On a number of occasions here in Financial Regulation Matters we have discussed the credit rating and audit industries. They have taken up a number of posts on account of their negative and impactful behaviour, and in most of the posts we attempt to conclude as to why they a. act in such a manner, b. are allowed to continue acting in such a manner, and c. what may be done to alter that behaviour. Often, we conclude by discussing the oligopolistic features of their industry and implying that those dynamics are the fundamental answer to all three aspects. However, the word oligopoly is sometimes defined within the posts, but often it is not elaborated what the concept is and why it is so impactful within these financial industries that are so crucial. In this post we will dissect the concept of an oligopoly and examine why the two identified industries are absolutely defined by the concept. The term oligopoly roughly derives from the Greek words oligoi – meaning ‘few’ – and p...

In today’s post, the focus will be on the so-called “Big Four” audit firms – PwC, KPMG, Deloitte, and E&Y – after details of the collapse of construction firm Carillion continue to have a significant effect. We will examine these calls to dismantle the long-standing oligopoly, but there will be a discussion about what these calls actually mean. This author has advanced the notion of a ‘divergence’ existing when it comes to regulating oligopolies (specifically in relation to the Credit Rating industry), and it will be discussed whether this is the case in this particular instance also. There will also be some reference to a forthcoming book by this author on this very topic. The calls for the dismantling of the audit oligopoly could stem from a number of instances in reality, but the current calls stem from the collapse of Carillion. We have covered this collapse here in Financial Regulation Matters since the first warning-signs were uttered, but the revelations regardin...