PricewaterhouseCoopers is facing an inquiry by accounting regulators into its failure to notice that JP Morgan was paying up to £16 billion of clients’ money into the wrong bank accounts. Last week the Financial Services Authority fined the investment bank £33.3 million — the largest penalty that the City regulator has imposed — for breaches of client money rules under which customers’ funds became mixed with the bank’s own cash over a seven-year period.
PwC, JP Morgan’s auditor, is now likely to be drawn into another inquiry by the two professional bodies that oversee accountants, the Financial Reporting Council and the Institute of Chartered Accountants in England and Wales.
In addition to serving as principal auditor, PwC was retained by JP Morgan to produce an annual client asset returns report — a yearly certification to prove that customers’ funds were being effectively ring-fenced and therefore protected in the event of the bank’s collapse. But PwC signed off the client report even though JP Morgan was in breach of the rules.
It is understood that the FSA plans to pass on the details of its own investigation to both the FRC and ICAEW, which will then determine whether any further action is necessary.
The treatment of clients’ money by banks has been in the spotlight since the collapse of Lehman Brothers. Thousands of customers, including many hedge funds, saw their funds trapped in the failed bank and as a result went bust or suffered severe liquidity issues.
The FSA recently created a task force to investigate the treatment of clients’ money and has written to chief executives of finance firms and warned their auditors to be more vigilant.
The money at risk in this case consisted of funds held by customers of JP Morgan’s futures and options business — a sum that varied from £1.3 billion to £15.7 billion between 2002 and July 2009, when the breach came to light.
PwC did not comment.
Source: Times Online