UK Financial Reporting Council Fines KPMG £13.5M For Misconduct

The United Kingdom Financial Reporting Council (FRC) has imposed a £13.5 million fine on KPMG LLP and its former partner David Costley-Wood for misconduct and the failure of the advisory firm to act solely in its client’s interests, in a long-running case relating to the sale of the bedmaker Silentnight to a private equity group in 2011.

The tribunal determined that one of KPMG’s partners helped push Silentnight, which was a client of the blue-chip accounting firm, towards insolvency so that the private equity group HIG could buy the business out of administration and dump the costly defined pension scheme for Silentnight’s 1,200 staff.

“The Financial Reporting Council (“FRC”) today announces sanctions against KPMG LLP (KPMG) and David Costley-Wood, formerly a partner and Head of KPMG Manchester Restructuring.

“This follows a referral from The Pensions Regulator and an investigation undertaken pursuant to the Accountancy Scheme* in relation to Mr Costley-Wood’s conduct in respect of the Silentnight group of companies in the period August 2010 to April 2011,” FRC said in a statement posted on its website.

The regulator, which also severely reprimanded KPMG said an independent Disciplinary Tribunal made findings of Misconduct against the firm.

The regulator ordered KPMG to conduct a Root Cause Review to establish: why threats to compliance with the fundamental principle of objectivity were not appropriately identified and safeguarded in the period prior to the appointment of office holders in the Silentnight matter; and in a sample of past cases, whether threats to compliance with the fundamental principle of objectivity were appropriately identified and safeguarded in the period prior to the appointment of officeholders and if not, the reasons for such failures.

Conduct a review of various policies, procedures and training programmes relating to various of KPMG’s advisory services practices in the light of the results of the Root Cause Review.

KPMG former partner, Costley-Wood was fined £500,000 and severely reprimanded while he was also excluded from membership of the Institute of Chartered Accountants in England and Wales (ICAEW) for a period of 13 years and precluded from holding an insolvency license for the same period.

Last month, FRC had sanctioned KPMG LLP over the quality of its banking audits, with U.K.’s industry regulator said it was “unacceptable” that for the third year running the accounting firm’s work wasn’t up to scratch.

“Overall Inspection results at KPMG did not improve and it is unacceptable that, for the third year running, the FRC found improvements were required to KPMG’s audits of banks and similar entities,” FRC said in its annual report in July.

“The scale and range of the sanctions imposed by the tribunal mark the gravity of the misconduct in this matter,” Elizabeth Barrett, the executive director of enforcement at the FRC, said. “The decision serves as an important reminder of the need for all members of the profession to act with integrity and objectivity and of the serious consequences when they fail to do so.”

The Pensions Regulator, which originally referred the case to the FRC, said it was pleased with the tribunal’s decision. “Today’s announcement highlights the important role the audit, accountancy and actuary industry plays helping to safeguard pension savers’ interests.”