* Accounting board wanted much higher fine
* Tribunal "surprised" no PwC partner has been named
* PwC also being probed for Barclays client money breach
* PwC says regrets failure, took speedy action
By Huw Jones
LONDON, Jan 6 Top auditor
PricewaterhouseCoopers has been fined a record 1.4 million
pounds ($2.2 million) in Britain for wrongly telling local
regulators for seven years that JPMorgan Securities was
keeping client money safe.
The case brought by the Accountancy and Actuarial Discipline
Board was the latest sign regulators have been taking a harder
line on auditors, seen by policymakers as being too soft on
banks in the run-up to the financial crisis.
The AADB said on Friday PwC, one of the world's so-called
"Big Four" auditors which check the books of nearly all
blue-chip companies, admitted it failed to obtain "sufficient
appropriate evidence" to report JPMorgan Securities complied
with strict client money rules over several years.
Most of the client money from futures and options trading
was being "swept" daily into interest-bearing, unsegregated
accounts overnight at JPMorgan Chase bank, the firm's parent,
the AADB said.
In June 2010, Britain's Financial Services Authority slapped
a record 33.3 million pound fine on JPMorgan Securities for
failing to keep client money separate at all times from its own
money over a seven-year period to July 2009.
Sums of client money ranging from $1.9-$23 billion were held
in unsegregated accounts that would have been at risk of loss
had the lender become insolvent, the FSA said at the time.
On Friday, the AADB said an independent tribunal found PwC's
misconduct was "very serious".
The tribunal would have fined PwC 2 million pounds but
reduced the penalty because the auditor had cooperated. The
tribunal also made PwC pay the AADB's costs.
PwC said it regretted that one aspect of its work on the
private client money report to the FSA fell below "our usual
"When this issue was identified, and before any complaint
had arisen, we took action to ensure that staff received
additional training in the client monies area," PwC said.
SURPRISED AND CONCERNED
The AADB had proposed a 6 million pound fine, while PwC had
suggested to the tribunal the fine should be at the lower end of
a 0.5-1.0 million pound range.
"It is an appropriate penalty, given the framework the
tribunal had to deal with," Tom Martin, AADB executive counsel,
Sanctions are being reviewed, however, as part of updating
the Financial Reporting Council, the regulatory umbrella group
to which the AADB belongs.
"We think there may be a time for debate about the level of
sanctions for firms the size of the Big Four," Martin said.
The tribunal appeared to call for further action. "We wish
to comment that we have been surprised and concerned that no
partner at PwC has been named in relation to this matter or
proceeded against by the (AADB's) Executive Counsel," it said.
Martin said the AADB planned to take no further action
against PwC in the JPMorgan Securities case.
The complaint against PwC focused on its reports to the FSA
for the seven years to Dec. 31, 2008. The segregation error came
to light on July 8, 2009.
Barclays was fined 1.1 million pounds in January
last year for client money rules breaches, and the AADB is
probing PwC's role as auditor.
PwC, which chalked up gross revenues of $29.2 billion in its
financial year to end-June 2011, was expected to defend its work
in the Barclays issue.
The safety of client money was thrust into the spotlight in
September 2008 when U.S. bank Lehman Brothers went bust. The
AADB is probing auditor Ernst & Young's role in Lehman's failure
to hand back client money in Britain.
Following Lehman's demise, the FSA set up a team to monitor
client money rules, and its fine on JPMorgan Securities was one
of seven fines that have been issued to firms.
Britain's biggest fine for an auditor had been 1.2 million
pounds in 1999, also for PwC, in relation to the failings of
Coopers & Lybrand, which later merged with Price Waterhouse to
form PwC, in its work on the accounts of Robert Maxwell's group