PWC FOUGHT for minimal sanctions yesterday after it admitted audit failures in the case of JP Morgan Securities Limited.
Appearing before a disciplinary panel, it argued JPMSL shortcomings were to blame as it omitted to flag up non-segregation of client assets for the seven years to 2008, not systemic audit failure.
PwC committed an “honest error” as it “strove to test segregation and reconciliation of client assets”, argued Tim Dutton of law firm Herbert Smith.
Dutton said the firm’s penalty should be in the region of £500,000 to £1m, saying it would be “appropriate to keep the fine at the lower end due to mitigating reasons”.
“Although the un-segregated sum of client assets was large, the real risk was modest,” he added, noting no individuals were diversely affected by the failure.
The Accountancy and Actuarial Discipline Board’s counsel, Simon Browne-Williamson, said the “crystallisation of risk is irrelevant” and “serious misconduct will attract serious consequences” whether or not disaster struck.
He argued the potential for loss of un-segregated funds -at times as much as $23bn (£14.8bn) – if JPMSL became insolvent was so great that the strictest penalties must apply.
AADB executive counsel, Cameron Scott, said in his opinion, the repeated failure to flag up this infringement of asset rules amounted to institutional failure.
When questioned by the panel, Browne-Williamson was unwilling to recommend a sum for the fine, and Scott said this was because the AADB queried whether it was “right for the prosecutor to suggest a penalty”, calling it “a very difficult question”.
Instead, Browne-Williamson insisted upon “transparency”, saying this was the best way to restore public confidence in the accounting profession and fulfil the AADB’s mandate.
The Financial Services Authority fined JPMSL £33.2m for the breach, equivalent to 1% of the average amount of client assets at risk over the eight years in question.
Browne-Williamson urged the tribunal to adopt a similar tack, suggesting it might consider sums such as the £6.5m fees JPMSL paid to PwC during the period in question.
PwC said: “We acknowledge that we did not maintain our usual high standards. PwC takes very seriously its reporting requirements to the FSA. We hope that the regulatory response will be proportionate to the issue.”
The firm highlighted the training it has implemented as a result of the breach and its efforts to develop a close relationship with the FSA, particularly with regard to client asset best practice.
PwC admitted to the failure relatively early in the proceedings, so its fine will be somewhat reduced. Their cooperation made the case one of the cheapest and fastest in the history of the AADB.
The disciplinary panel now has 15 days to reach a verdict on the penalty.
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