PricewaterhouseCoopers faces fines and possible further disciplinary action for failures in auditing JP Morgan Securities’ compliance with FSA client asset rules.
Under the CASS rules, firms are required to keep clients’ money separate from its own in segregated accounts with trust status.
However, the Accountancy and Actuarial Discipline Board says when PwC prepared compliance reports between 2002 and 2008 for JPMS to hand to the FSA it failed to report that client money held by JPMS’s Futures and Options business was not segregated as required by the rules. It says PwC did not meet the professional standards expected of it.
The statement says: “The formal complaint alleges that PwC 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.”
A PwC spokeswoman says: “It is naturally a matter of regret that in one aspect of our work we did not meet our normal high standards…It would not be appropriate for us to comment further at this stage.”
The year long investigation came after the FSA imposed a record fine of £33.3m on JP Morgan in June last year for not complying with CASS rules between 2002 and 2008.
At the time the regulator said the fine was so high because it was such a “serious breach” involving billions of pounds of clients money over nearly seven years, adding that it also took the fact that JP Morgan did not breach the rules on purpose and that it told the FSA when it found out. The FSA said that if the bank had become insolvent in the financial crisis, the money would have been at risk.
The formal complaint will now be heard by an independent Disciplinary Tribunal. The Tribunal can impose unlimited fines on PwC, exclude them from membership of a professional body or withdraw practising certificates and licences.
The AADB is also looking at similar suspected failing at Ernst & Young in relation to its auditing of Lehman Brothers before the bank collapsed in 2008.