The Carillion scandal roared back into the headlines on Monday morning with Frank Field, chairman of the Parliamentary Work & Pensions committee, accusing the company of “trying to wriggle out of its obligations to pensioners” while at the same time the Financial Reporting Council launched an enforcement investigation into the work of its auditor, KPMG.
With MPs baying for blood, and new revelations about Carillion’s business practices continuing to emerge, the pressure is on both the FRC and the Pensions Regulator: Mr Field was bitingly critical of what he sees as the latter’s inaction in the run up to the firm’s demise.
But this raises a question: Have Parliamentarians given them these, and other regulators, both the tools, and the backing, they need to do an effective job?
Consider what the FRC is preparing to do.
The accountancy watchdog was rightly criticised, including several times by this column, over its foot dragging with regard to HBOS, another awful corporate failure that resulted in no action being taken (KPMG was again in the frame). In fact only one person connected to that affair received any regulatory sanction of any kind (the Financial Services Authority banned former executive Peter Cummings from the City and relieved him of half a million quid).
This time around the FRC has moved with commendable speed, but it’s investigations could expose a very real problem with the framework it operates under. Under the current set up, the watchdog can only go after individuals if they are members of a recognised professional body.
Auditors always are because they have to be qualified accountants. So are most people in important roles in company finance departments. But they don’t have to be. If regulatory rule breaches are discovered at Carillion, and if people like that are found to be at fault, the FRC will face a problem.
Now there might be ways around it with the help of other watchdogs. That doesn’t alter the fact that the current situation is a deeply unsatisfactory one. Changing it would require Parliamentary action. Unfortunately the current Government has other legislative priorities.
Then there is the question of support. When things are quiet Governments, and this one in particular, as well as some of the same MPs that are baying for blood at Carillion, are fond of banging on about how terrible regulation is and how red tape is strangling business. We’ll take a scythe to it and get the Great British economy flying, is the promise they are fond of making. Their supporters in the media actively collude in this.
Is it any surprise that regulators decide to choose the line of least resistance when faced with that? It’s human nature.
This does not, and should not, grant them any sort of pass. They should do their jobs and the questions about whether the Pensions Regulator was raised by Mr Field are pertinent. He has pointed out that while contributions to plug Carillion’s yawning pension deficit were negotiated away last autumn, dividends continued to be paid. So did bosses’ vast salaries and bonuses.
“Once again, TPR has questions to answer. They have been sniffing around Carillion – at the (pension scheme) trustees’ behest – since at least 2008, though it is not apparent to what effect. When ten years later the company collapses with £29 million in the bank and £2 billion in pension liabilities it doesn’t look good for them.”
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But against a backdrop of regulators being portrayed as the spawn of the devil when it’s convenient for MPs to do so, the apparent inaction could be understood, if not excused.
Regulators are never going to be popular. However, they are necessary. Scandals like that at Carillon make that very clear. The judgement against them will be harsh if no one is ultimately called to account for what went on, and for allowing it to happen in the first place. So it should be.
But Westminster deserves its share of scrutiny too. Mr Field should take note of that.