EY is set to lose its £40mn-a-year role auditing NatWest to its rival PwC in a blow to the Big Four accountant’s attempt to win support for its plan for a radical break-up of its audit and consulting businesses.
NatWest will drop EY after a competitive tender process that has run since June, five people briefed on the decision told the Financial Times. The changeover could be announced as soon as Friday morning alongside the bank’s quarterly results, three of these people added.
The decision, likely to be worth about £400mn over 10 years, comes as EY’s senior bosses aim to convince clients, regulators and their own partners that the firm will still be able win big audit mandates and robustly inspect companies’ accounts if it goes ahead with a plan to spin off its consulting business. EY’s partners are set to vote on the proposal in the coming months.
EY was paid £40mn for checking NatWest’s 2021 financial statements and a total of £217mn since taking over from Deloitte in 2016 when the banking group was branded as Royal Bank of Scotland. EY is likely to remain in place until the 2025 accounts are signed off, said one of the people briefed on the matter.
NatWest’s decision, which will need shareholder approval, follows a similar move by the London Stock Exchange Group, which switched to Deloitte weeks after EY’s break-up plan became public. It is not known how significant the prospect of EY’s splitting its business was in NatWest’s or LSEG’s decision.
Large UK-listed companies are required to tender their audit once a decade but often run the competitions years in advance so the incoming auditor can finish consulting work to avoid conflicts of interest.
Changing auditor, which is required every 20 years, is costly and disruptive but companies sometimes opt to switch more frequently.
EY, which audits 24 of the FTSE 100 and five of the UK’s nine largest banks, won the audit of PwC client Aviva in a competition run last year before its break-up plan was revealed. It won a role auditing French bank BNP Paribas in the weeks after its break-up plan became public.
EY’s global bosses announced last month that they planned to press ahead with a once-in-a-generation break-up of the firm. The move will create a standalone consulting company and a separate audit-dominated firm that would retain some specialists to support auditors’ work in areas such as asset valuation and tax.
Rivals have questioned whether the audit-dominated firm would be able to attract and retain enough of these specialists. EY has countered that a split would allow for more investment in improving its audits.
NatWest and PwC declined to comment. EY said it did not comment on companies it audits.