It may be recalled that the Client Money failings at J P Morgan Securities Ltd (JPMSL) resulted in an eye-watering financial penalty of £33.32M being imposed by the FSA in June 2010 (see Regulatory Roundup 16).
The failings, concerning the segregation of client money, occurred over the period 1 November 2002 to 8 July 2009. In the seven financial years within that ‘Relevant Period’ the financial statements were audited by PwC. In that time, PwC had complied with SUP 3.10.4 and SUP 3.10.5 which essentially requires a firm’s auditor to submit an annual client assets report to the FSA confirming that the firm has been in compliance with all the client money/custody rules and that it maintains adequate systems in place to comply with those rules (or, where applicable, confirm that the firm does not hold client money/assets). Ironically it was JPMSL that discovered its client money failings and not PwC – the latter confirming every year that there were effectively no client money issues.
The Accountancy and Actuarial Discipline Board (AADB) issued a formal complaint against PwC (obviously the FSA would have no jurisdiction over the auditor) for conduct falling short of expected standards.
The AADB considered various penalties which could be imposed on PwC. The penalty of £33.32M imposed on JPMSL by the FSA represented 6.9% of the firm’s after tax profits in the year it was levied. A similar proportion of after tax profits at PwC would be £44.3M, representing £40,634 per member. After discussions a fine of £1.4M, plus costs, was imposed on PwC for its failings.
