News September 2018 KPMG admit Misconduct in connection with client asset reports for BNY Mellon entities

KPMG admit Misconduct in connection with client asset reports for BNY Mellon entities

19 September 2018

The Financial Reporting Council (“FRC”) announces that KPMG Audit Plc (“KPMG”) and Richard Hinton (a partner) have admitted Misconduct under the FRC’s Accountancy Scheme in relation to their reports to the FCA on compliance by The Bank of New York Mellon (International) Limited (“MIL”) and The Bank of New York Mellon London Branch (“MLB”) with the FCA’s Client Assets Sourcebook (“CASS”) for the year ended 31 December 2011.

Accordingly, a Formal Complaint has been delivered by the FRC’s Executive Counsel. A Disciplinary Tribunal will be convened to decide what sanctions should be imposed.

KPMG and Mr Hinton have admitted that their conduct fell significantly short of the standards to be reasonably expect of a member firm and member (respectively) of the ICAEW, in that they:

  1. failed to give adequate consideration as to whether the records of custody relationships maintained by the BNY Mellon Group were compliant with the CASS rules and/or as to the implications for CASS compliance by MLB and MIL of the Global Securities Processing platform being maintained and operated by the BNY Mellon Group on a global group (rather than individual firm) basis; and as a result
  2. failed to undertake sufficient audit procedures to support the opinions set out in the 2011 client asset reports made to the FCA.
The allegations relate to custody assets held by MIL and MLB worth, at their peak, over £1 trillion. It is not alleged that clients lost money or assets as a result of the Misconduct.  

The FRC’s investigation was opened in June 2015 following a referral from the FCA.

A date for the Tribunal hearing will be announced in due course.

Notes to editors:
  1. 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.
  2. 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
  • Investigation
  • 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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