$2m Fine Hits PwC Over JPMorgan Client-Money Audit

Jack Humphrey, Regulatory journalist
January 06, 2012 /

The Executive Counsel of the Accountancy and Actuarial Discipline Board (AADB) has filed an admitted disciplinary Complaint against PwC in relation to its role in reporting to the FSA on JPMSL’s compliance with the FSA’s Client Money Rules, which govern the segregation and protection of client money.

A record fine of $2.17 million has been imposed on PwC for failing to report on client-money accounts at JPMorgan Chase & Co. (JPM)’s London securities unit.

The accounting firm accepted that its conduct had fallen short of the standards reasonably to be expected of members and member firms in relation to the reports it prepared and submitted to the FSA for the years ended 31 December 2002 – 31 December 2008.

Bloomberg reported: ” PwC failed to notice that J.P. Morgan Securities Ltd. hadn’t properly segregated an average of $8.6 billion of client funds from the firm’s accounts in reports to the U.K.’s Financial Services Authority for the seven years through 2008.”

It was a year after when JPMorgan discovered the error and reported it to PwC and the Financial Services Authority, which fined the bank 33.3 million pounds in 2010.

In particular, PwC admitted that it 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.

As a consequence PwC wrongly reported to the FSA that JPMSL had maintained systems adequate to enable it to comply with the Client Money Rules throughout the relevant period and was in compliance with the Client Money Rules.

PwC admitted that it failed to obtain sufficient appropriate evidence on which to base these opinions and failed to identify and consequently did not report that JPMSL had not at all times held client money separate from the firm’s money and/or had not taken the necessary steps to ensure that client money was held at all times in an account identified separately from any accounts used to hold money belonging to JPMSL, in breach of the Client Money Rules.

The Tribunal found that PwC had committed misconduct in respect of each allegation in the disciplinary Complaint before it.

The Tribunal found the misconduct in this case to be “very serious” and therefore imposed a severe reprimand on PwC. It ordered that PwC should pay a record fine of £1.4 million, reduced from £2 million for cooperation and other mitigation, and the AADB’s costs in investigating and prosecuting the case.

PwC said in a statement to Bloomberg: “We regret that one aspect of our work on the private client money report to the FSA fell beneath our usual high standards. When the issue was identified, and before any complaint had arisen, we took action to ensure that staff received additional training in the client monies area.”


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