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March 23, 2011

UK watchdog to review ‘Big Four’ lending clauses

The UK government has called for a review into whether legal clauses in bank lending agreements are restricting audit market competition.

In this year’s budget, ‘A plan for growth’, the Office of Fair Trading (OFT) will investigate Big Four only clauses and if these unfairly and inappropriately restrict competition. The competition watchdog has also been asked to investigate whether their removal would allow the next tier of audit firms to compete for large scale audits.

An OFT spokesperson said it has been reviewing the audit market since 2002 and will make a decision on whether to investigate concentration and restrictive banking covenants in April.

Grant Thornton UK partnership oversight board chair Steve Maslin said the OFT investigation would create further impetus for change, following similar calls from the UK House of Lords inquiry and the EC Green Paper on audit.

“Restrictive banking covenants, which limit the choice of companies to appoint suitably experience auditors of their own choosing, are anti-competitive and a major factor preventing other audit firms from building their position in the market,” Maslin said.

Maslin also said the problem is even more apparent when it comes to a syndicate of banks.

“If one of the syndicate banks has those clauses and even if three or four of the other ones don’t you have a problem, not only does it lock us out of certain transactions, it’s just a complete undermining of firms like ours,” he said.

Deloitte national audit technical partner Martin Jones backed the removal of restrictive clauses, while

PwC head of public policy and regulatory affairs Pauline Wallace said there must be no artificial barriers to entry into a vibrant audit market.

BDO International chief executive Jeremy Newman added: “I hope that the OFT looks widely at the issue of restrictive covenants including those that are ‘Big 4 only’ clauses disguised as ‘experience requirements’, which only a Big Four firm could meet.”

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