Independent Ben Chu Deputy Business Editor Friday 20 November 2015
Report details how accountancy giant failed to raise alarm over quality of failed bank’s loan book
The “big four” auditing firm KPMG has found itself under renewed pressure over its role in signing off HBOS’s books in the years before the bank collapsed.
The Bank of England/Financial Conduct Authority report did not specifically evaluate KPMG’s audit, but it did detail how the accountancy giant failed to raise the alarm over the quality of the bank’s loan book, even when it was on the verge of collapse.
“It’s clear from this report that the audit process was an important part of the story of HBOS’s failure,” said Andrew Tyrie, chair of the Treasury Select Committee and the last Parliamentary Commission on Banking Standards.
Mr Tyrie added that he would be writing to the Financial Reporting Council to demand an investigation. A previous FRC investigation concluded there were no grounds for such as probe.
“They will need to consider afresh… that there were no grounds for an investigation of KPMG [and] relevant senior KPMG people,” said Mr Tyrie. He added: “It is surprising that the FRC didn’t conclude, and a long time ago, that this work was needed – not least to provide greater public confidence about bank audits after the catastrophe of 2008.”
In a statement, the FRC reiterated that its previous investigations had not produced any “reasonable grounds to suspect misconduct” by KPMG. But it added that it would review the latest report “to ascertain whether it contains any relevant new information”.
“The evidence in this report demonstrates not just carelessness by KPMG but a reckless disregard for their duty,” the HBOS whistleblower Paul Moore told The Independent.
He said KPMG should have told investors just before the bank’s April 2008 £4bn rights issue that HBOS was only surviving due to special liquidity from the Bank of England. “They never disclosed it to the market. That is a deliberate misrepresentation of a material fact.”
Mr Moore, former head of regulatory risk at HBOS, was dismissed by the bank in 2004. He claims he was sacked by the former HBOS chief executive James Crosby after he warmed about its excessive risk taking and mis-sellling.
His complaints were investigated at the time by KPMG, under instruction by the Financial Services Authority. KPMG concluded HBOS had appropriate risk controls. KPMG also ruled that Mr Moore had lost his job because of a personality clash with Mr Crosby, not because of his warnings.
A KPMG spokesman said the report “has recognised that KPMG provided robust challenge and delivered clear warnings to HBOS, and that this resulted in a more prudent approach to provisioning than would otherwise have been adopted”.