Fines imposed on KPMG should be used to ease plight of 1,200 Silentnight pension scheme members, says MP

The All Party Parliamentary Group on Fair Business Banking (APPG) made the comments after KPMG was fined £13m and severely reprimanded by the Financial Reporting Council (FRC) last year for breaches of conduct in respect of its work for the Silentnight group of companies. The fine related to the conduct of KPMG and one of its former partners from August 2010 to April 2011.

In a letter to the The Institute of Chartered Accountants in England and Wales (ICAEW), Kevin Hollinrake MP, the co-chairman of the APPG, said Silentnight’s pension scheme members are facing reductions in their pension income because the scheme will be transferred to the Pension Protection Fund (PPF)

The letter said: “We are seeking your urgent support to pass on the fines levied upon KPMG to the Silentnight Pension Scheme.”

However, in reply, Michael Izza, the chief executive of the ICAEW, said: “While the board had sympathy with the way in which members of the pension scheme may be adversely affected by the administration of Silentnight in 2011, it noted that the accountancy scheme – which is the relevant regime governing how cases are dealt with by the FRC – was never intended to operate as a compensation scheme for third parties who may have suffered losses as a result of actions of ICAEW members and member firms.”

Mr Hollinrake said: “Clearly the ICAEW are within their rights but I would like to see the Government applying pressure on them to do the right thing.”

However, an ICAEW spokesman said the fine money was not a windfall for the ICAEW.

The spokesman said money from FRC fines comes into the ICAEW reserves where it is used to fund strategic projects “which address public interest matters and support the development of the wider profession”.

The spokesman said: “In recent years this has included social mobility programmes such as BASE and RISE, our international capacity building programme, and our educational films.”

The ICAEW spokesperson added: “As the largest insolvency regulator in the UK, we agree that reform is long overdue. We consider the biggest problem to be the regulatory framework itself, which is currently focused on the regulation of individual IPs and so prevents complaints - and substantial penalties in cases of misconduct – to be brought against firms.

“The Silentnight case was brought under the Accountancy Scheme introduced in 2004, rather than under the current insolvency framework. The Accountancy Scheme required all of the accountancy professional bodies to fund all costs incurred by the regulator (now the FRC) in investigating public interest complaints, irrespective of whether complaints were subsequently proved, and financial penalties imposed.

“The Accountancy Scheme was never intended to be a compensation scheme for third parties who may have suffered losses as a result of actions of ICAEW members and member firms, and this would have complicated the rights of third parties to seek redress through the courts.

“While a substantial penalty was ordered to be paid by KPMG in relation to Silentnight, many other investigations since 2004 have not resulted in disciplinary proceedings against firms. In those cases, ICAEW and the other bodies have borne all of the costs. Even where fines have been imposed, many of the costs orders have not fully reimbursed the bodies for the whole costs of the investigations.

“As a result of the FRC taking some larger cases (such as Silentnight) out of ICAEW’s own disciplinary scheme, that scheme – put in place to protect the public – ran at a significant annual loss due to the costs of operation exceeding total fines and costs recoveries. ICAEW must also continue to fund investigations of all new complaints brought by the FRC under the Audit Enforcement Procedure, whether or not allegations are proved, and fines imposed with all future fines going to HM Treasury.

“We have explained all of this in correspondence with the lawyers acting for the Silentnight Pension Trustees."

“ICAEW is a professional body serving the public interest, as required by the terms of its Royal Charter."

At the time of the ruling KPMG said the report made "difficult reading" and said it accepted the findings and regretted that professional standards expected of its partners were not met in this case.

"We no longer provide insolvency services and we have improved our broader controls and processes significantly since this work was performed in 2010," KPMG UK CEO Jon Holt said in a statement.

KPMG will reflect on the tribunal's findings carefully to learn lessons, Mr Holt said.

The Insolvency Service is currently consulting on proposals to overhaul insolvency regulation to improve transparency by introducing a single independent government regulator.

The Insolvency Service also confirmed that what happens to a financial penalty is a matter for the ICAEW, as the recognised professional body in this case.

Last year, The Pensions Regulator (TPR) revealed it had agreed a settlement in its anti-avoidance case against the current owners of the bed manufacturer Silentnight.

HIG Group has paid £25 million to the scheme. The targets of TPR’s action, certain entities, members and executives, or former members and executives, of the HIG Group, disputed the case.

At the time, a source close to HIG stressed that the settlement, which HIG has made with no admission of guilt, draws a line under a 10-year dispute between parties with diverging opinions.

The Pensions Regulator said in a statement: "While the £25 million settlement is a substantial sum, the settlement, plus the additional recoveries from the liquidation, will not eradicate the scheme’s deficit on a Pension Protection Fund (PPF) basis, so it is expected to transfer to the PPF. The scheme has 1,200 members."

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