OFT confirms a lack of competition amongst UK auditors
The OFT announced on Tuesday its provisional conclusion that features of the audit market were not working well, stating its intention to consult further on whether the matter should be referred to the Competition Commission for an in-depth investigation.
This marks the latest stage in a process which has also taken in the House of Lords Economic Affairs Select Committee. In a related, but separate review, the FSA has also registered its concerns about certain aspects of the audit market (see Robbie Constance's report in March about concerns regarding client assets reports). However, whilst the natural next stage where the OFT has concluded that the statutory test for reference has been met would ordinarily be an in-depth investigation by the CC or at least the giving of commitments in lieu of such a reference, it is far from clear whether any action will follow.
In some respects, this is a logical outcome – concentration of audit expertise within just 4 major audit firms is a global, not UK-specific issue. As such, it is not immediately obvious how the regulatory regime will be able to deliver greater competition through structural changes. Even adopting the most draconian measure of forcing the Big 4 to divest of part of their UK businesses is unlikely to result in a shift in market share down to the next tier of advisers. Equally, attempting to cap market shares (something which the authorities have looked to do in respect of personal current accounts) is an odd way of protecting consumer choice and will likely result in a further concentration of expertise for the biggest firms.
Hence one of the key considerations for the OFT now is simply whether there are appropriate remedies available to the CC to justify a reference. Further consultation is promised in the coming months.