KPMG to face FRC sanction hearing over BNY Mellon audit failures

The Financial Reporting Council (FRC) is to hold a disciplinary tribunal next month to decide the sanctions to be levelled on KPMG and partner Richard Hinton in relation to their acknowledged failures in the auditing of the Bank of New York Mellon

In September, the FRC announced that the firm and Hinton had admitted misconduct in connection with client asset reports prepared for BNY Mellon entities in 2011.

The regulator opened its investigation in 2015 in relation to KPMG’s reports to the Financial Conduct Authority (FCA) on compliance by The Bank of New York Mellon (International) Ltd (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 2011.

Following this, KPMG and Hinton admitted that their conduct fell significantly short of the standards to be reasonably expect of a member firm and member of the ICAEW.

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 also failed to consider 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 and individual firm basis.

As a result, the firm and Hinton failed to undertake sufficient audit procedures to support the opinions set out in the 2011 client asset reports made to the FCA.

The allegations relate to custody assets held by MIL and MLB worth, at their peak, over £1 trillion. The FRC said there was no allegation that clients lost money or assets as a result of the misconduct.

The FRC’s original decision to investigate followed the FCA’s decision in April 2015 to fine BNY Mellon £126m for failing to keep client money safe during the financial crisis.

The disciplinary tribunal, to be held on 21 May, will be limited to the consideration of any sanction(s) to be imposed upon KPMG and/or Hinton.

Pat Sweet

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