PwC faces prospect of audit probe

PwC is said to have failed over a seven-year period to spot that JP Morgan had accidentally placed as much as £16bn of client funds into the wrong bank accounts.The failure meant that client money from JP Morgan's futures and options business was not placed in a ring-fenced account as it should have been and instead became intermingled with the bank's own funds from 2002 until last July.

 

Last week, the Financial Services Authority (FSA) fined JPMorgan Securities Ltd (JPMSL) £33.32 million for failing to protect client money by segregating it appropriately. The fine is the largest ever handed down by the FSA, reflecting the fact that the bank put up to £16 billion of client money at risk.

 

The regulator found that between November 2002 and July 2009, JPMSL deposited client funds held by its futures and options business with JPMorgan Chase Bank, instead of placing them in a money market account.

 

PwC is JP Morgan's main auditor, but in addition is paid separately to produce a client asset returns report for the bank, which is required by the FSA as part of the process of ensuring that customer funds are protected in the event of a firm's failure.

 

The FSA has a referral arrangement with PwC's two main regulators, the Financial Reporting Council (FRC) and the Institute of Chartered Accountants in England and Wales (ICAEW). A spokesman for the FRC said it was "liaising closely with the FSA and will consider whether any action needs to be taken", while the a spokesman for the ICEAW said he was "not aware of any kind of investigation". PwC made no comment.

 

The bank qualified for a 30% discount on the fine imposed by the FSA because it had “worked constructively” with the agency during the investigation and had agreed to settle at an early stage, the regulator said.“J.P. Morgan Securities committed a serious breach of our client rules by failing to segregate billions of dollars of its clients’ money for nearly seven years,” the agency’s director of enforcement and financial crime, Margaret Cole, said in a statement. “The penalty reflects the amount of client money involved in this breach.”