyrie MP said he was ‘flabbergasted’ by the revelation, which he branded as ‘a reverse form of shoot first ask questions later’.
Specialist advisers tasked with reviewing the Financial Services Authority’s (FSA) report, Stuart Bernau and Iain Cornish, said that the Financial Reporting Council (FRC) had chosen not to pursue an investigation into HBOS’s auditor KPMG and its practices, before it had received a final letter from the review team at the City’s regulators.
During the meeting, author of the report into the FSA’s enforcement actions at HBOS, Andrew Green QC, was also questioned. Green repeated concerns that the decision making process at HBOS was ‘materially flawed’ and that former CEO Andy Hornby should have been held to account for presiding over the bank while it conducted risky lending practices.
So far only one member of staff at HBOS, Peter Cummings, has been prosecuted. Cummings was handed a fine of £500,000 and lifetime ban from the FSA in 2012.
Cornish and Bernau, who scrutinised the FSA’s report, highlighted that their findings had taken the best part of three years to complete, primarily due to issues with removing names from the report.
Cornish, who is also chairman of Shawbrook Bank, said there was ‘a lack of curiosity’ demonstrated by the FRC into reviewing the behaviour of big four accountancy firm KPMG. He explained he ‘struggled’ to understand why an investigation was not merited even on a public interest basis.
Bernau told the committee: “My understanding from the review team that were carrying the report out, is that the FRC took the decision not to refer on the matter before they’d received the final letter and bundle of information from the review team from the actual report.”
“So it seems they made a decision early in the process,” he added.
While Cornish was hesitant to point the finger before the matter had been looked at in detail, he noted that there was no evidence to suggest that there had been ‘a diligent process in place’ at the FRC.
In a letter to the FRC published this week, Tyrie urged the accountancy watchdog to revisit the question of whether an investigation into the auditing process behind failed bank HBOS should be carried out. Tyrie said it was ‘essential’ that the FRC proceeded with an investigation in the interest of public confidence, branding the shortcomings of the audit process ‘serious’.