October 23, 2018

BNY Mellon Client Asset Reports Were Seriously Bungled by KPMG, U.K. Watchdog Says

Oh jeez, KPMG U.K. is in trouble again with the Financial Reporting Council.

Per Reuters:

KPMG and one of its partners have admitted to serious failings in compliance reports for Bank of New York Mellon, Britain’s accountancy watchdog said, potentially leading to heavy fines as the auditor comes under unprecedented scrutiny.

The Financial Reporting Council (FRC) said on Wednesday that KPMG, one of the world’s “Big Four” accountants, and partner Richard Hinton admitted to misconduct after an investigation into 2011 reports on client assets held by BNY Mellon and its London branch.

At their peak, the client assets held by BNY Mellon were worth more than £1 trillion.

Back in April 2015, BNY Mellon was fined £126 million by Britain’s Financial Conduct Authority for failing to keep customer money safe during the financial crisis.

And guess who was responsible for reporting to the FCA in 2011 that BNY Mellon was complying with the FCA’s rules on client assets? Yep, KPMG!

An FRC investigation, which began in June 2015, found that KPMG dropped the ball:

KPMG and Hinton failed to give adequate consideration on whether the records of custody relationships maintained by BNY Mellon were compliant with certain rules, the FRC said on Wednesday.

In addition, KPMG and Hinton “failed to undertake sufficient audit procedures to support the opinions set out in the 2011 client asset reports made to the FCA,” the FRC said.

No client is believed to have lost money as a result of KPMG’s compliance report fail, according to the FRC.

And, of course, KPMG regrets all the bungling:

“In 2011, the FRC issued new guidance applicable to Client Assets Reports. We accept and regret that our work did not fully reflect all aspects of this new guidance. Since that time, there has been further fundamental change in the regulatory environment and we have significantly enhanced our [client asset] procedures and training to reflect this.”

But the firm said it could not agree with the FRC on what sanctions should be imposed.

So, a disciplinary tribunal will be convened to decide KPMG’s penalty. The FRC told Reuters that there is no upper limit to any financial penalty the tribunal might impose and that the largest fine issued under the relevant guidance scheme was £10 million.

Related articles:

Stop Me If You’ve Heard This One Before: FRC Reprimands KPMG U.K. for Crappy Audit
Does the ‘P’ in KPMG Stand for ‘Probes?’
U.K. Accounting Regulator Chides KPMG For ‘Unacceptable’ Decline in Audit Quality

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Rumor Mill: KPMG Restructuring Plans

Thumbnail image for PomeranianSP1324.jpgWe’ve finally received some details on a possible restructuring at the House of Klynveld in the U.S.
According to our source, the plans were announced over the past week on a series of calls by Tim Flynn. The firm would be consolidated down to two regions, East and West and each would have a regional managing partner and one service line managing partner per region.
This would result in the elimination of one level of regional leadership and would transfer several partners into client-facing roles.
The restructuring would also include placing some partners on ‘profit improvement plans’ and some layoffs would occur over the next year. Additional staff layoffs would occur across all ranks over the next year as well.
The bad news is obvious. The silver lining, as some of our other sources have indicated, is that the Firm would be eliminating at least one level of bureaucracy that should allow partners to be more active in developing potential client relationships.
Messages left with KPMG were not immediately returned. We’ll update you with any response that the firm gives us.
If you can expand on of the details we mentioned on this restructuring, let us know, otherwise, discuss your thoughts in the comments.
Earlier: KPMG Atlanta Shake-up Makes Us Wonder
UPDATE, 4:45 pm: Regardless of this rumor, we learned a short time ago that KPMG admitted thirty-six new partners last month. Seventeen in Audit, twelve in Tax, and seven in Advisory. Congrats to the new partners! No, seriously. Good job.