By Huw Jones
LONDON (Reuters) - Accountants who audit Britain's banks must from November file annual statements to regulators to flag up any problems, the Bank of England said on Thursday.
The spotlight was turned on auditors after the financial crisis, having given a clean bill of health to banks which subsequently had to be bailed out by taxpayers.
The BoE's Prudential (L:PRU) Regulation Authority, which checks that banks in Britain hold enough capital, published final rules on Thursday for auditors of banks with balance sheets greater than 50 billion pounds ($70 billion).
From November, the banks' auditor will have to file a statement relating to the lender's yearly financial report, with breaches subject to "punitive" but proportionate fines and possible bans.
Each year the PRA will give the auditor a list of questions and the statements must include details about how judgements were made in valuing a bank's loans, the quality of earnings, and the quality of systems and controls needed for preparing accounts.
The rules reinforce annual talks between auditors and regulators in the banking sector.
The BoE's announcement coincided with news that Britain's accounting watchdog, the Financial Reporting Council, has begun a preliminary enquiry into how KPMG [KPMG.UL] audited the books of HBOS before the bank collapsed in 2008.
A dry run of the new rules is already underway and some accounting firms told the BoE's public consultation that statements should be limited to information uncovered in typical audit work, to avoid extra work and costs.
The PRA clarified in the final rules that this was the case.
"The PRA remains of the view that a requirement for written reporting will introduce extra discipline into auditor processes and communication, and will provide supervisors with useful information on key issues," the PRA said in a statement.
The rules go further than current draft European Union plans for regulators and auditors across the 28-country bloc to meet at least annually for a discussion.
All of Britain's biggest lenders are audited by one of the world's "Big Four" accounting firms, KPMG, PwC (PWC.UL), EY [ERNY.UL] and Deloitte [DLTE.UL].