April 20th, 2013
Trust in UK financial regulation and auditing cannot be rebuilt unless John Griffith-Jones (pictured right) steps down as chairman of the Financial Conduct Authority, writes HBOS whistleblower Paul Moore, who is also calling for a public inquiry into KPMG’s pre-crash audits of the collapsed bank HBOS. The need for such an inquiry was reinforced on 11 April, when The Times revealed that the Financial Reporting Council, which has seven current and former KPMG employees as members, decided against probing ‘Big Four’ firms’ pre-crash bank audits as “it would just be too disruptive, too damaging.”
Taking into account my professional experiences as a partner at KPMG (1995-2002), head of group regulatory risk at HBOS (2002-04), and particularly the personal consequences I suffered as a result of KPMG’s supposedly “independent” investigation following my dismissal from HBOS, I have good reason to suspect that fees are now coming before independence, objectivity (and sometimes, even competence) in important parts of the accounting profession.
John Griffith-Jones, who was senior partner at KPMG until he walked through the revolving door towards his chance of a knighthood as chairman of our new regulator the Financial Conduct Authority (FCA), has shown himself – both by his words and actions – to be the very worst example of what I am talking about.
His position at the FCA is untenable and he must resign immediately. Let me give you a few good reasons:-
(1) He was the senior partner at KPMG who were the auditors of HBOS, who “signed off” / accepted the ludicrous estimate of loan loss provisions (£370m) prior to the rights issue in May 2008. We now know the losses were more than £50bn. Goodness knows what else they did in the course of the audit.
(2) KPMG gave specific advice to HBOS, which must have approved the credit risk management in the bank’s corporate division, which accounted for 50 per cent of the total loan losses i.e, £25bn.
(3) KPMG wrote the supposedly “independent” report which said it was okay to fire me – a seasoned expert in regulatory affairs and risk management since 1984 — because I was “extraordinary” (i.e. did not “fit in”) and replace me with a sales manager who knew nothing about risk management, Jo Dawson, as group risk director. Here is what the The Parliamentary Commission on Banking Standards said about this in the report “An Accident Waiting To Happen: The Failure of HBOS” (see Paras 64 and 65):-
“The risk function in HBOS was a cardinal area of weakness in the bank…The degradation of the risk function was an important factor in explaining why the high-risk activities of the Corporate, International and Treasury Divisions were not properly analysed or checked at the highest levels within the bank….. The weaknesses of group risk in HBOS were a matter of design, not accident. Responsibility for this lies with Sir James Crosby… Andy Hornby, …and particularly with Lord Stevenson as Chairman.”
(4) In his capacity as senior partner of KPMG, Griffith-Jones attended the FSA meeting that set the terms of reference for the FSA’s own inquiry into the collapse of HBOS. The minutes of the meeting show the regulator deciding the investigation would not encompass the conduct of the bank’s auditors (KPMG) or the role of accounting standards. The presence of Griffith-Jones at the meeting and the scope agreed at the meeting raise more some serious questions. As Pensions Investments Research Consultants said in a letter to the Financial Times: ‘It cannot be right that the chairman of the new FCA has any link with the second largest UK banking collapse in history.’
All these matters now need to be investigated at the most forensic level. This cannot be done by the Financial Reporting Council (FRC) because it is conflicted by having one former KPMG partner and the current chairman of KPMG’s public interest committee on its the board. The investigation cannot be conducted by the FCA or PRA because Sir James Crosby was the deputy chairman of predecessor body the FSA until February 2009. In my view, this MUST be conducted by a public judicial inquiry because we, the taxpayer own 41% of Lloyds Banking Group and spent £20bn or more on its recapitalisation.
With KPMG at the heart of the HBOS scandal, John Griffith-Jones cannot be allowed to remain as the chairman of the FCA. Chinese Walls don’t work.
In relation to my own dispute with KPMG, Griffith Jones has demonstrated that, far from distancing himself from the notion that a sales manager would be better as a group risk director than an experienced risk manager, he has fully endorsed its findings. This means that he is as accountable for the report as the partner who actually did the work.
In an off-guard moment at an event organized by KPMG in the Waldorf Astoria on October 2, 2008, Griffith-Jones let slip that accountants would never challenge client managements outside the specific remit of the audit – for example on risk parameters or business models – for fear of committing “commercial suicide”. His subsequent attempt to deny Anthony Hilton’s allegation about his “commercial suicide” remark by saying that “pre crisis, it was not the generally understood role of the auditor to criticise his client’s business model and that he might have got short shrift from management for so doing” was frankly pathetic. Far from being convincing this was, in itself, an admission “straight from the horse’s mouth” that proves he is unfit to be chairman of a regulator which relies so heavily on auditors doing their jobs properly.
Finally, and from a very personal perspective, John Griffith-Jones’ refusal to accept my family’s fair and reasonable offer of genuine reconciliation for the damage KPMG’s report into my dismissal from HBOS caused to my wife, three children and me shows that he is a man without ethics. Readers should not underestimate the personal and family misery caused by KPMG’s report on our lives. And who knows, had I not been fired, perhaps HBOS would still be around and we could have saved the taxpayer £20bn?
As Hamlet said “There is something rotten in the State of Denmark”. We have to sort this out – top to bottom – so that we can return to being the great example of democracy, rule of law and ethics that we have been in the past. John Griffith-Jones must go.
Paul Moore was group head of regulatory risk at HBOS from 2002 to 2004