Financial News

  • 26 June 2014, 13:26

RBS Kicks Off Talks About Audit Overhaul

Royal Bank of Scotland (RBS) has begun talks that could lead to it severing ties with the accountancy firm which monitored its books during the period before its 45bn taxpayer bailout.

Sky News understands that the state-backed lender has kicked off a tender process that will review whether Deloitte should continue in the role between 2016 and 2020.

Deloitte, which has in the past been probed for its work at RBS by an industry regulator, has audited the bank since 2000.

As well as its government rescue, that period includes the 12bn rights issue in 2008 that is now the subject of extensive shareholder litigation.

Deloitte is also the former employer of Fred Goodwin, RBS's disgraced erstwhile chief executive, who stepped down as it teetered on the brink of collapse.

A source close to the RBS board said it was unlikely that it would opt to reappoint Deloitte but that doing so remained a possibility.

Under new rules aimed at promoting competition, major companies must rotate their auditors at least every 20 years, and conduct a tender process at least once a decade.

FTSE-100 audit mandates command multimillion pound fees for the Big Four auditors, which exert an iron grip on the sector.

Insiders confirmed that RBS had now begun a formal tender process, which is expected to take at least three months.

RBS signalled in its annual report earlier this year that it intended to tender its audit contract for 2016 onwards.

At Wednesday's annual general meeting in Edinburgh, shareholders, who are dominated by the taxpayer's 81% stake, voted to reappoint Deloitte.

RBS is not the only major UK bank reviewing its audit relationship, with Barclays and Lloyds Banking Group confirming plans earlier this year to undertake similar reviews.

Those announcements have, however, fuelled criticism that the sector remains a closed shop which mid-tier challengers find it impossible to break into.

The other members of the Big Four - EY, KPMG and PriceWaterhouseCooper - also have important banking audits in the UK and beyond, as well as generating substantial non-audit revenues from RBS.

The Edinburgh-based bank experienced a comparatively uneventful AGM on Wednesday, with anticipated flashpoints such as the forthcoming Scottish independence referendum failing to materialise.

Sir Philip Hampton, RBS's chairman, said at the meeting: "If there is a Yes vote there would be a period of time between the referendum and Scotland actually becoming independent when the UK and Scottish governments would enter negotiations.

"During this transition period, the Bank of England would be lender of last resort to the banking sector and the UK would be the sovereign domicile for RBS."

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