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The Regulator Originally Wanted To Fine PWC A Penalty Running Into The Tens of Millions


PricewaterhouseCoopers faces a record fine of £1.4 million and has been severely reprimanded for failing to realise that client money had not been properly protected at JPMorgan Securities, a regulator said on Friday.
The regulator reduced the fine from £2 million to £1.4 million for cooperation and other mitigation, but the regulator originally wanted to hit PwC with a penalty running into tens of millions of pounds.

The case brought by the Accountancy and Actuarial Discipline Board (AADB) – part of the UK's governance watchdog the Financial Reporting Council – is viewed as a changing trend for regulators to clamp down harder on failures by auditors, considered by some politicians to have too cosy a relationship with clients, in particular banks, in the wake of the credit crunch.

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The AADB said PwC had accepted that its conduct had "fallen short of the standards reasonably to be expected" of auditors and that the firm "did not carry out its professional work in relation to these reports with due skill, care and diligence".

PwC, the world's largest auditor that checks the books of the majority of the top UK companies, admitted that it "failed to obtain sufficient appropriate evidence" in identifying that the US bank JPMSL "had not at all times held client money separate from the firm's money".

In the seven years in question, JP Morgan carried out daily "sweeps" of balances of segregated client money into consolidated overnight, interest-bearing accounts at the bank, the AADB said.
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This means that PwC's reports to the Financial Services Authority about the ringfencing of client money were "false".

As a result the FSA fined JP Morgan £33.32 million for failing to keep client assets separate at all times from the bank's money over a seven-year period. The fine represented 1 percent of the average amount of the client money allowed to be desegregated, the AADB said.

If the AADB had fined PwC in the same way – 1 percent of its profits – PwC would have faced a penalty of £44.3 million – a similar proportion of PwC's pre-tax profits for the year ended 30 June 2010.

PwC said: "We are pleased that this matter has now been concluded. We regret that one aspect of our work on the private client money report to the FSA fell beneath our usual high standards. When the issue was identified, and before any complaint had arisen, we took action to ensure that staff received additional training in the client monies area.

Source: Ramachandran Mahadevan : E-Mail : ramachandran.mahadevan@gmail.com

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