PricewaterhouseCoopers, one of the world's top four auditing firms, faces possible sanction after admitting it failed to report that JPMorgan bank was not protecting customer funds properly, Britain's auditing watchdog said today.
The complaint spans several years and centres on PwC's reports on how JPMorgan's securities arm complied with UK Financial Services Authority (FSA) rules requiring customer funds to be kept separately from a bank's own assets at all times.
The Accountancy and Actuarial Discipline Board (AADB), part of the UK Financial Reporting Council, said PwC has admitted it did not compile its FSA reports "with due skill, care and diligence and with proper regard for the applicable technical and professional standards expected of it".
Regulators are stepping up pressure on banks to keep customer funds separate from their own at all times.
This follows the collapse in 2008 of Lehman Brothers bank whose UK arm had not complied with segregation rules, making it harder for investors to recover their funds.
In June 2010 the FSA fined JPMorgan a record £33.3 million for failing to protect client funds over several years. The ADDB complaint against PwC covers the years ended December 31st 2002 to December 31st 2008.
The FSA said at the time that no JPMorgan customer lost money, there was no incorrect financial reporting by the bank or deliberate wrongdoing by any party involved.
Under UK disciplinary procedure, the PwC complaint will now be forwarded to an independent tribunal even though the auditor has already admitted to it.
If upheld PwC would face a range of sanctions, including an unlimited fine, exclusion from membership of its professional body and withdrawal of practising certificates or licences.
PwC said it was a matter of regret that in respect to one aspect of its work, it did not meet its normal high standards.
"However, as the Tribunal will be considering this matter in due course, it would not be appropriate for us to comment further at this stage," a PwC spokesman said.
Separately the AADB is also looking at a complaint against another of the "Big Four" auditors, Ernst & Young, over a similar issue in its audit work at Lehman Brothers' UK arm.
Policymakers have complained that the top auditors became too close to banks, giving them a clean bill of health in the run-up to the financial crisis which later forced governments to shore up the sector.
The European Union's executive body is due to present a draft law to shake up the auditing sector in November.
Last month Britain's Office of Fair Trading consumer watchdog said it has referred the sector to a full Competition Commission probe.
Reuters
