The Bank of England (BoE) has turned up the heat on accounting firms used by banks, saying they must provide the central bank with written reports from November 2016 on their audits of Britain's main lenders.
Policymakers questioned the accuracy of external audits after banks had to be rescued by taxpayers in the 2007-09 financial crisis just months after accounting firms gave them a clean bill of health.
The BoE's Prudential Regulation Authority (PRA), which supervises Britain's banks, published a consultation on Friday on how it will scrutinise the accountants and actuaries hired by banks and use new powers to sanction them.
The move echoes measures being taken inside banks to make individuals more directly accountable for their actions, making it easier to punish rule breaches.
Britain's big banks, such as HSBC, Barclays , Lloyds and RBS, all use one of the "Big Four" accounting firms, PwC, Deloitte, EY and KPMG.
"Although engagement between external auditors and the PRA has improved in recent years, the PRA's monitoring of the quality of auditor-supervisor dialogue has shown that there is more that can be done," the PRA said in a statement.
The watchdog is proposing that accountants for the biggest UK headquartered deposit-taking banks provide written reports to the supervisor annually on financial reporting and the accompanying audit.
"These written reports will enable the PRA to gain a better understanding of the risks in banks' financial reporting and help supervisors to focus on the key areas of risk," the PRA said.
The aim is to spot problems early before they get out of hand and so action can be taken in a timely way. The new requirement will be introduced in full in relation to audits ending on or after Nov. 1, 2016.
"Where auditors and actuaries fail to provide us with the information that we need to supervise firms effectively, we now have disciplinary powers which allow us to take action to rectify this," PRA chief executive and BoE deputy governor Andrew Bailey said.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article