Big Five - Liability cap sparks bond row

Underwriters of bond and debenture issues were accused of attempting to pass off their risk to accountants this week, following a row over moves by the Big Five to cap their legal liabilities.

The Big Five, which provide ‘comfort letters’ that are relied on by investors on bond and debenture issues, want to cap the amount they could be sued for by investors if the issue fails. They believe the large underwriting companies, mainly investment banks, are passing on the risk of failure to the accountants despite taking the lion’s share of the fees for the risk.

Most of the Big Five’s contracts seek to limit liability. Last year, they agreed with the venture capital community a sliding scale of sums that could be reclaimed if due diligence work proved faulty, staving off an investigation by the Office of Fair Trading.

Tony Caborn-Smith, head of risk management at Ernst & Young, said: ‘It is reasonable to limit the consequences of a contract.

The level of liability we are trying to limit is still many times our fee. So it is not a trivial amount, even at the lowest level. You are always talking about millions of pounds rather than thousands.’

The Big Five firms want to avoid a row with institutional investors, but accuse banks of profiting from the accountants’ traditional status as unlimited liability firms.