By politics.co.uk staff
The Office of Fair Trading should investigate the Big Four auditing firms, a committee of peers has concluded.
The Lords' economic affairs committee has warned that audit firms' "complacency" and "dereliction of duty" contributed to the financial crisis after an eight-month investigation of its own.
Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers' dominance of the auditing sector "limits competition and choice", their report found.
It said a "self-reinforcing cycle" existed which helped consolidate the Big Four's dominance - and had created "an oligopoly with all the dangers that go with that".
"We feel that this market concentration is of such significance that a thorough review of the issues by the Office of Fair Trading (OFT) and possibly the Competition Commission is now overdue," Lord Macgregor of Pulham Market said.
"Equally important is our support for regular meetings between auditors of financial institutions and regulators to avoid the serious failures of communications between the two which were so starkly revealed by the evidence to us and which contributed to the financial crisis."
The report concluded that auditors were reluctant to destabilise banks, creating a breakdown of dialogue which made the eventual financial crisis much worse.
There is now a growing concern that one of the Big Four might withdraw, leaving a Big Three.
"Loss of one of the Big Four would restrict competition and choice to an unacceptable extent," the report added, stating that this reinforced its call for an OFT investigation.
The government's focus is on improving transparency and disclosure in the auditing sector.
Peers said that approach had "palpably failed" and expressed disappointment that Liberal Democrat minister Ed Davey was not "more ambitious" in his approach to the problem.
It recommended demanding that audit committees hold discussions with principal shareholders every five years and that a regular tender, with a non-Big Four auditor invited to participate, would "promote greater competition to the benefit of both cost and quality".