Regulators failed to watch over Big Four during crisis, say Lords

CITY REGULATORS “were asleep on the job” during the banking crisis, and failed to adequately watch over the Big Four auditors, a House of Lords inquiry heard today.

Former chancellor Lord Lawson (right), sitting on the economic affairs committee, accused the audit profession’s two principle regulators, the Financial Reporting Council (FRC) and the Financial Services Authority (FSA), of failing to direct and communicate regularly with auditors before a number of financial institutions collapsed.

“You were asleep on the job, and to the extent you were half-awake, your eyes were not on the ball,” said Lord Lawson.

Regulators were unable to reveal how many meetings they had with auditors of major banks in the lead-up to, and during, the crisis.

In response, Sally Dewar representing the FSA said it was mainly the responsibility of auditors to highlight issues to the regulator.

“We absolutely should have had a two-way dialogue with auditors,” said Dewar.

Baroness Hogg (pictured), FRC chairman, said she would like to see all auditors licensed by the council as a means to bring in greater disciplinary options to help regulate the industry.

At present, auditors are licensed by professional bodies – a situation which was criticised at the hearing.

The committee will hear from Big Four auditors in a future hearing, and likely to be questioned on their failure to ring alarm bells in the lead-up to the crisis.

(Lord Lawson photo by TVO Photos Flikr photostream)