BIG Four accountancy giant PwC has been fined a record £1.4m for wrongly telling regulators for seven years that JPMorgan Securities was keeping its clients’ money safe.
The successful case brought by the Accountancy and Actuarial Discipline Board is the latest sign of how watchdogs are taking a harder line on auditors, seen by policymakers as being too soft on banks in the run-up to the financial crisis.
The AADB said PwC, which checks the books of most blue-chip companies, admitted it failed to obtain “sufficient appropriate evidence” to report that JPMorgan Securities complied with strict client money rules spanning several years.
Most of the client money from futures and options trading was being daily “swept” into interest-bearing, unsegregated accounts overnight at JPMorgan Chase bank, the firm’s parent, the AADB said.
In 2010 the Financial Services Authority slapped a record £33.32m fine on JPMorgan Securities for failing to keep client money separate at all times from the firm’s money over a seven-year period to July 2009.
Sums ranging between $1.9bn and $23bn of client money were being held in unsegregated accounts that would have been at risk of loss had the lender become insolvent, the FSA said.
Yesterday the AADB said an independent tribunal found that PwC’s misconduct was “very serious.”
The tribunal would have fined PwC £2m but reduced the penalty because the auditor had cooperated.
The tribunal also made PwC pay the AADB’s costs in investigating and prosecuting the case.
The AADB had proposed a £6m fine, while PwC had suggested to the tribunal the fine should be at the lower end of a £500,000 to £1m range.
“It’s an appropriate penalty, given the framework the tribunal had to deal with,” Tom Martin, AADB executive counsel, said.
Sanctions are being reviewed, however, as part of updating the Financial Reporting Council, the regulatory umbrella group to which the AADB belongs.
“We think there may be a time for debate about the level of sanctions for firms the size of the Big Four,” Mr Martin said.
The tribunal said that it was “surprised and concerned” that no partner at PwC has been named in relation to the case.