Audit firm PricewaterhouseCoopers UK (PwC) could face an investigation for allegedly failing to notice the investment bank JP Morgan placed as much as £16bn ($23bn) of client’s funds into incorrect bank accounts over a seven-year period, according to a British newspaper.
The Financial Services Authority (FSA) last week fined JP Morgan £33.3 million for a breach of rules governing segregation of client money.
The FSA alleged client money from JP Morgan’s futures and options business was placed in the bank’s own accounts from 2002 until July 2009, as opposed to accounts that are ring-fenced from the bank. Under the FSA’s client money rules, investment entities are required to keep client money separate from their own money in segregated accounts with trust status.
The auditor’s role
PwC was JP Morgan’s main auditor and is also responsible for producing the bank’s client asset returns report as required by the FSA to ensure customer fund protection.
The Daily Telegraph reported that the FSA could refer PwC to the Financial Reporting Council and the Financial Reporting Council (FRC) and the Institute of Chartered Accountants in England and Wales (ICEAW) for further investigation. The accounting regulators would investigate whether auditors can be held liable for allegedly failing to identify that JP Morgan’s breach of FSA rules.
Without confirming PwC was on the FRC’s radar, a spokesman told the International Accounting Bulletin it was “liaising closely with the FSA and will consider whether any action needs to be taken”.
When approached, PwC, the FSA and the ICEAW declined to comment.
JP Morgan’s £33m fine is the largest financial penalty ever handed down by the FSA.