Sanctions against KPMG and others in relation to Equity Syndicate Management Limited
30 April 2019
Sanctions have been levied against KPMG, its partner Mark Taylor, former partner Anthony Hulse and Douglas Morgan a former director of Equity Syndicate Management Limited (ESML), following investigations by the Financial Reporting Council (FRC). An independent Tribunal made findings of Misconduct following a hearing in December 2017 and sanctions were determined following a hearing in October 2018.
- KPMG has been fined £6 million, severely reprimanded and has agreed to undertake an additional internal review and report to the FRC on certain aspects of its 2018 audits of insurance undertakings (to which Solvency II applies and Lloyds Syndicates).
- Mark Taylor has been fined £100,000, severely reprimanded and agreed to the imposition of a requirement to have a second partner review of his audits until the end of 2020.
- Anthony Hulse has been fined £100,000 and received a severe reprimand.
- Douglas Morgan has been excluded from membership of the Chartered Institute of Management Accountants (CIMA) for two years.
The findings of Misconduct and sanctions follow FRC investigations in relation to the preparation and audit of Lloyd’s Syndicate 218 (Equity Red Star) Report and Accounts for the years ended 31 December 2007, 2008 and 2009 and the provision of actuarial advice to Equity Syndicate Management Limited in relation to ESML’s reserving for Lloyds Syndicate 218 between 2007 and 2009, matters referred to the FRC in 2012. A Formal Complaint was delivered in August 2016 following the conclusion of the FRC’s investigations.
The Misconduct of KPMG and Mr Taylor arose from KPMG’s 2008 and 2009 audits of the financial statements of Syndicate 218. The findings against Mr Hulse relate only to the 2009 audit. Mr Taylor was an Associate Partner and the Responsible Individual for the audit of Syndicate 218 and Mr Hulse was the Audit Engagement Partner for the ultimate UK parent undertaking of the corporate member of the Syndicate. The Tribunal found that in both years insufficient enquiries were made regarding the claims file review process and warning signs of deterioration in the Syndicate’s claims reserves were not acted upon, and consequently there was insufficient evidence to provide an unqualified audit opinion.
Mr Morgan’s Misconduct arose from claims file reviews carried out within the business, and under his direction, and which involved claims reserves held by the Syndicate being reduced to meet a pre-determined target. The Tribunal found that the reviews were ‘wholly improper’ and further that Mr Morgan had failed to ensure that proper records were made, or that the reviews were properly disclosed to the Board, the Syndicate's external Actuary or the auditors.
The FRC’s investigation into Syndicate 218 also considered the conduct of the Syndicate's external Actuary. He admitted
misconduct and received a severe reprimand and a fine in August 2017.
The Tribunal also made costs orders against all of the Respondents.
Notes to editors:
- The FRC’s mission is to promote transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
- The FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process under the Accountancy Scheme are:
- Decision to investigate
- Decision whether to bring enforcement proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
- Tribunal hearing
- Determination and imposition of sanction and/or costs orders
Under the Accountancy Scheme the FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.
The criteria are specified in paragraph 5(1) of the Accountancy Scheme. A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Conduct Committee the matter raises or appears to raise important issues affecting the public interest in the United Kingdom and there are reasonable grounds to suspect that there may have been Misconduct or it appears that the Member or Member Firm has failed to comply with any of his or its obligations under paragraphs 14(1) or 14(2) of the Scheme.
Investigations are conducted by Executive Counsel and the Enforcement division.
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