AUDITORS IN SPOTLIGHT

Having left KPMG with a £3m pay and pension packet, our new regulatory boss has been paid £300,000 a year for a three-day week.

When headed by Griffith-Jones (salary: £2m a year), KPMG produced a report that exonerated the bank for its effective sacking in 2004 of whistleblower Paul Moore – the man who, as HBOS’s head of financial risk, dared to challenge the bank’s strategy, and who has since been vindicated by the parliamentary report. For this, HBOS paid KPMG £1.5m.

Griffith-Jones was also revealed last week to have been present – albeit declaring an interest – at a meeting last September when it was decided that an FCA inquiry into HBOS “would not cover KPMG’s auditing of HBOS”. The FCA said the Treasury Select Committee had discussed this apparent conflict, and was satisfied that there would be a Chinese wall between GriffithJones and the FCA’s HBOS inquiry.

It all still stinks to Moore, who last week called for Griffith-Jones to be sacked. Moore said: “It is impossible for [him] to stay in place, he must consider his position and resign. It is simply no good for him to say, ‘ I am not going to be involved in scrutiny of HBOS’.”

FOR Stewart Hamilton – who also believes that Griffith- Jones should stand down to bolster the credibility of the FCA – the real question is why Chancellor George Osborne, who presumably wishes to restore the credibility of the UK financial system, would sanction the appointment of a seemingly compromised player.

Hamilton said: “I doubt Osborne himself has the experience and understanding to reach good decisions on regulatory matters. I don’t see it as anything more sinister than that.

“It’s typical of a government that tends not to think through the consequences of their actions.”

Hamilton believes that the UK financial sector will not be able to shake off its sickness – directors out of their depth, short-term salesoriented cultures, greed – until cosiness between the regulators and regulated is ended.

Drawing a contrast to the UK, where the most talented potential financial gamekeepers tend to be poached by the industry, Hamilton cites the example of the US, where the Senate has just confirmed a tough ex-public prosecutor, Mary Jo White, to head watchdog the Securities & Exchange Commission.

He also likes the example of Singapore, whose regulator pays top dollar for accounting talent having been burned by the Barings debacle and other reputational disasters.

The HBOS mess and its farcically protracted aftermath show the extent and durability of regulatory capture by the big-bucks banking and accountancy professions.

Were this apparent conspiracy against shareholders and the public to be decisively cleansed, the unreliable judgments of the court of public opinion would count for less. The rule of law could resume its place in our financial system.

Until then, we must live with the fact that Bank of Scotland, shamed by its own collapse, has been shamed again by the bankers’, auditors’ and regulators’ lack of enthusiasm for uncovering the truth, however embarrassing. ALTHOUGH it stoutly defends the selective Financial Services Authority (FSA) report of September 2012 into HBOS, the watchdog’s successor body, the Financial Conduct Authority (FCA), is under pressure to produce a more searching and comprehensive account of what went wrong at the bank – and why it wasn’t spotted by auditors – when it produces its first set-piece report into a banking failure “in some months’ time”.

Much of the legwork will be done by the other “twin peak” of the new regulatory system, the Prudential Regulatory Authority, under chief executive Andrew Bailey.

Meanwhile, given the new focus on the role of auditing in the HBOS failure, questions are growing about the silence of the Financial Reporting Council (FRC), the UK’s independent regulator for ”promoting high quality corporate governance”, including regulatory oversight of audits and accountancy.

Since 2008, the FRC – whose board includes two former senior KPMG figures, plus individuals from two other “Big Four” accountants – has failed to look into KPMG’s audits of HBOS.

The FRC’s board includes Sir Steve Robson, a board member of RBS from 2001-09. As permanent secretary to the Treasury in 19972001, Robson is credited with promoting the growth of PPP and PFI and was a chief architect of the failed tripartite approach to UK financial regulation.

Even following the Parliamentary Commission on Banking Standards report, and despite the mismatch between provisions (£370 million) and the £25 billion actual losses for the year to December 2008, the FRC will only say that it “may” investigate KPMG over the HBOS audit.

KPMG has said it “stands by” the quality of its work for HBOS.