Pressure is mounting on the accountancy watchdog to launch an investigation into the role of KPMG and former bank executives in the collapse of HBOS.
During an evidence session before the Treasury select committee on Tuesday, questions were repeatedly raised about why the Financial Reporting Council had stepped back from reviewing the role of KPMG in auditing HBOS.
The MPs were also told by Andrew Bailey, deputy governor of the Bank of England, that his predecessor, Sir Hector Sants, bore responsibility for the decision by the then City regulator, the Financial Services Authority, to investigate only one former HBOS banker.
Bailey also said former regulators who wanted to work in the City could be assessed for their suitability to hold positions of authority.
He gave evidence alongside the Financial Conduct Authority’s non-executive director who had led the HBOS report, Sir Brian Pomeroy, and both were asked by Andrew Tyrie, the Conservative MP who chairs the select committee, why the FRC was dragging its feet. Neither had an answer.
This week Tyrie urged the FRC to reconsider whether to investigate and asked the witnesses if they thought the accountancy regulator was “a loose rivet below the waterline”. The FRC has yet to reply formally.
After the meeting, Tyrie said: “The committee has heard some very interesting evidence over the last two days, not least on the role of bank auditing. When it comes to the FRC’s conduct with respect to KPMG’s role in the collapse of HBOS, Lewis Carroll had it right – ‘curiouser and curiouser’.”
John Mann, Labour MP on the committee, said: “These people have wrecked it, the regulators have got away with it, the auditors have got away with it and the only person who appears to have been sacked is Mr Wheatley who was the only person who seemed to take it seriously.”
He asked what the regulator intended to do with its former staff who now have jobs elsewhere. Bailey said: “For those individuals who are ‘approved persons’ [to work in the City] today who are former regulators, then all the evidence that is gathered in this report will be taken into account.”
The regulator has a responsibility to undertake a continuous assessment of individuals’ suitability for their roles in the City, but is not conducting a new investigation into their current roles.
Bailey rebutted criticism about refusing to identify the four individuals within the FSA who decided to focus only on Cummings and said there would be no public interest in revealing their real names.
Any future reports into collapsed banks should be conducted by independent investigators, he added.