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HBOS heat turns on head of new City regulator John Griffith-Jones HBOS heat turns on head of new City regulator John Griffith-Jones
(6 months later)
The former head of accountants KPMG, John Griffith-Jones, has been dragged into the HBOS furore as questions are asked about his suitability to head the City's new regulator given the auditor's role at the failed bank.The former head of accountants KPMG, John Griffith-Jones, has been dragged into the HBOS furore as questions are asked about his suitability to head the City's new regulator given the auditor's role at the failed bank.
It comes as the prime minister's spokesman added to the pressure on Andy Hornby, former HBOS chief executive, and Lord Stevenson, the former chairman, by saying it was a "matter for their consciences" whether Hornby relinquished his pension or Stevenson handed back his peerage.It comes as the prime minister's spokesman added to the pressure on Andy Hornby, former HBOS chief executive, and Lord Stevenson, the former chairman, by saying it was a "matter for their consciences" whether Hornby relinquished his pension or Stevenson handed back his peerage.
Only 10 months after Griffith-Jones's appointment to chair the Financial Conduct Authority was announcedby Treasury minister Mark Hoban, he is under pressure due to his previous role as KPMG chairman. The accountancy firm conducted the audit of HBOS, signing off the directors' controversial valuations of the bank's loan book. It was also involved in reviewing whistleblower allegations as well as credit risk processes in HBOS's controversial corporate lending division — which ultimately lost £25bn.Only 10 months after Griffith-Jones's appointment to chair the Financial Conduct Authority was announcedby Treasury minister Mark Hoban, he is under pressure due to his previous role as KPMG chairman. The accountancy firm conducted the audit of HBOS, signing off the directors' controversial valuations of the bank's loan book. It was also involved in reviewing whistleblower allegations as well as credit risk processes in HBOS's controversial corporate lending division — which ultimately lost £25bn.
HBOS whistleblower Paul Moore, a onetime head of risk at the bank, told the Guardian: "It is impossible for John Griffith-Jones 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]'."HBOS whistleblower Paul Moore, a onetime head of risk at the bank, told the Guardian: "It is impossible for John Griffith-Jones 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]'."
The newly founded FCA, which will oversee consumer issues and the conduct of financial firms, is conducting its own investigation into HBOS.The newly founded FCA, which will oversee consumer issues and the conduct of financial firms, is conducting its own investigation into HBOS.
The accountancy profession's regulator, the Financial Reporting Council, also confirmed that it is considering an investigation into KPMG following last week's scathing banking standards commission report into HBOS and an upcoming Financial Services Authority inquiry. The FRC said it would "consider the commission and FSA reports to identify whether there is a case for an investigation under our powers".The accountancy profession's regulator, the Financial Reporting Council, also confirmed that it is considering an investigation into KPMG following last week's scathing banking standards commission report into HBOS and an upcoming Financial Services Authority inquiry. The FRC said it would "consider the commission and FSA reports to identify whether there is a case for an investigation under our powers".
Its scrutiny of the role of KPMG at HBOS may be pre-empted by the Tyrie commission's final report. It will contain a chapter on the tax experts, auditors and accountants and their role in banking. The report is expected to be published next month and could also address the audit work of Deloitte at Royal Bank of Scotland.Its scrutiny of the role of KPMG at HBOS may be pre-empted by the Tyrie commission's final report. It will contain a chapter on the tax experts, auditors and accountants and their role in banking. The report is expected to be published next month and could also address the audit work of Deloitte at Royal Bank of Scotland.
On Tuesday Alan MacDougall, managing director of corporate governance group Pirc, wrote to the Financial Times complaining at Griffith-Jones's role in setting the terms of the new regulator's fresh review into the HBOS crisis.On Tuesday Alan MacDougall, managing director of corporate governance group Pirc, wrote to the Financial Times complaining at Griffith-Jones's role in setting the terms of the new regulator's fresh review into the HBOS crisis.
