BoE considers fines for accountancy firms

The Bank of England would be able to fine accountancy firms a percentage of their revenue for failing in their duties and auditors would have to provide written annual reports on the UK's largest deposit-takers under proposals from the bank's Prudential Regulation Authority.

The PRA said on Friday that accountancy firms would have to provide it with yearly reports ahead of a full audit of the most significant banks to help supervisors have a "more consistent and holistic set of information". It is also consulting on rules that would allow it to fine — and even ban from working in financial services — individual accountants and firms if they breached the regulator's rules or if they were not co-operative or transparent in their dealings with the watchdog.

Andrew Bailey, head of the PRA, said: "We need the relationship between external auditors and supervisors to work effectively. This needs to be supported by high quality, thorough audits which can help mitigate emerging issues and risks that can threaten both the safety and soundness of individual firms and financial stability more broadly."

He added that where auditors and actuaries failed to provide the PRA with the information needed to supervise firms effectively, it now had disciplinary powers that enabled it to take action to rectify such situations.

Critics of the big four accountancy firms will point to the fact that they gave banks a clean bill of health only months before the onset of the worst financial crisis in a generation.

Giving the PRA greater oversight of accountancy firms was first floated by the Parliamentary Committee on Banking Standards as part of a package of proposals to improve rules and regulatory architecture following the crisis.

The Institute of Chartered Accountants in England and Wales described the additional demands on its members as an opportunity to make sure "auditors are more relevant".

Giving the PRA the power to fine and ban accountants means that individuals and firms could face disciplinary investigations from many different authorities: the Financial Reporting Council traditionally regulates and penalises the industry, while the Financial Conduct Authority, the PRA's sister financial regulator, also has existing fining powers.

"These bodies must co-ordinate any disciplinary action to ensure auditors do not face double or triple jeopardy as a result," said Iain Coke, head of ICAEW's financial services faculty. "That would only further muddy waters we are all trying to clear."

The yearly reports bring the UK in line with countries such as Germany, which require a private explanation by auditors to be sent to banks' management and also their supervisors. The parameters of such reports will be set by the PRA and could cover issues such as banks' loan-loss provisioning techniques, experts said.

Initially the proposals will apply only to auditors of the largest UK-headquartered deposit-takers over their financial periods ending on or after November 2016.

Additional reporting by Harriet Agnew in London

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