Audit and Accounting: PwC fined for UK JP Morgan Securities audit failures

AADB statement 6 January 2011

The Executive Counsel of the AADB filed an admitted disciplinary Complaint against PwC in relation to its role in reporting to the FSA on JPMSL’s compliance with the FSA’s Client Money Rules, which govern the segregation and protection of client money.

In summary, PwC accepted that its conduct had, in relation to the reports it prepared and submitted to the FSA for the years ended 31 December 2002 – 31 December 2008, fallen short of the standards reasonably to be expected of members and member firms.

In particular, PwC accepted that it did not carry out its professional work in relation to these reports with due skill, care and diligence and with proper regard for the applicable technical and professional standards expected of it. As a consequence PwC wrongly reported to the FSA that JPMSL had maintained systems adequate to enable it to comply with the Client Money Rules throughout the relevant period and was in compliance with the Client Money Rules.

PwC admitted that it failed to obtain sufficient appropriate evidence on which to base these opinions and failed to identify and consequently did not report that JPMSL had not at all times held client money separate from the firm’s money and/or had not taken the necessary steps to ensure that client money was held at all times in an account identified separately from any accounts used to hold money belonging to JPMSL, in breach of the Client Money Rules.

The Tribunal found that PwC had committed misconduct in respect of each allegation in the disciplinary Complaint before it. The Tribunal found the misconduct in this case to be “very serious” and therefore imposed a severe reprimand on PwC. It further ordered that PwC should pay a record fine of £1.4 million, reduced from £2 million for cooperation and other mitigation, and the AADB’s costs in investigating and prosecuting the case.

Agreed statement of facts: http://www.frc.org.uk/documents/pagemanager/aadb/Tribunal_Reports/Agreed%20Statment%20of%20Facts.pdf

Decision: http://www.frc.org.uk/documents/pagemanager/aadb/Tribunal_Reports/Decision.pdf