BoE turns up the heat on accountants for banks

By Huw Jones

LONDON, Feb 27 (Reuters) - The Bank of England (BoE) hasturned up the heat on accounting firms used by banks, sayingthey must provide the central bank with written reports fromNovember 2016 on their audits of Britain's main lenders.

Policymakers questioned the accuracy of external auditsafter banks had to be rescued by taxpayers in the 2007-09financial crisis just months after accounting firms gave them aclean bill of health.

The BoE's Prudential Regulation Authority (PRA), whichsupervises Britain's banks, published a consultation on Fridayon how it will scrutinise the accountants and actuaries hired bybanks and use new powers to sanction them.

The move echoes measures being taken inside banks to makeindividuals more directly accountable for their actions, makingit 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 PRAhas improved in recent years, the PRA's monitoring of thequality of auditor-supervisor dialogue has shown that there ismore that can be done," the PRA said in a statement.

The watchdog is proposing that accountants for the biggestUK headquartered deposit-taking banks provide written reports tothe supervisor annually on financial reporting and theaccompanying audit.

"These written reports will enable the PRA to gain a betterunderstanding of the risks in banks' financial reporting andhelp supervisors to focus on the key areas of risk," the PRAsaid.

The aim is to spot problems early before they get out ofhand and so action can be taken in a timely way. The newrequirement will be introduced in full in relation to auditsending on or after Nov. 1, 2016.

"Where auditors and actuaries fail to provide us with theinformation that we need to supervise firms effectively, we nowhave disciplinary powers which allow us to take action torectify this," PRA Chief Executive and BoE Deputy GovernorAndrew Bailey said. (Editing by David Clarke)