KPMG UK and one of its partners, Richard Hinton, have admitted misconduct to the UK’s Financial Reporting Council (FRC) under the regulator’s Accountancy Scheme for work conducted for BNY Mellon entities.
The misconduct was in relation to their reports to the Financial Conduct Authority (FCA) on compliance by The Bank of New York Mellon (International) (MIL) and The Bank of New York Mellon London Branch (MLB) with the FCA’s Client Assets Sourcebook (CASS) for the year ended 31 December.
KPMG and Hinton admitted they failed to give adequate consideration as to whether the records of custody relationships maintained by the BNY Mellon Group were compliant with the CASS rules and/or as to the implications for CASS compliance by MLB and MIL of the Global Securities Processing platform being maintained and operated by the BNY Mellon Group on a global group, rather than individual firm, basis.
As a result of this, KPMG and Hinton failed to undertake ‘sufficient audit procedures’ to support the opinions set out in the 2011 client asset reports made to the FCA.
These allegations relate to custody assets held by MIL and MLB which, at their peak, were worth over £1trn ($1.3trn). However it is not alleged that clients lost money or assets as a result of the misconduct.
KPMG and Hinton have admitted their conduct fell significantly short of the standards to be reasonably expected of a member firm and member, respectively, of the Institute of Chartered Accountants in England and Wales (ICAEW).
A KPMG spokesperson said: “In 2011, the FRC issued new guidance applicable to Client Assets Reports. We accept and regret that our work did not fully reflect all aspects of this new guidance. Since that time, there has been further fundamental change in the regulatory environment and we have significantly enhanced our CASS procedures and training to reflect this.
“We have cooperated fully throughout the investigation. In this instance we could not agree with the FRC on the level of appropriate sanctions and these will now be determined by an independent tribunal.”
A disciplinary tribunal will be convened to decide what sanctions should be imposed. A date for the tribunal is yet to be announced.