Don't blame the regulator for the Quindell debacle

Outlook

Holy accounting shenanigans, Batman! It looks like Gotham City’s finest were right. A year after the mysterious New York short seller described Rob Terry’s Quindell as a “country club built on quicksand” the firm has now admitted that some of its historic accounting policies were “at the aggressive end of acceptable practice”.

Enter the Financial Conduct Authority, which is now investigating Quindell’s 2013 and 2014 accounts. But should the sheriffs of Canary Wharf’s North Colonnade have ridden into town earlier? This was, after all, a firm that had given incorrect information to investors on at least three occasions. Another instance of dozy regulators?

In this case, the charge looks a bit unfair. If we want the FCA to scrutinise the books of every dodgy-looking company in the UK – as well as hunting down rate-riggers at the banks and busting insider trading rings – we’re going to need a much bigger regulator.

No, the spotlight of recrimination for this debacle should fall primarily on Quindell’s previous management. The firm’s auditors too. In 2013, KPMG signed off on Quindell’s books. In 2012, RSM Tenon did the job. The London Stock Exchange, which oversees the Alternative Investment Market where Quindell is listed, also needs to account for itself.

Next in the line of fire should be the investors and fund managers who ploughed capital into Quindell, sending the share price rocketing from 48p in 2011 to a peak of 660p last April after a wave of acquisitions. This looked like a dubious valuation even before Gotham intervened with its accusations of book cooking.

And what were the earnings on which that valuation was based? Most damning of all was that when Quindell was the junior market’s darling no one could clearly explain what the company actually did – beyond some waffle about telematics and compensation claims. We rightly have high expectations of our financial and corporate regulators. But we can’t expect them to protect investors from their own stupidity, nor the incompetence of auditors. For that, we clearly need Batman.