PricewaterhouseCoopers faces up to £1m fine over JP Morgan Securities' audits

Accounting giant PricewaterhouseCoopers is expected to be fined up to £1m in respect of seven years of auditing JP Morgan Securities.

Telegraph | December 23, 2011
By Anna White

The Accounting and Actuarial Disciplinary Board, a subcommittee of the Financial Reporting Council (FRC), is expected to announce the penalty in the New Year.

Sources close to the case claim the fine will be between £500,000 and £1m, which is around 2pc of the £34m initially envisaged by some.

The Financial Services Authority slapped a £33.2m penalty on JP Morgan Securities Limited (JPMSL) last year for not properly separating client money from the firm's accounts.

An average of £5.5bn wasn't fully segregated in an error that went undetected by auditor PwC between 2002 and 2008.

At the auditor's hearing last month the AADB claimed it was seeking fines that top the £1.2m sanction against Coopers & Lybrand in 1999.

The independent arbitrators in London were due to decide the penalty size by December 16, but will delay the announcement until January.

The formal complaint against PwC was filed in August by the FRC's executive counsel, Cameron Scott.

Scott alleged that the largest of the big four firms "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."

During the November hearing the AADB's counsel, Simon Brown-Williamson, said such "serious misconduct will attract serious consequences."

He argued the potential for loss of un-segregated funds at times as much as £14.8bn if JPMSL became insolvent was so great that the strictest penalties must apply.

PwC's lawer, Tim Dutton, of Herbert Smith maintained it was an "honest error."

He claimed JPMSL shortcomings were to blame as it omitted to flag up non-segregation of client assets, rather than systemic audit failure.

Throughout the hearing the City law firm fought for minimum sanctions between £500,000 and £1m.

The AABD refused to confirm the size of the fine but said "we expect to publish the tribunal's decision in this matter early in the New Year."

PwC declined to comment.

The accountancy firm faces another an investigation by the AADB into possible misconduct in relation to Barclays Bank audits.

Barclays' investment banking arm, Barcap, didn't segregate client money over an eight-year period.

This inquiry will determine whether auditors, PwC, failed to spot this lack of compliance.