Accounting giant KPMG has been fined$6.1 million by the UK’s watchdog agency, the Financial Reporting Council (FRC), for failing to properly audit client accounts at Bank of New York Mellon, the latest in a series of penalties levied on KPMG for poor performance.

The FRC says KPMG, the auditor of Bank of New York Mellon London Branch and Bank of New York International, and partner Richard Hinton admitted to misconduct in preparing and submitting reports on the company’s compliance with regulatory requirements in 2011.

The FRC reported that in 2011, Bank of New York Mellon held $1.2 trillion (more than £1 trillion) in assets on behalf of its customers, which under the Client Asset Sourcebook (CASS), must be audited to ensure that the assets are held safely. The regulatory body found that KPMG’s work “did not meet certain regulatory standards.”

The fines against Hinton reflected KPMG’s admission of its failure to provide for him appropriate training and support, and that Hinton was not a partner at the time of the misconduct, and is not presently working as a CASS auditor. Hinton signed the client assets report on behalf of KPMG.

The FRC said “the misconduct consisted of a failure to understand and to apply fundamental rules of CASS, requiring the banks to keep their own records and carry out their asset reconciliations on their own legal entity basis. No dishonesty or recklessness was involved, but the misconduct involved the misapplication of rules that…are of very great importance to the financial system.”

“The clarity and accuracy of financial reporting is of critical importance to us all,” Elizabeth Barrett, FRC’s executive counsel, said in a statement. “The significant increase in the number, range, and severity of sanctions sends a clear message that where behavior falls short of what is required, we will hold those responsible to account.”

The original fine was discounted 30% from $6.1 million to $4.24 million for admitting misconduct and the company’s cooperation. Hinton received a discounted fine of $63,700 (£52,500) from $100,000 (£75,000 pounds) to $63,700 (£52,500).

Over the past year, the FRC has stepped up its enforcement efforts amid growing concerns about the quality of audits in the U.K., which has regulators focusing on potential conflicts of interest within the “Big Four” accounting firms.

As part of the discussion about the future of the U.K. audit industry, the Competition and Markets Authority proposed forcing accounting firms to operationally split their audit and their non-audit business, a move aimed at avoiding potential conflicts of interest.

 

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