"It cannot be right that the chairman of the new FCA has any link with the second-largest UK banking collapse in history," MacDougall wrote. "He should at least step down until the performance of KPMG in the audit of HBOS and accounting standards setting has been properly and independently investigated.""It cannot be right that the chairman of the new FCA has any link with the second-largest UK banking collapse in history," MacDougall wrote. "He should at least step down until the performance of KPMG in the audit of HBOS and accounting standards setting has been properly and independently investigated."
Griffith-Jones worked for KPMG for 37 years, becoming chairman and senior partner in the UK from 2006. In 2007 he was made joint chairman of KPMG Europe and only left the firm last year.Griffith-Jones worked for KPMG for 37 years, becoming chairman and senior partner in the UK from 2006. In 2007 he was made joint chairman of KPMG Europe and only left the firm last year.
The role of the bank's auditors has come into focus amid a growing belief that HBOS was laid low by failures of its own rather than the shocks rippling through the international banking sector.The role of the bank's auditors has come into focus amid a growing belief that HBOS was laid low by failures of its own rather than the shocks rippling through the international banking sector.
The FCA said Griffith-Jones had been subjected to a "rigorous" appointment process by the Treasury and did not sit on the board sub-committee tasked with overseeing the HBOS report.The FCA said Griffith-Jones had been subjected to a "rigorous" appointment process by the Treasury and did not sit on the board sub-committee tasked with overseeing the HBOS report.
Last week's report by the parliamentary banking standards commission, chaired by Conservative MP Andrew Tyrie, dismissed protestations from former HBOS bosses that the bank's lending was conservatively managed and that HBOS had been the victim of a global funding crisis for banks no one could not have been foreseen. Commission member Lord Lawson called such positions "dishonest … or delusional".Last week's report by the parliamentary banking standards commission, chaired by Conservative MP Andrew Tyrie, dismissed protestations from former HBOS bosses that the bank's lending was conservatively managed and that HBOS had been the victim of a global funding crisis for banks no one could not have been foreseen. Commission member Lord Lawson called such positions "dishonest … or delusional".
The bank's corporate lending division alone set aside only £370m to cover potential bad loans in May 2008. Since then the figure has ballooned to £25bn. Total bad loans were £47bn.The bank's corporate lending division alone set aside only £370m to cover potential bad loans in May 2008. Since then the figure has ballooned to £25bn. Total bad loans were £47bn.
The report made little mention of the role of the auditors, but by suggesting the bank had failed to reflect a true and fair assessment of the value of its loans it has raised questions about the role of the auditors in signing off the accounts.The report made little mention of the role of the auditors, but by suggesting the bank had failed to reflect a true and fair assessment of the value of its loans it has raised questions about the role of the auditors in signing off the accounts.
KPMG has insisted it stands by its audit work at HBOS.KPMG has insisted it stands by its audit work at HBOS.
However, the integrity of HBOS audits have already been called into question — albeit without any suggestion of fault on the part of the auditors — following findings by the now-defunct FSA that some important information from the bank "was not sufficiently visible" to KPMG on at least one occasion.However, the integrity of HBOS audits have already been called into question — albeit without any suggestion of fault on the part of the auditors — following findings by the now-defunct FSA that some important information from the bank "was not sufficiently visible" to KPMG on at least one occasion.
The commission's damning HBOS report singled out former chief executive Sir James Crosby for particular criticism, leading him to ask to have his knighthood revoked on Tuesday. He has also been pressured into resigning from FTSE 100 catering group Compass and has offered to surrender 30% of his £580,000-a-year pension.The commission's damning HBOS report singled out former chief executive Sir James Crosby for particular criticism, leading him to ask to have his knighthood revoked on Tuesday. He has also been pressured into resigning from FTSE 100 catering group Compass and has offered to surrender 30% of his £580,000-a-year pension.
