Accountancy firm KPMG is facing a regulatory probe into how it audited the books of troubled lender Co-operative Bank in the years leading up to its near-collapse.
The Financial Reporting Council (FRC) has launch-ed an investigation in the wake of a £1.5billion hole in the lender’s finances that was discovered last year.
It will cover the way accounts were both prepared by the bank and reviewed by auditors, and is likely to extend back to 2009, the year it took over the Britannia Building Society.
The financial turmoil at the Co-op bank is widely attributed to the takeover as well as an abortive attempt to buy more than 600 branches from Lloyds.
The FRC investigation is likely to take around a year to conclude whether to bring disciplinary tribunal action. Sanctions can include fines as well as suspension of membership from accountancy bodies.
In a statement KPMG said it would cooperate with the FRC but insisted it provided “robust audits which provide rigorous challenge to the judgments and disclosures proposed by the bank’s management”.
The new probe is the latest in a series of investigations into the Co-op, after the Bank of England’s Prudential Regulation Authority (PRA) said earlier this month it would look at the role of senior executives.
Another regulator, the Financial Conduct Authority (FCA) said it was looking into “decisions and events up to June 2013”.
Meanwhile, the wider Co-operative Group is carrying out a fact-finding investigation as well as a root-and-branch review of its structure in the wake of drugs allegations about former bank chairman Paul Flowers which is expected to report in May.
At the same time, MPs on the Treasury Select Committee have been carrying out their own inquiry, grilling senior Co-op executives and others involved with the bank in recent years, including representatives of KPMG.
A Treasury inquiry announced by Chancellor George Osborne has been put into deep freeze pending the outcome of the FCA and PRA investigations.
Meanwhile, the Co-op is to keep hold of its car and home insurance division after deciding it no longer needs to sell off the business.
The troubled mutual put the general insurance arm up for sale as part of plans for tackling a £1.5billion black hole in its banking arm.
A rescue for the bank that saw investors exchange £1 billion of bonds for new shares in the lender has enabled the Co-op to reconsider its plans.