The unseen villain in the HBOS piece

Posted on November 20 2015

I have already mentioned the cover up at HBOS. There is, however, a villain in the piece who the Guardian have correctly identified Andrew Tyrie talking about:

Andrew Tyrie, the Conservative MP who chairs the Treasury select committee, urged the regulators to press on with investigations: “Better late than never … The FCA and PRA should get on with this immediately.”

He also called for further action on auditors KPMG, after the Financial Reporting Council, which polices the accountancy profession, said there were no grounds for an investigation. “The audit process was an important part of the story of HBOS's failure,” said Tyrie.

Tyrie is right. HBOS was so badly insolvent that it required £25 billion of state support and KPMG had not apparently noticed the risk when signing off their last audit report months before the crash. If the FRC say that is not grounds for investigation it's very hard to think what is.

But there again, how can we expect revolving door regulation to work? If we want a state that upholds the functioning of capitalism for the benefit of us all then we have to invest in a well paid, properly resourced system of regulation. And KPMG, through their activities in tax havens (along with the rest of the Big 4) ensure that the revenues needed to achieve that are denied to the government.

How convenient, you might say.

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7 Responses

Atul Shah says:

November 20 2015 at 11:40 am

Thanks Richard, I could not agree more. My forensic research on this specific matter will really help you readers and I encourage you to read it. Here it is https://www.academia.edu/17958528/THE_CHEMISTRY_OF_AUDIT_FAILURE_-_A_Case_Study_of_HBOS_audit_by_KPMG
It shows in detail the range of people, networks and politics which ensured that there was little challenge by KPMG at critical moments, and how conflicts of interest were rampant. Most of the key people are still employed by KPMG at senior levels.
- Richard Murphy says:
  
  November 20 2015 at 12:02 pm
  
  Atul
  
  Thanks – and greetings
  
  Richard
- Ivan Horrocks says:
  
  November 21 2015 at 9:45 am
  
  Thanks for sharing this, Atul. Some interesting weekend reading.
- Keith Fletcher says:
  
  November 21 2015 at 11:26 am
  
  It’s a shocking indictment of the state of the global financial industry and all of the private and public sycophants that live off it. Sadly for anyone who has worked within the City of London or any other global financial centre, it is no shock at all!
  
  From my own short but not sweet involvement in the 1990’s with the consulting arm of what once was a global accounting firm, the cesspit described in this report was very true then and I am sure is just the same now because it is driven by the simple fact that all the private actors have the same motive – to maximise their profits.
  
  When sat in a partners meeting discussing how best to implement a particular client project and being reminded that his new swimming pool was riding on its success – he said all you need to know in one sentence!
  
  History illustrates the risks of allowing private police forces, private armies, private prisons, private hospitals, etc… to protect the public interest when that is not their main objective. Perhaps it is now time to apply the same rule to auditing firms, credit rating agencies, law firms, GP’s and a whole host of other professions that really should not be driven at their heart by personal wealth creation.
  
  Will the UK government act? Of course not, it will be brushed under the carpet with a few smacks on wrists along the way. This is a global problem but someone somewhere has to take a stance to start off the necessary change.
Keith Fletcher says:

November 20 2015 at 3:42 pm

They should stop tinkering around the edges and go for full monetary reform! Of course the UK establishment is unlikely to do this until they are dragged kicking and screaming to the guillotine.

The Swiss are the first to have a go at taking away the power of banks to create new money in the form of debt. If we can’t trust them to print coins and notes, why on earth do we trust them to create credit?

It will be interesting to see if the public argument is put strongly enough to win the referendum, if not whether it attracts enough attention along the way to create a snowball elsewhere.

http://positivemoney.org/2015/11/swiss-citizens-initiative-collects-105000-signatures-triggers-referendum-on-money-creation/
Atul Shah says:

November 22 2015 at 11:02 am

Reading the PRA report more thoroughly, it is fascinating to see the language used by KPMG to discuss loan provisions and credit risks – it consistently praises the Board and the management right until the last moment when many banks had collapsed and there was little loss in challenging the client as the whole edifice was about to shrink. Even in the case of the fraudulent HBOS rights issue, KPMG used language to protect themselves and at the same time support the Board – yes, words can say yes, no, maybe, possibly, and leave it to the reader to make the judgement. Professions today specialise in not making the judgement they are asked to deliver. Not sure if anyone has noticed that the latest 2015 Sainsbury’s audit report has received a Going Concern qualification – its hidden in the jungle of words from PWC. Of course, the auditors have now been changed, and try to understand their Supplier bullying policy and accounting for advances, and once again, words are used to confuse.
- Richard Murphy says:
  
  November 22 2015 at 12:00 pm
  
  Atul
  
  Are you sure that is a going concern qualification?
  
  http://www.j-sainsbury.co.uk/media/2475802/sainsburys_ar_2015.pdf
  
  Page 80
  
  Richard