FRC to probe KPMG over role in BNY Mellon compliance with FSA client asset rules

KPMG is facing another Financial Reporting Council (FRC) investigation, this time into its activities at the Bank of New York Mellon.

The probe concerns the bank’s London branch and BNY Mellon International and relates to KPMG’s role in reporting to the then Financial Services Authority on BNY Mellon’s compliance with its client asset rules for a period spanning five years, between 2007 and 2011.

The investigation follows the Financial Conduct Authority’s (FCA) decision to slap the world’s largest custody bank with a £126m fine in April for failing to protect customer assets during the financial crisis.

The dramatic failure of Lehman Brothers in 2008 provoked UK regulators to investigate whether custody banks like BNY were conforming with safe keeping rules among the financial turmoil.

At the time, Georgina Philippou, the FSA’s acting director of enforcement and market oversight, said. “The firms’ failure to comply with our rules including their failure to adequately record, reconcile and protect safe custody assets was particularly serious given the systemically important nature of the firms and the fact that safeguarding assets is core to their business.”

The audit and accounting watchdog said it had launched its investigation “under the Accountancy Scheme into the conduct of KPMG Audit plc, auditors to The Bank of New York Mellon London branch and The Bank of New York Mellon International Limited, in relation to its role in reporting to the FSA on BNY Mellon’s compliance with the FSA’s client asset rules for the years ended 31 December 2007 to 31 December 2011.”

Last year KPMG was subject to a damning Treasury Committee report into the Co-op Bank’s failed bid to acquire hundreds of Lloyds bank branches. As the mutual’s auditors, KPMG failed to uncover the bank’s capital shortfall “until it was too late”.

In January 2014, the FRC launched an investigation into KPMG’s auditing of the Co-op Bank’s accounts up to an including the year ended 31 December 2012.

In December 2014, it was announced that fellow Big Four firm PwC, in its capacity as Barclays’ auditors between 2007 and 2011, was being scrutinised by the FRC in relation to its role in reporting to the then financial services watchdog Financial Services Authority (FSA) on the bank’s compliance with the FSA’s client asset rules.

Barclays was fined £38m by the Financial Conduct Authority in September for failing to correctly protect £16.5bn of its client’s assets.

A KPMG spokesperson: “We are committed to setting the highest standards in our work and will co-operate fully with the FRC in its enquiries.”


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