British regulators have called for KPMG to be fined at least a record £ 12.5m for misconduct in its work for the Bank of New York Mellon, dealing with another heavy blow to the reputation of the Big Four accounting firm.
According to international media, the British Financial Reporting Council, the audit industry’s watchdog, said at a London hearing today the penalty would be justified because of the size of the US bank’s operations and the “truly exceptional” seriousness of the abuses.
While KPMG and one of its employees admitted they had acted improperly last year, the firm’s lawyers on Tuesday attacked the FRC’s proposed penalty as “extravagant” and “gargantuan.”
Due to the disagreement over the size of the fine an Independent disciplinary tribunal will decide the appropriate sanction after the three-day hearing. The largest sanction imposed by the FRC was the £ 6.5m penalty paid last year for misconduct on its audit of retailer BHS.
The latest case relates to reports produced by KPMG on how assets, which were submitted to the UK’s Financial Conduct Authority in 2011. The work, which referred to about £ 1tn of client assets held in custody by the US bank, fell short of UK standards designed to protect customers.
The tribunal is another blow to the reputation of KPMG, which has been criticized by politicians and regulators over the past two years for substandard work in the UK, South Africa and the US.
This month it was fined £ 5m for “failing to exercise sufficient professional skepticism “over a 2009 audit of the cooperative bank, soon after a £ 6m penalty for a failed audit of motor insurer Equity Red Star at the end of April.
KPMG was also fined twice by the FRC last year , rec Ewing a £ 2m penalty over its work for retailer Ted Baker and a £ 3m fine for its work for insurance software firm Quindell.
Last June, the FRC criticized the company for an “unacceptable deterioration” in the quality of its audit work for large listed companies in the UK. KPMG is also under investigation by the FRC for its work at collapsed UK contractor Carillion, which was audited by the firm for 19 years.
“We accept and regret that some of our work did not fully reflect all aspects of the new guidance ”And have enhanced our procedures since, at KPMG spokesman said of the BNY Mellon case. “We are committed to operating with our regulator to bring these historic cases to conclusion as possible as possible.” BNY Mellon itself was a record £ 126m by the FCA in 2015 for failing to comply with rules that required customer accounts at its London branch and its international unit are kept properly ringfenced between 2007 and 2013.
