HSBC to put audit contract out to bid after 20 years

Lender awarded KPMG the work in 1991 without competition but new auditor to be named in 2015

PUBLISHED : Thursday, 07 March, 2013, 1:08pm
UPDATED : Friday, 08 March, 2013, 7:17am

HSBC, Europe's largest bank by assets, said it would accept bids for its external audit contract, held by KPMG since 1991.

KPMG, the world's fourth-largest accounting firm by revenue, won the business without a bidding process, the bank said in its annual report this week, and there had not been one since.

The winner would be appointed in 2015, the bank said. HSBC recommended KPMG should keep the business for the coming year, and shareholders will vote on this at the lender's annual meeting in London in May.

HSBC paid KPMG US$80.5 million last year for services, including audit, tax compliance, computer security and help valuing assets. Auditors were criticised for not spotting practices that led to the banking crisis that began in 2007.

The Economic Affairs Committee of the upper house of Britain's Parliament said in a 2011 report there were "grave defects in the auditing of banks".

The Financial Reporting Council, a British audit regulator, said last year that members of the FTSE 350 index should tender their audit contracts at least once a decade. Mark Hamilton, a KPMG spokesman in London, declined to comment on the contract.

According to the annual report, chairman Douglas Flint and Marvin Cheung, a non-executive director who is a member of the audit committee, have both worked for KPMG. Flint was a partner and Cheung was chief executive of KPMG International's operation in China and Hong Kong from 1996 to 2003.

The bank monitors whether the employment of former KPMG employees led to "any impairment, or appearance of impairment, of the external auditor's judgment, objectivity or independence in respect of the audit", the annual report said.

HSBC in January hired Ruth Horgan as global head of regulatory compliance after David Bagley quit in July over the lender's failure to guard against money laundering. Horgan joined from KPMG, where she had been a partner since 1999 and had worked on the team auditing HSBC until March 2010.

The plan to put the contract out to bid was reported earlier by the Financial Times.