Downing Street added to the momentum against Hornby and Stevenson by describing Crosby's decision as "the right one". Asked if Hornby and Stevenson should follow suit, the spokesman said that was a "matter for their consciences".Downing Street added to the momentum against Hornby and Stevenson by describing Crosby's decision as "the right one". Asked if Hornby and Stevenson should follow suit, the spokesman said that was a "matter for their consciences".
Like Crosby, Hornby and Stevenson, Griffith-Jones has consistently held the view that Britain's taxpayer-rescued banks had been laid low in 2008 by an unforeseen crisis rather than an recklessly optimistic view of their own activities. In a KPMG blog, written in 2011, Griffith-Jones said: "We – alongside many others – did not foresee in advance what happened during the financial crisis of 2008."He has called for "lessons to be learned" and future audit reforms, but has not entertained suggestions of past auditor failings.Like Crosby, Hornby and Stevenson, Griffith-Jones has consistently held the view that Britain's taxpayer-rescued banks had been laid low in 2008 by an unforeseen crisis rather than an recklessly optimistic view of their own activities. In a KPMG blog, written in 2011, Griffith-Jones said: "We – alongside many others – did not foresee in advance what happened during the financial crisis of 2008."He has called for "lessons to be learned" and future audit reforms, but has not entertained suggestions of past auditor failings.
During evidence to the Lords in 2010 Griffiths-Jones stressed that auditors were not responsible for assessing the future risks of any company — however indebted it might be. "The auditor's primary role... is a look-back exercise. Sure, it has this obligation to look forward on a going-concern basis but not a look-forward other than that".During evidence to the Lords in 2010 Griffiths-Jones stressed that auditors were not responsible for assessing the future risks of any company — however indebted it might be. "The auditor's primary role... is a look-back exercise. Sure, it has this obligation to look forward on a going-concern basis but not a look-forward other than that".
Meanwhile, former leading HBOS executives have so far expressed carefully constructed limited apologies for HBOS's effective failure. Stevenson in particular has continued to cling to explanations that the bank had been defeated by a freeze in the global bank funding markets.The Tyrie Commission's report said: "In the circumstances, the apologies of those at the top of HBOS for the loss imposed upon the taxpayers and others ring hollow; an apology is due for the incompetent and reckless board strategy; merely apologising for having failed to plan for an unforeseeable event is not much of an apology."Meanwhile, former leading HBOS executives have so far expressed carefully constructed limited apologies for HBOS's effective failure. Stevenson in particular has continued to cling to explanations that the bank had been defeated by a freeze in the global bank funding markets.The Tyrie Commission's report said: "In the circumstances, the apologies of those at the top of HBOS for the loss imposed upon the taxpayers and others ring hollow; an apology is due for the incompetent and reckless board strategy; merely apologising for having failed to plan for an unforeseeable event is not much of an apology."
The Commission's findings echo the view of outgoing Bank of England governor Mervyn King, who has long-insisted the problems of Britain's banks were more home-made. Two years ago he said: "Right through this crisis from the very beginning ... an awful lot of people wanted to believe that it was a crisis of liquidity. It wasn't, it isn't. And until we accept that, we will never find an answer to it. It was a crisis based on solvency."The Commission's findings echo the view of outgoing Bank of England governor Mervyn King, who has long-insisted the problems of Britain's banks were more home-made. Two years ago he said: "Right through this crisis from the very beginning ... an awful lot of people wanted to believe that it was a crisis of liquidity. It wasn't, it isn't. And until we accept that, we will never find an answer to it. It was a crisis based on solvency."
Past banking failures where the earlier stated solvency of a bank had been called into question — including Johnson Matthey Bank and BCCI — have led to colossal lawsuits being brought against the auditors.Past banking failures where the earlier stated solvency of a bank had been called into question — including Johnson Matthey Bank and BCCI — have led to colossal lawsuits being brought against the auditors.
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