City watchdog FRC slammed over PwC ‘let-off’

The City’s main accountancy watchdog came under fresh fire on Thursday as it dropped a third investigation into the Big Four accountants in recent weeks.

The Financial Reporting Council closed its probe into PwC over its work for Barclays.

It is the second time the industry regulator has taken no action over lapses at Barclays overseen by PwC, which was the bank’s auditor for 120 years.

Although Barclays was fined nearly £38 million by the Financial Conduct Authority for failings in handling client money, the Financial Reporting Council says the matter is closed.

The FCA found “significant weaknesses” in Barclays controls between November 2007 and January 2012. In the wake of Lehman Brothers, banks were under pressure to ensure clients were not exposed to undue risk.

The FRC spent three years investigating PwC’s failure to spot that Barclays was in breach of the rules.

Today it said it has concluded that “there is not a realistic prospect that a tribunal would make an adverse finding” against PwC.

Accounting professor Prem Sikka said: “The real problem here is the FRC lacks independence from the industry it regulates, has no transparency or public accountability. It’s not fit to be a regulator.”

Barclays was fined for similar failings in the handling of client money for eight years from 2001 and 2009. PwC was also cleared for its work for Barclays over that issue.

The latest decision by the FRC comes weeks after KPMG was cleared of wrongdoing over its audit of HBOS. The watchdog ruled KPMG could not have known that the bank was in trouble.

The latest decision not to punish PwC comes amid growing concern about the role of auditors from MPs and industry critics, who think the watchdog lacks teeth.

The FRC defended its role. It said: “We have to do a thorough investigation and we also rely on a lot of external goodwill. It is a robust process but we don’t have unlimited powers.”

The FRC is empowered to impose fines and strike individuals out of the profession, but it can’t bring fraud charges.

In August PwC was slapped with a £5 million fine by the FRC over misconduct in relation to the audit of RSM Tenon.