The Treasury Select Committee has lambasted the Financial Reporting Council’s (FRC) decision not to investigate the auditing of HBOS following the collapse of the banking group.
In a review of the report into the failure of HBOS, the select committee said the FRC’s inaction suggested a lack of “curiosity and diligence”.
The report analyses the findings from two independent reports by the committee specialist advisers and QC Andrew Green reviewing the failures of HBOS.
Reviewing the report, Andrew Tyrie, chair of the committee, said: “The regulators failed, both before and after the HBOS crisis. Seven years after the bank’s collapse, we now know just how badly”.
Tyrie criticised the FRC for choosing not to pursue the HBOS auditing in 2013, especially since there was clear public interest at stake. Tyrie said it took “persistent pressure” from the select committee and parliament to “ensure these failures weren’t swept under the carpet”.
Better late than never
“The Financial Reporting Council’s decision not to investigate the auditing of HBOS prior to the completion of the PRA/FCA report was a serious mistake,” said Tyrie,
Tyrie went on to welcome the FRC’s “better late than never” investigation into the auditing of HBOS. However, the report called the watchdog’s late response as “extraordinarily unhelpful” given the scale of the problems at HBOS.
The report expects this investigation, announced on 27 June, to be thorough because the auditing of HBOS has yet to receive “adequate scrutiny”.
The Treasury continued to apply pressure to FRC throughout their investigation into the audit of HBOS. In February, Tyrie again criticised FRC’s delay in initiating work, calling it “shocking” and emphasised that a less than thorough job would be “inexcusable”.
This week, the select committee chair further reiterated this stance, concluding that the committee will be “keeping a close eye on the FRC’s work”.
Also addressed in the report, the committee echoed the Bank of England and the Financial Conduct Authority’s (FCA) report which concluded that the HBOS report should have named employees below the level of the director, believing that less senior members share the responsibility on regulatory strategy.
The committee also used the report to make the case for a new enforcement body, outside of the FCA and Prudential Regulation Authority (PRA) writing that the current system, where the same organisation supervises and prosecutes, is “outdated and unfair”.
“A separate body would bolster the perception of the enforcement function’s independence, and provide the regulators with greater clarity over their objectives. The case for separation merits serious re-examination,” Tyrie said.
Tyrie explained how the failings of Financial Services Authority during the HBOS collapse led to the creation of the FCA and the PRA to build something better. But he concedes that this is still a “work in progress”
