The watchdog panel which cleared KPMG of wrongdoing over the collapse of HBOS was stuffed with former staff members of the tainted accountancy firm.

An investigation by the Mail has found at least three former KPMG employees served on the committee which oversaw the investigation into the firm’s audit of the toxic lender.

Together, these three had more than 65 years’ experience with the firm.

On top of this, the regulator is chaired by grandee Sir Win Bischoff, who was chairman of the bank which rescued HBOS, Lloyds, from 2009 until 2014.

Lloyds bought HBOS for £12billion in 2008, then got £20.5billion of taxpayers’ cash to keep it afloat.

Conflict of interests: At least three former KPMG employees served on the committee which oversaw the investigation into the firm’s audit of toxic lender HBOS

This week, the Financial Reporting Council (FRC) dropped a probe into KPMG’s 2007 audit of HBOS, which was given a clean bill of health months before collapsing. Last night, MPs demanded a second probe into potential conflicts of interest.

The Mail asked the FRC to confirm whether any of the former KPMG staff were involved in the investigation - but it refused to reveal any details.

Liberal Democrat leader Sir Vince Cable said: ‘The vast majority of KPMG staff behave with integrity.

But the FRC really should have fallen over backwards to ensure there was no conflict of interest, and to proceed with the investigation rather than letting it drop.’

Former City minister and crossbench peer Lord Myners said: ‘Issues of perception always arise when a regulator makes a decision involving a firm where its senior directors were employed. Full declaration of an interest is necessary but barely sufficient.’

The watchdog only reluctantly probed last year after pressure from the Treasury Select Committee, and decided on Tuesday not to take the probe further.

Paul George, left, is head of FRC corporate governance, and has worked at KPMG for 14 years Sean Collins, right, is a member of FRC’s conduct committee and has worked at KPMG for 40 years

But the Mail found that three former bosses at the firm have since held senior investigative roles at the regulator – particularly on the conduct committee tasked with investigating KPMG.

Paul George was FRC executive director of conduct until 2016, shortly before the probe was announced and is now head of corporate governance and reporting at the watchdog. He worked at KPMG from 1985 until 1999.

Joanna Osborne was deputy chairman of the conduct committee tasked with investigating the firm’s actions. She left KPMG in 2011 after 21 years and is on the financial reporting review panel.

One member of the 13-strong conduct committee is Sean Collins, who was at the accountant from 1972 until 2012.

Had a decision been made to take the probe further, KPMG’s actions would have been judged by a tribunal with 21 members, who include Anthony Cory-Wright – a KPMG audit partner until 2012 – and another former partner John Alexander.

Others who worked at the firm include Stephen Oxley on its audit and assurance council, and Chris Buckley on its corporate reporting council.

Refusing to say if former KPMG staff played a part in the probe, an FRC spokesman said: ‘There is a robust conflict of interest policy in place that ensures that any member of the conduct committee which decides on enforcement action plays no part in decisions where there may be a conflict of interest.

‘The decision to prosecute a case is an evidential test and executive counsel must decide if there is a realistic prospect that a tribunal would make an adverse finding of misconduct.’