Russell Lynch: For £6bn a year, why does our financial regulator not have much sharper teeth?

Outlook In February 2010, the defence giant BAE Systems paid fines totalling £288m to the US Department of Justice and Britain's Serious Fraud Office in one of the murkiest and most embarrassing episodes in its history. The penalty to settle long-running investigations into alleged corporate bribery dragged BAE's name through the mud as the DoJ – never one for mincing its words – accused it of making "hundreds of millions of dollars in payments to third parties, while knowing of a high probability that money would be passed on to foreign government decision-makers to favour BAE in the award of defence contracts". The SFO fined it £30m for failing to accurately record "commission payments" to a "marketing adviser" in Tanzania.

You might reasonably ask where BAE's auditor KPMG was in all this. So did the Financial Reporting Council, the watchdog which leapt into action a mere eight months later to launch an investigation into KPMG's audits of the company and its subsidiaries between 1997 and 2007 "in relation to the commissions paid by BAE through any route to subsidiaries, agents and any connected companies".

It should be said that KPMG denied any misconduct at the time when the FRC's accountancy and actuarial discipline board begun its inquiry. Nearly three years on we have its verdict, and it's basically "we can't be arsed". The reasoning the FRC gives for dropping its investigation is that a "proper assessment" of KPMG's conduct as an auditor between 1997 and 2007 would involve consideration of its work undertaken in earlier years. "Because there is no realistic prospect that a tribunal will make an adverse finding in respect of a complaint relating to work done so long ago, it has been concluded that it is not in the public interest to extend the investigation to the years preceding 1997," it says.

How reassuring. Putting aside the fact that it's taken them the best part of three years to reach this insipid conclusion, the FPC is effectively saying it is not even going to bother trying to look for any potential wrongdoing from the company in charge of signing off the books when the BAE shenanigans were going on. Is this decision genuinely in the public interest or in the auditor's interest?

The FRC refuses to say how much money it has spent on this "investigation", although it does still have KPMG under the spotlight in other probes into its auditing of the car dealership Pendragon, Equity Red Star and a third unnamed company. On current form the accountant needs hardly to be shaking in its boots.

In the past two years, the FRC has brought five cases to tribunal and just one of the them was against a "big four" accountant – PwC, which was fined £1.4m for failing to pick up the fact that JP Morgan had not being keeping client money separate from its own – putting an average £5bn of money at risk every day. This week, the FRC had better news when its independent tribunal ruled that Deloitte and employee Maghsoud Einollahi "showed in some instances a persistent and deliberate disregard" for accounting ethics when failing to manage the conflict of interest between advising MG Rover and advising the "Phoenix Four", who bought the company before its collapse in 2005. Deloitte is pushing for a fine of £1m and the FRC for up to £20m. For the sake of the credibility of a regulator that spent just £5.8m last year on investigating misdeeds, you get the feeling it needs a big result here to send a no-nonsense message to the nation's auditors.