The Financial Reporting Council (FRC) has fined KPMG £3.5m in relation to Client Assets Reports in respect of The Bank of New York Mellon London Branch and The Bank of New York Mellon in 2011.
Following a hearing on 21-23 May 2019 The FRC tribunal decided on sanctions that included KPMG paying a fine of £5m, discounted by 30% for admissions of misconduct, to £3.5m, a severe reprimand and a requirement for a quality performance review process affecting each person who signs a Client Assets Report on behalf of KPMG.
It also concluded that the auditor is required to provide written reports to the FRC on “the details, conclusions and actions” arising from the reviews. The review process is to last three years. Each person who signs a Client Asset Report during that period shall be subject to at least one quality performance review in respect of their CASS audits.
Richard Hinton, a director at the firm, who signed the 2011 Client Assets Reports on behalf of KPMG, had previously admitted misconduct and as such was reprimanded and fined £75,000, discounted by 30% for admissions of misconduct, to £52,500.
The tribunal found that “the misconduct consisted of a failure to understand and to apply fundamental rules of CASS, requiring the banks to keep their own records and carry out their asset reconciliations on their own legal entity basis. No dishonesty or recklessness was involved but the misconduct involved the misapplication of rules that – are of very great importance to the financial system.”
The FRC stated: “The substance of KPMG’s misconduct lies in its failure to ensure appropriate training, support and supervision for the 2011 CASS audits of the Banks, in a context that could scarcely be more important. The size of the fine must demonstrate to the Respondents, the profession and the public the very great importance of ensuring that these regulatory rules are correctly applied and complied with.
“It must act as a deterrent against failures to comply with regulatory requirements. The appropriate fine must take into account KPMG’s poor disciplinary record in relation to audits, but also the steps it has taken to prevent a recurrence and its part in promoting effective CASS audits since 2012. We also take into account that a fine should not be such as to deter accountants from accepting audit or CASS audit engagements.”
Commenting a spokesperson for KPMG told Accountancy Today: “It is important to note that no client of either The Bank of New York Mellon (International) Limited or The Bank of New York Mellon London Branch suffered actual financial or other loss and this case does not relate to client money. Our separate audit opinions on the financial statements have not been called into question.
“We regret that aspects of our work did not meet the standards expected by our regulator. CASS regulation has evolved significantly since this case and we have fundamentally enhanced the procedures governing our work.”
The spokesperson added: “We are pleased that in its verdict, the Tribunal noted the steps we have taken to prevent a recurrence and our part in promoting effective CASS audits since 2012 and the additional mandatory training we have implemented to enable us to deliver the best quality work. We are happy to undertake the additional review process outlined by the FRC as part of our drive to improve audit quality.
“We have cooperated with the FRC over the last four years to bring this investigation to a close and we are committed to bringing these historical cases to a swift conclusion.”